Earnings Call Transcript - GOOS Q2 2022

Patrick Bourke, Vice President of Investor Relations

Thank you, and good morning, everyone. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. After prepared remarks from Dani and Jonathan, we will take your questions. This call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement, including, without limitation, discussion of our financial outlook, 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 as well as in the Risk Factors section of our annual report. These documents are also available on the Investor Relations section of our website. The forward-looking statements made on this call speak only as of today, and we undertake no obligation to update or revise any of these statements. 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. With that, I will turn the call over to Dani.

Dani Reiss, President and CEO

Thank you, Patrick, and good morning, everyone. Thanks for joining us today. On today’s call, I will provide an overview of our strong second quarter performance, our accelerating momentum, and the deliberate commercial strategy that drove those results. Across all channels, we see strong demand, positive leading indicators, and we feel very good about the business heading into peak season. And today, we are less than a week away from yet another very exciting milestone for Canada Goose: the launch of our first-ever footwear collection. I look forward to taking you through the collection in greater detail shortly. To begin, I will share an overview of our business performance in the quarter. The second quarter has exceeded our expectations. Total revenue, excluding PPE sales from last year, grew by 40%, and our DTC business continues to deliver strong results with revenue growing by 80% over the last year. This was fueled by a strong retail recovery in the quarter as well as continued growth across our digital business globally. Wholesale also had a strong quarter, up 25%, showcasing the high demand for our brand from our partners. Looking at the business globally, we are trending up and performing well in every region, with Mainland China DTC being our particular standout, growing 86% versus last year. Looking ahead, we are very optimistic as we head into our peak season. As such, we are pleased to be in a position to raise our financial outlook for the remainder of the year. Jonathan will share more details about our financials shortly. We are entering our strongest selling season with the launch of an exciting, altogether new category, footwear. Canada Goose footwear is one of the most significant milestones in our more than six-decade history. As we’ve discussed, we are bringing a completely new perspective to the category, balancing performance and luxury, which is the ultimate expression of our lifestyle brand. For launch, we are bringing two innovative styles to market for both men and women. As part of our product development process, we combined our performance-driven intelligent design with rigorous extreme user testing. We do not bring anything to market until our global team of experts has validated it. Adventurers, athletes, researchers, and cinematographers logged thousands of kilometers and broke new ground traversing continents to get us to this moment, and we have tremendous confidence in our offering. The Snow Mantra Boot is the most comprehensive, providing extreme protection and warmth. Like its namesake, the Parka, the Snow Mantra is the ultimate in performance, designed for the harshest environments on earth. The Journey Boot, expertly crafted in Italy, is a performance and luxury hiker designed for the trails and the demands of the city. We know that consumers want their products to play multiple roles, so versatility is essential in this collection. Our boots work with the wearer and are designed with modularity in mind, allowing them to be worn in diverse terrains across wide ranges of temperatures and weather conditions and for a multitude of activities. Footwear is a natural next step in our product portfolio, something we have been working on for years in a category we know our customers have been asking for. Last week, we hosted a limited pre-sale for our Basecamp community, offering first access and a chance to shop the collection early. The results signaled strong demand with 10% of the collection selling through in only one week. The collection will launch globally with a campaign true to our brand through our Live in the Open storytelling platform. Over the years, we’ve shared stories of resilience and perseverance, and with this campaign, we’ll continue to explore the real stories of real people. Starting next week, you’ll see our heroes, Romeo Beckham, Sarain Fox, and Jordin Tootoo, share their stories in a way that exemplifies what it means to be a force of nature. I am very excited to be at this moment and I look forward to sharing more with you next quarter. As a function-first performance luxury outerwear brand, we strive to create products that live up to our purpose: to keep the planet cool and the people on it warm. We have always believed that making our products where they are supposed to be made and not chasing margins in low-cost environments was a sustainable decision. That decision became and continues to be a competitive advantage. And in today’s environment, we have seen just how much of an advantage it truly is. Despite losing production for three months last year, we are not short-supplied. The weaknesses of unprepared supply chains have been exposed. Unlike others, the flexibility of our supply chain is an asset in the dynamic environment that we face today. Because of this, we do not expect any material revenue headwinds relating to supply or shipping constraints this fall or winter. Changing gears, last week, we opened our first retail store in California at the South Coast Plaza in Costa Mesa. This new store is a testament to our expanded category offering in our lifestyle assortment, and we have seen strong demand indicators since opening. This store is home to our first-ever snow room in the United States. The snow room is the next generation of our award-winning cold room. It simulates a snowstorm daily with temperatures reaching as low as minus 20 degrees Celsius. I’m really excited to bring our authentic brand experience to our fans, both existing and new, in California and to continue to drive experiential innovation across our stores globally. We have continued our strategic retail expansion in key markets around the world. As you know, we are leaning harder than ever before into our DTC business to drive our growth. In just seven years, DTC has grown exponentially to become nearly 70% of our projected total revenue this year. And through the pandemic, we have purposefully accelerated that trajectory. Retail traffic and store productivity continue to be much stronger than last year, driving the lion’s share of our DTC growth. At the same time, we see strong growth across our digital business versus last year as well. Both our retail and our digital businesses are stronger than we were at this time last year. And looking forward, in October, we saw strong acceleration across our DTC network globally. We consider this a positive indication of the months ahead. To close, our results this quarter clearly show that we have a unique value proposition. We know performance. We knew it before it was a trend, and not many brands have that advantage. We continue to see accelerating demand across all channels in all regions. And it’s clear that Canada Goose lifestyle is resonating with consumers all over the world, and I’m pleased to see our business in such a good position entering peak season. And with that, I’ll turn it over to Jonathan to go over the details of our financial results and outlook.

