Earnings Call Transcript - GOOS Q1 2020

Operator, Operator

Good morning. My name is Jacklyn and I will be your conference operator today. At this time, I would like to welcome everyone to Canada Goose's First Quarter 2020 Earnings 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, Senior Director, Investor Relations. You may begin your conference.

Patrick Bourke, Senior Director, Investor Relations

Thank you. Good morning and thank you for joining us today. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. For today's call, Dani will begin with highlights of our first quarter performance and then update you on the progress against our key priorities. Following this, Jonathan will provide details on our financial results. After our prepared remarks, we will take your questions. Before we begin, I'd like to inform you that this call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement made on this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Certain material factors and assumptions were considered and applied in making forward-looking statements. Additional information regarding these forward-looking statements, factors and assumptions appears under the heading Cautionary Note Regarding Forward-looking Statements and Risk Factors in our Annual Report on Form 20-F which is filed with the SEC and the Canadian securities regulatory authorities and is also available on our Investor Relations website at canadagoose.com as well as the earnings press release that we furnished today. The forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of these statements. During the conference call, in order to provide greater transparency regarding Canada Goose's operating performance, we may refer to certain non-IFRS financial measures that involve adjustments to IFRS results. Any non-IFRS financial measures presented should not be considered an alternative to financial measures required by IFRS and are unlikely to be comparable to non-IFRS measures provided by other companies. Any non-IFRS measures referenced on this call are reconciled to the most directly comparable IFRS measures in the table at the end of our earnings press release issued this morning which is available in the Investor Relations section of our website. With that, I will turn the call over to Dani.