Jonathan Sinclair, EVP and CFO

Thanks, Dani. Good morning, everyone, and thank you for joining us. The second quarter exceeded our expectations, and our performance has continued to accelerate. We’re pleased to be in a position to raise our outlook. Reflecting on where we are today, there are three key themes that stand out. Firstly, across our business, we see strong leading indicators of demand. Secondly, the unique flexibility of our supply chain is an incredible advantage. Thirdly, we have the right foundations in place for an outstanding fiscal 2022. Starting with the top line, total revenue increased by 40% to $233 million, excluding temporary PPE sales in the comparative quarter. The demand strength we’re seeing is much more balanced than it was at this time last year. e-Commerce and Mainland China continue to be major contributors, and the rest of the business is now moving in the same direction. Our Wholesale partners are requesting products earlier than last year, and our retail stores are more active in all of our geographies abroad. At a channel level, Wholesale revenue increased by 25% to $148 million. This reflects a reversal of unusually late order shipments last year due to the pandemic. In a normal operating environment, fulfilling our commitments to our partners early drives a better shopping experience for the consumer as well as higher sell-through. DTC revenue increased by 80% to $83 million. Growth from existing stores drove the majority of the increase, with traffic and productivity well above last year. Retail closures were not a significant factor in the current or the comparative period. Our strong retail performance was complemented by 34% e-Commerce growth. All geographic regions delivered total revenue growth greater than 30%, excluding the impact of temporary PPE sales. This is particularly encouraging given that the status of retail traffic recovery is still quite varied across these markets. Mainland China was a standout performer, with DTC revenue growing by 86% on top of the strong performance last year and in the face of physical disruption. This reflects our momentum and our runway in one of the world’s most important markets. Moving on to gross margin, Wholesale came in at 49.4% while DTC was 73.7%. In Wholesale, we were selling core products a season ahead. This gave us a significant uplift from pricing and mix. We also benefited from lower distributor sales, which we had shipped earlier in the year, as discussed on our last call. DTC gross margin was lower than expected due to outperformance in earlier-stage seasonal products. In our peak trading months, our sell-through mix is expected to shift back to higher-margin styles. We expect this to drive a meaningful uplift from the pricing tailwind we’ve already seen in Wholesale. As a result, our expectation for DTC gross margin remains in line with annual historical levels. As expected, total SG&A was $101 million, up 62% from last year. This was driven by incremental spending in demand creation and strategic initiatives, including a timing shift in Q1. We’re now at an inflection point for margin and profit. For the remainder of the year, we expect SG&A growth will decelerate. The incremental revenue from these investments will drive further leverage, and the uplift from DTC mix shift will be more impactful. You can already see the beginnings of this in Q2. Despite outsized temporary SG&A growth, adjusted EBIT margin was just under last year at 6.9%, and adjusted EPS grew 20% to $0.12 a share. Moving beyond this quarter, we continue to see broad-based demand across our business. As a vertical manufacturer, we are not supply-constrained in today’s environment. We have a strong position in staged finished goods. We have the flexibility of in-house production. In this way, we can quickly capitalize on upside in DTC. In Wholesale, at a time when many brands are delaying and canceling orders, we’re delivering on our commitments. We’re getting products to our partners earlier. This puts them in the best possible position for fall/winter. As we complete shipping the remainder of our order book, we are in a good position to consider high-quality reorder demand if it materializes. This has been captured in our upgraded outlook. The resilience of our supply chain extends beyond our own manufacturing. As Dani said, we go to the best manufacturers in the best places, not the cheapest. In a year with massive disruptions to global footwear production, we are proud to be bringing our first collection to market on time and at expected volumes. This is a testament to both our team and our partners. Finishing up with our upgraded outlook for fiscal 2022. As we enter into our peak trading months, we now expect the following ranges for our key metrics: Total revenue of between $1.125 billion and $1.175 billion, this assumes approximately 70% DTC mix with mid-single-digit Wholesale revenue growth. Adjusted EBIT of between $186 million and $208 million, representing an adjusted EBIT margin of 16.5% to 17.7%. And lastly, adjusted earnings per share of between $1.17 and $1.33. In the macro environment, this outlook assumes no material increase in pandemic or economic disruptions relative to what we’re experiencing today in our various markets. In terms of what’s embedded for Q3, remember the shift to DTC means accelerating growth through both Q3 and Q4. Our Wholesale order book has largely been shipped earlier this year. We expect SG&A to grow at a rate slightly less than total revenue, complemented by a gross profit uplift from DTC mix. Putting all this together, it will drive significant profit growth year-over-year. At the onset of the pandemic, we talked about coming out the other side stronger. Strategically and financially, we’re well on our way. We have rapidly advanced our DTC journey alongside more focused and elevated Wholesale distribution. We have continuously raised the bar on price points, and we have become a true lifestyle brand in the eyes of the consumer. Our unit base has resumed growth versus pre-pandemic levels. And looking beyond this year, the recovery of international retail traffic represents huge additional upside. We appreciate your interest and support in this journey, and we look forward to updating you on our progress on our next call.

Operator, Operator

Your first question comes from Ike Boruchow at Wells Fargo.

Ike Boruchow, Analyst

I would really appreciate a higher-level perspective on the first half and second half dynamics this year. There's quite a bit of volatility over the long term. Looking back over the last two years, revenues in the first half were down by 20%. However, it seems like the second half could see an increase of around 40% to 50%. Could you explain what's contributing to that confidence? It appears to be a significant upward trend, so anything you could share to help us understand the basis of that optimism about the business accelerating so significantly in the second half would be helpful.

Dani Reiss, President and CEO

Yes, absolutely. Thank you, Ike. So, this is a major strategic change for us, and it’s actually a really good thing. The pandemic has rapidly accelerated our DTC journey. Alongside that, we have decided to resize our Wholesale business. So, we do not view Wholesale being in line with 2 years ago as winning strategically. We don’t feel that, that’s a reasonable comparison.