Dani Reiss, President and CEO

Thanks Patrick and good morning everyone. Fiscal 2020 is off to a great start. Our operational execution was outstanding and we continue to see strong demand globally from both consumers and wholesale partners. We're moving the needle on a number of important strategic initiatives and here are some of the things that I am most excited about. On the supply side, our continued investment in building production capacity including our recently opened facility in Montreal are paying dividends giving us greater flexibility to ship wholesale orders earlier in the year and to put ourselves in the best possible position going into fall/winter. From a sales perspective, we grew significantly in all geographies compared to Q1 last year at levels that met or exceeded our expectations relative to the quarterly ebbs and flows of our business in each market. Starting with North America. In Canada, revenue increased by 40.4% with Vancouver and Montreal putting up best-in-class performances in their inaugural first quarter. Our growth in the U.S. was 15.8% which we feel very good about as wholesale shipments were comparable to last year and we added a smaller local market in Short Hills, New Jersey. We also enjoyed strong productivity online and in our existing stores which was in line with our other markets. In Europe and rest of world, we grew by 79.7% with earlier wholesale shipments making a significant impact. In Asia, our topline nearly tripled to $18.1 million from $6.6 million with wholesale growth in Japan and direct-to-consumer operations in Greater China being the two primary drivers. Building on the momentum of our spring collection performance in Q4, we reached a major milestone in the evolution of our offer with strong contributions from lightweight down, knitwear, and rainwear. Non-parka DTC revenue nearly doubled relative to Q1 last year, rising to one-third of channel sales for the first time ever. Our expansion across categories and climates with best-in-class products which is undeniably authentic Canada Goose is clearly working. I'm proud and excited about this because there's a shift in perception of our brand and a step change in the year-round commercial relevance. We set out to do this. We're making great progress and we have a lot of runway left ahead of us. Together, these factors drove exceptional growth with total revenue increasing by 59.1% to $71.1 million compared to Q1 last year. To have such a commercially vibrant business at this time of the year is something that we have worked very hard to achieve and we're very proud of that. Looking at the result by channel, starting with wholesale, our revenue increased by 68.8% to $36.3 million. As I mentioned earlier, this was driven primarily by earlier shipment timing in Europe and Asia. Last year, we prioritized strategically shifting our North American wholesale calendar to the left. This year, we were able to do the same in Europe and Asia on which Japan is particularly relevant. The mix of styles and fits in these markets is very different. We were able to accommodate the added complexity without compromising cost efficiency or our positioning through the remainder of the year. This is grounded in our unique unit operating model. We're the largest manufacturer of down jackets in Canada by a very wide margin and we are rapidly scaling that capacity. As a result, flexibility around what we make and when we ship it is growing. This has given us the ability to better position our partners going into their peak selling seasons. While on the topic, I know there's been a lot of questions around how we manage inventory and I want to shed some light on that. As a manufacturer, we have a very different approach relative to other businesses that you may typically look at. There are two distinct elements to our inventory position, finished goods for delivery and manufacturing. They do not have the same cadence and they should be looked at separately. Commercially, we offer a selective allocation model at full price and we're not afraid of being sold out. At the same time, in manufacturing, we strategically build inventory ahead of future growth with a high degree of confidence. This is supported by a higher proportion of continuative core product and the forward-looking visibility that our order book provides. Again, because of this inventory buildup of this nature shows up on our balance sheet much earlier than they do for companies who outsource their manufacturing. That means, they typically don't and shouldn't line up with our quarterly sales trends. To highlight the point, we are exactly where we want to be with the size and composition of our position at this stage of the year. Circling back to the strength we're seeing in wholesale demand internationally, Japan was a standout performer and a key driver of our growth in Asia. In terms of both market size and influence, it is an integral part of the regional industry landscape. In the early days, it was one of the first international markets that I brought Canada Goose to. And from those humble beginnings approximately 20 or so years ago, they've grown into one of our most strategically important and economically significant markets. We are building on the long-standing strength of our business in both distribution and products. In market, we are taking our presentation and experiential storytelling elements to the next level. And like in other geographies, we are seeing great momentum in non-parka categories. This includes a number of products and styles developed specifically with Japan in mind, which is an important trendsetter market internationally. Moving to the DTC channel. Revenue increased by 50% to $34.8 million compared to Q1 last year. In addition to the strong non-parka contribution I mentioned earlier, which rose to one-third of total revenue, we also saw strong out-of-season demand for our fall and winter sales. At a time of year when the only way that most outerwear brands can get attention is through discount promotions and clearance sales, we had great engagement from fans looking to get ahead of the coming season. To add some color to this, in one weekend in June, we sold an entire drop of 1,800 highly sought-after white Expedition parkas through our own retail network. As part of this product event, we activated a global digital Basecamp community with an invite-only preview. This was a powerful accelerator of in-store traffic and conversion, resulting in 70% of the total allocation being presold. We also had numerous examples of customers out of country on vacation electronically transferring funds to their local store sight unseen to secure one of the sought-after Expeditions. Selling out of a heavy-duty winter parka in a single summer weekend is the ultimate expression of pent-up demand. Greater China was also a real difference maker for our growth in DTC. Building on the success of our first two retail stores and Tmall last week, we opened the doors to our new store in Shenyang in Northeast China, located in the premier MixC shopping mall. This city is one of the coldest places in Mainland China during the winter. And not surprisingly, our decision to open there was well-informed by local demand online. Despite the fact that we had a soft opening and that it was over 20 degrees Celsius in the middle of August, the store has had an exceptional start. This is yet another example of the exceptional engagement and brand affinity that we're seeing from consumers in China. From building our original team to commercially launching DTC operations in under one year, we've hit the ground running and we know that we have incredible white space ahead of us. Lastly, we have also made real progress on our major long-term initiative on product development. Earlier this week, we announced the appointment of Woody Blackford, who will join us later this year to lead our global design and merchandising organization. This is a foundational next step in the development of new categories, including a Canada Goose footwear offering. Serving most recently as the VP of Global Design and Innovation at Columbia Sportswear Company, Woody is an innovator at heart with deep sector experience and an extensive track record in driving the commercialization of new product categories. Cold-weather footwear today looks a lot like parkas did 20 years ago. We have a massive opportunity to define and develop this market in a way that no other brand can. There is still a lot of strategic and commercial work to be done and we won't compromise quality for speed. However, adding Woody to the organization and the expertise that we already have from Baffin are important parts of the puzzle to accelerate our journey. As a globally recognized industry leader and a Canadian coming home, Woody is an important addition to our team and I'm really excited to be working with him. As a brand that now has true year-round relevance, the commercial pulse in our business has never been stronger in what we used to call our off-season. We have great momentum as we transition into the fall/winter season and we're on track to deliver another strong year. With that, I will turn it over to Jonathan who will go over our financial results with you in more detail.