Jonathan Sinclair, EVP and CFO

So, if you think about how that manifests itself, it naturally shifts our revenue base to the third and fourth quarters of the fiscal, which are peak months for sell-through. Q2, as a characteristic, is driven by wholesale sell-in, and as Dani said, we pulled that back. We strategically limit what we sell in that channel. So, as you see in our upgraded guidance for fiscal '22, we do expect revenue to be well above fiscal '20. This comes with much higher-quality distribution and in the absence of international traffic, which represents, as I said in my prepared remarks, further upside beyond the current year.

Operator, Operator

And your next question comes from the line of Jonathan Komp from Baird.

Jonathan Komp, Analyst

If I could follow up on the guidance and thinking across the channels, could you maybe just share more across DTC and Wholesale, if one is driving more of the upside than the other, how to think through that? And then the trend you’re seeing in DTC, how is that shaping your outlook and your thoughts on the store productivity, recovery, and what the sustainable e-Commerce growth rates could be?

Jonathan Sinclair, EVP and CFO

Thanks, Jonathan. So, I think let’s start with the question about the upside. So, obviously, within the context of the guidance, we’ve upgraded our expectations on Wholesale. But essentially, that’s about a product that’s either already shipped or will largely ship within Q3. Therefore, the range itself is really driven by DTC performance. Now, when it comes to DTC, we are clearly seeing recovery in store productivity. We’re not back to pre-pandemic levels, but we’re well on our way, and that’s really important. Certainly, compared to last year, it’s night and day. That said, we’re also consolidating on the e-Commerce advances that we made last year and seeing further advance. So, we’re very pleased with the shape and the way in which this is evolving.

Operator, Operator

And your next question comes from the line of Michael Binetti from Credit Suisse.

Michael Binetti, Analyst

Two questions. First, Dani, I’d love to hear how the transition to fur-free is going. I know that’s a major transition for the product. And then maybe a jump ball, but in Wholesale, obviously you guys covered it. Nice growth there. You mentioned the Wholesale accounts requesting delivery early, but you also said the leading indicators look good. How do you read the early deliveries as a potential shift into Q2 that might come out of Q3 on the Wholesale side versus just strong underlying demand? And you mentioned being able to replenish if the need is there on the wholesale side. Did you bake any of that into the mid-single-digit growth guidance, Jonathan, or any indicators that you’re getting pulled on yet for incremental inventory?

Dani Reiss, President and CEO

Thanks for your question. And with regard to fur, I said before, we’re very confident that we can make the transition and continue to be the high-growth company that we are. As expected, our non-fur parka styles are performing well in the marketplace and we are tracking to our plan. So, this continues to build on the success that we’ve had for years with non-fur Wholesale accounts, which gives us a lot of confidence. And we are significantly increasing our outlook this year, and I think that, that’s a great proof point of that brand.

Jonathan Sinclair, EVP and CFO

Yes. And I think when it comes to Wholesale, obviously, we’ve upgraded the guidance somewhat. The demand is very encouraging that we’re seeing, but we have also baked into the Wholesale that we will inevitably have some reorders, and therefore, that’s accommodated in the numbers and the guidance that we’re giving.

Operator, Operator

Your next question is from Oliver Chen from Cowen.

Oliver Chen, Analyst

The footwear launch is very exciting. If you could speak to Wholesale versus direct-to-consumer launch plans, and also as you evolve the assortment and also to help us inform our models, how do you think about the ramp-up and the opportunity, financial as well strategically in terms of the assortment?

Dani Reiss, President and CEO

Thanks, Oliver. Yes, footwear for me is one of the most exciting things that we’re doing this year. I’ve been dreaming about this for a long time, and we’ve been planning this launch for at least three years. And it was very important for us to do it right until we put in marketplace best-in-class product. By design, it will not be, from a financial point of view, a significant contributor this year. It’s definitely an incredible moment for our brand, and it’s sort of something that we expect to be a meaningful base of revenue over the long term. But being a performance lifestyle brand, I think we’re in a unique position to help create a new category here and put into the marketplace something that is truly performance. We know performance and luxury at the same time. I think consumers today are looking for things that they can wear and use in multiple ways and multiple purposes, and I think this is who we provided at the highest possible quality levels, and I’m super excited about it.

Jonathan Sinclair, EVP and CFO

And if we think about it from a perspective of the financial characteristics, like all products that we introduce in small volumes, footwear has lower gross margins at the outset. It’s nothing new. We’ve been expanding into new categories for a long time, and it’s something that we expect. We fully fund it by the tailwinds that we realized in our core, and over time. And this is certainly something where we expect the profitability of the category to increase meaningfully as we scale. And when we think about how we’re rolling that out, at least initially, we are leaning heavily into DTC, not surprisingly. It’s where we can curate the offer the most strongly. We are in a very small number of influencer accounts at Wholesale as well. But ultimately, that contribution will mature, but always DTC because it’s so important that we tell the story to the consumer.

Operator, Operator

Your next question is from the line of Adrienne Yih from Barclays.

Adrienne Yih, Analyst

Great. And great to hear that October is off to a nice start here. My question is what are you seeing in the tourist locations, the tourist stores by geography? Obviously, China is coming along very strongly. But early reads in both North America and European tourist locations?

Dani Reiss, President and CEO

Yes, thank you for your question. International tourism is currently down, but we believe it will return fully next year or the following year. We see this as a significant opportunity for our business, as international tourism has historically generated a lot of revenue for us. We anticipate that it will return eventually, which will be very beneficial for us.

Jonathan Sinclair, EVP and CFO

I was just going to add that we’re seeing good growth around the world, and we’ve seen that in the numbers we just disclosed, and that’s a continuing trend.

Operator, Operator

Your next question is from Omar Saad from Evercore ISI.

Omar Saad, Analyst

Would love it if you guys could dive into China a bit more. It sounds like the business trends are very good. It’s been a controversial market in the luxury segment with different external factors impacting demand over there. And remind us where you are on your storage journey, your e-Commerce journey, both owned e-Commerce and Tmall. And how we should think about that business as a contributor to the overall, especially as we go through the winter and head towards the Olympics.

Dani Reiss, President and CEO

Yes. China is a very important, very strong market for us. It’s been growing and accelerating. I think that we’ve seen that our products resonate very well there. I think that from a positioning point of view, we’re still a relatively small footprint in China compared to many other brands. We have 18 stores today, and we’re online in Tmall and now JD as well as WeChat e-commerce. But with our footprint, it’s still relatively nascent relative to other luxury brands in China. And so we see a tremendous amount of runway there. We see great affinity for our products amongst consumers, growing brand awareness, but still a long way to go. So we feel that we’re really well positioned in the marketplace.

Jonathan Sinclair, EVP and CFO

And if we look at it through the lens of existing stores, new stores online, we’re seeing great growth across all of them. The new stores are performing exactly as we want them to, and we’re seeing good, healthy growth in the existing store base as well. So we’re very pleased with the progress in that market, which gives us a lot of confidence.

Operator, Operator

The next question is from the line of Jay Sole from UBS.

Jay Sole, Analyst

Great. Just wondering if it would be possible to give us a little bit of a breakdown of what drove Direct-To-Consumer growth in the quarter. Specifically, how much growth was driven by new stores? And then if you look at your existing stores that are in the comp base, can you give us an idea of how sales per square foot looks in those existing stores versus pre-pandemic levels? And then lastly, just also on footwear margins. Dani, if you can just give us a little bit of an idea what you expect the footwear margins to look like, I’m talking about gross margins. Over time, will they be similar to the eyewear margins? Will they be below, above? And how long will it take to ramp to get there? Any color would be super helpful.

Jonathan Sinclair, EVP and CFO

In the second quarter, we have seen a significant rebound in our direct-to-consumer segment, especially in stores, which is a stark contrast to last year when we faced closures and a slower reopening. We are experiencing strong growth in the existing stores, although the contribution from newly opened stores is still relatively small. However, it is encouraging to see their performance exceeding our expectations. In terms of shelf density, we have not yet returned to pre-pandemic levels, but we are observing a healthy recovery. I believe that improving shelf density is crucial for enhancing our overall margins, and we are optimistic about this trend. Regarding footwear gross margins, there are inefficiencies when launching any category, and footwear is no exception. As we scale, we will gradually benefit from these efficiencies, similar to our experiences in other categories. I anticipate that footwear margins will align closely with our core apparel margins but not exceed them. That is the trajectory we are on, and while it will take time, we are very excited about the launch and the positive initial consumer feedback.

Dani Reiss, President and CEO

I agree. I’d like to add to that; we have experience at launching new categories. We have a playbook that we follow. And I can point to our lightweight down, which started over seven or eight years ago. When we launched that category, margins were lower than normal at the time. Today, lightweight down represents over 20% of our business, and our margins are very healthy and in line with the rest of the business. The same thing holds true for knitwear, which we launched approximately four years ago, and it’s now over $45 million in revenue in four years. And the margin is tracking well as well. So we have a proven playbook on this and are launching new categories and getting into them in the right way, responsibly, and in an authentic way that is right for our brand. And we are applying the exact same playbook to our footwear launch, and it gives me a lot of confidence that we are experts at doing this at this point.

Operator, Operator

And your next question is from Sam Poser from Williams Trading.

Sam Poser, Analyst

I have two questions. First, can you provide some insight into the extent of the price increases you implemented for the fall season or this year? Secondly, based on the trends in the Wholesale business, I assume you're anticipating that Q3 will experience a greater decline than Q4, considering the early shipments and that your advance product business will likely occur in the fourth quarter, which should not decline as significantly. Am I understanding that correctly?

Jonathan Sinclair, EVP and CFO

So I’m going to take those in reverse order, just to say, yes, we’re pretty aligned with what you’re thinking on the Wholesale business. I think the answer on pricing goes to our gross margin algorithm, and that’s something that you hear me describe frequently. That’s no different this year than any other year that you have headwinds and tailwinds. Typically, we create tailwinds with pricing and with scale and efficiency and then we deal with the headwinds of investing in new product development as well as input cost inflation. Typically, we’ve taken pricing in mid-single digits. This year is no different than that. And then inevitably, there, you tune it as you go. but fundamentally, this is another year of the same experiences.

Operator, Operator

We have your next question from the line of Robbie Ohmes from Bank of America.

Robbie Ohmes, Analyst

I have two quick follow-up questions. First, for either Dani or Jonathan, it seems your inventory position is at one of its highest levels ever, and demand appears to be strengthening. I'm trying to understand why Wholesale is down despite this demand, as it seems there could be a significant opportunity for stronger Wholesale performance. Secondly, Jonathan, could you remind us how the Hong Kong store impacts are influencing your thoughts on APAC sales for the latter half of this year?

Jonathan Sinclair, EVP and CFO

Yes, let's address your questions in order, starting with inventory. Honestly, inventory levels at the end of September, which marks the conclusion of Q2, are higher than what we see at the end of Q3 or Q4 due to the cyclical nature of our business. Typically, we build inventory for shipping and sales, resulting in a peak at this time. We are satisfied with our inventory levels at this stage, as we have the distribution in place to support our business and ensure we can meet our revenue targets. Regarding Wholesale, it's essential to remember that we have control over this channel. We do not supply everything requested, as we prefer to ensure this channel enhances our brand by placing us in locations we might not otherwise be in, or connecting us with influential leaders—or both. We regulate our product availability in Wholesale to prevent excess inventory in the channel. We are thoughtful about fulfilling reorders; if it makes sense, we proceed, and if it doesn’t, we hold back, prioritizing our direct channels over Wholesale. As for APAC, specifically your question on Hong Kong, the market is currently quite subdued. Last year's performance was significantly lower than in previous years. While it's beginning to recover, it is starting from a very low point, and the numbers are still relatively small.

Dani Reiss, President and CEO

I would like to provide some additional thoughts regarding inventory. Our manufacturing model in Canada and our vertical integration have proven to validate our approach. We have the right amount of inventory readily available, which means we will not face any shortages of raw materials needed to produce goods this year or next. Additionally, our finished goods inventory positions us well to fulfill all our commitments. We are very pleased to be in this situation, as it has been a key part of our strategy for a long time, and we are now witnessing it come to fruition as expected.

Operator, Operator

Your next question is from the line of Meaghen Annett.

Meaghen Annett, Analyst

Can you just maybe talk a bit more about the initial response to some of the more recent product introductions, new colors, collaborations, and so on? And how are those resonating with customers in North America in particular? And if you could just talk a bit about the performance in Canada, including trends you’re seeing there maybe relative to pre-pandemic levels in Q3 to date.

Dani Reiss, President and CEO

Yes. We have been very pleased with the market's response to our new products. I can highlight various categories like knitwear, which has grown rapidly and is selling exceptionally well. We have both core and new styles introduced every season. Our collaborations are seeing great success, particularly the recent one with Angel Chen, which has performed very well. Our pastel collection, launched a few weeks ago, has also done extremely well, selling out in many instances. The Crofton and Cypress collection, an expansion of our lightweight down collection made with more sustainable fabric, has been a significant hit as well. Additionally, looking at our footwear, the presale we conducted for our Basecamp community sold through 10% in just one week, which gives me great confidence in the demand for that product category too.

Jonathan Sinclair, EVP and CFO

Yes. I think when it comes to the sales performance that we’re seeing, when it comes to North America, we’re very encouraged. We’ve seen really strong performance in the U.S., and actually also now in Canada, it’s coming back nicely. And remember that this is pretty much in both of these markets, this is domestic demand expressed as either Canada or within Canada or U.S. within U.S. It’s being the dominant demand and that is a huge testament to brand health. We are really comfortably above last year, and we’re very encouraged by that.

Operator, Operator

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

Camilo Lyon, Analyst

We just wanted to ask a question on the U.S. store opening opportunity for you. I’m curious about that California store opening. I know it’s early days, but where do you see the main infill opportunities from a store opening perspective in the U.S.? And as you go further west, do those stores come online at a different margin rate than your East Coast or more colder, snowier markets where there’s a greater sell-through of heavier parkas and higher-margin parkas?

Dani Reiss, President and CEO

Thank you for your question. Well, what I can tell you about our North American stores is that we do have a very healthy pipeline of potential store openings and locations in North America. Obviously, we’ll disclose those as we firm them up, but I’m very encouraged when I look at the opportunities that we have before us and the kinds of traffic and the kind of sales volume opportunities that we have and also the opportunity to increase brand awareness in places like the West Coast and opening in South Coast Plaza was an important milestone for us. And I know we have existing fans out there, we’re going to make new ones, too. And we have new products and different products for different climates as well. So we know that we don’t need to be in a cold weather market to sell cold weather clothing. We also have the right clothing for multiple kinds of markets. And the response to South Coast Plaza so far has been really strong, and we start seeing it as a signal of very strong demand in that marketplace.

Jonathan Sinclair, EVP and CFO

When considering West Coast stores compared to East Coast ones, the climate on the West Coast is not particularly unique. We have other stores globally that operate in similar climates and have experienced good sales density and margins during normal periods. There is no reason to believe that this won't be the case in the U.S. Additionally, our store in Vancouver has performed exceptionally well, indicating that we can succeed in similar markets.

Operator, Operator

And your next question is from the line of Brooke Roach.

Brooke Roach, Analyst

In your prepared remarks, you talked to an inflection point for both margin and profit in the second half. I was wondering if you could share a few thoughts on your current view of the path to recovery to a 20%-plus profit margin relative to this year’s 16.5% to 17.7% outlook. And maybe in relation to that, can you provide a little bit more color on what you’re seeing in terms of unit and raw material costs, which have been a topic, a talking point for across the rest of the sector this quarter.

Jonathan Sinclair, EVP and CFO

Sure. I think that we’ve got form above the 20% margin level. And I mentioned when we talked last quarter that that was a path that we’re very confident about going back there. Not to 20%, but beyond 20%. And I think that’s very important. This is a business with a really powerful retail model complemented with a strong online level. And that’s already going to be 70% of the business. When that’s firing on all cylinders, this is a business that’s going to be very profitable, and we see ourselves moving comfortably into the 20% over time. And so this is a positive step in that direction. And then when we think about gross margin and the unit and raw material cost inflation, to be honest, as I said before, the overall gross margin, we’re not seeing anything egregious. And we are very focused on managing our channel gross margins to the historical levels, mid-70s for DTC and mid- to high 40s for Wholesale. That’s where we expect to be, that’s where we are, and that’s the way in which we manage it. We’re not seeing anything egregious. If we were, we’d call it out.

Operator, Operator

We have your next question from the line of Mark Petrie from CIBC.

Mark Petrie, Analyst

I just want to ask about the product mix. Can you give us some more detail about the non-parka mix in Q2? I know it falls from Q1 just seasonally. But any commentary just with regards to the direction of that would be appreciated. And do you think that this could become a bigger part of your Wholesale business in the foreseeable future? Or do you think that, that channel will remain very heavily skewed towards parkas?

Jonathan Sinclair, EVP and CFO

As we consider the product mix, it's clear that as we progress through the quarter and into colder weather, parkas begin to gain traction. However, our summer season, more accurately our spring season, doesn't end with June; it continues through July and August. We had already indicated how the mix was performing during Q1, and that trend persisted well into Q2. While parkas are increasing in sales, it's important to remember that we sell a full range of categories throughout the year. In fact, our lightweight down offerings are most popular in December. It's a common misconception that certain items sell only in specific months, but that's not true. Similarly, in Wholesale, we see our non-parka products gaining traction as well, and we don't view this channel as solely focused on parkas.

Dani Reiss, President and CEO

Yes. And I’ll just add to that to remember that we have more products than we have ever had before. We have more products that are selling really well than ever before. And that makes the mix itself become more of a dynamic thing. And I see that as a very good thing and a very healthy thing for the business. And I think it’s important to factor that when you think about it too.

Operator, Operator

Thank you. And there are no further questions. I would now like to turn the call back to Dani Reiss, President and Chief Executive Officer, for final remarks. Please go ahead.

Dani Reiss, President and CEO

Thank you all for joining us today. Before we go, I would like to take a moment to update you on the progress we continue to make against our Sustainable Impact Strategy as part of our HUMANATURE platform. We are driven by our purpose to keep the earth cold and the people on it warm. And today, I’m pleased to let you know that we have crossed another important milestone on our roadmap months ahead of schedule. As of today, we have achieved certification under the Responsible Down Standard. This was a monumental endeavor carried out over the years and throughout the pandemic. With this step, we join other Responsible Down-certified global manufacturers who’ve made the responsible choice to embrace sustainability and animal welfare. Thank you so much to the team at Canada Goose who worked tirelessly to make this happen. And thank you all for joining us today. I look forward to talking to you again next time.

Operator, Operator

And this concludes today’s conference. Thank you all for participating. You may now disconnect.