Jonathan Sinclair, EVP and CFO

Thanks, Dani. Good morning everyone and thanks for joining us. As you just heard, we started the year on a high in our smallest quarter. We were able to fully satisfy partner requests for earlier shipments and exceptional in-season demand all while putting ourselves in the best possible position for the upcoming fall/winter season. This is a direct result of the scalability and flexibility of our in-house manufacturing and that's foundational to the power of our unique operating model. With that backdrop as a starting point, I'm going to walk you through our numbers for the quarter. As usual please remember that all the figures quoted are in Canadian dollars. Turning to revenue. Revenue grew by 59.1% to $71.1 million or 58.6% on a constant currency basis. Across all channels, geographies, and products the diversity of our growth in the quarter was remarkable. Starting with wholesale. Revenue grew 68.8% to $36.3 million. Now that's obviously well above our expectations for annual wholesale growth. In response to stronger order book and customer requests, we were able to ship a greater proportion of our order book earlier. In our smallest revenue quarter of the year, timing had an outsized impact on our growth. Equally higher order values and the incremental contribution of Baffin were also positive contributors. DTC revenue grew 50% to $34.8 million. We continued with strong productivity from our established retail stores and e-commerce market and our five new retail stores also had great quarters in line with the new adds in comparable markets in previous years. We also experienced this with Tmall. Our unique ability to activate consumers and drive traffic for highly sought-after fall/winter product out of season together with the rising contributions of lightweight down, knitwear, and rainwear is a real testament to the year-round strength of our DTC business. As Dani mentioned, non-parka revenue nearly doubled to roughly one-third of total channel revenue. That's a great strategic milestone in the evolution of our offer. Moving on to geography. We are very pleased to have grown significantly in all markets. The increased flexibility shifted timing in Europe and Asia to the left which we addressed last year in North America. Our international customers have wanted an earlier flow of goods at this time of year and it's great to be in a position where we can satisfy that efficiently without compromising on the commercial objectives. As a result of this shift, the growth rates by region where we have broken out Asia for the first time are not apples-to-apples. So let's start with Asia. Here our top-line nearly tripled at $18.1 million. A few international distributors where the Japan market is particularly relevant are concentrated in this region. In the prior year, their initial fall/winter shipments occurred largely during Q2 and the shift towards Q1 was the largest single contributor to growth. The addition of DTC operations in Greater China through a revenue base which is otherwise almost entirely wholesale also had a significant impact. In Europe and the rest of the world, which is another wholesale-centric market revenue growth was 79.7%, with a stronger order book and earlier timing again being important drivers. In North America growth in Canada was 40.4% while the U.S. came in at 15.8%. The growth rate in the U.S. reflects a comparable level of shipments to last year and one additional store in Short Hills, New Jersey compared to two additional stores in Vancouver and Montréal in Canada. Now turning to gross margins. Consolidated gross margin was 57.5%. This reflects a greater proportion of wholesale revenue compared to last year and within that significant changes in the wholesale customer mix. Also, gross margin was actually better than expected at 41%. There was a shift in distributor shipments which have lower margins into the first quarter from the second quarter last year. Within each category of customers, wholesale gross margins were comparable to last year. Also, operating income was $5 million and that represents an operating margin of 13.8%. The gross margin shift just described was fully offset by positive operating leverage with lower channel SG&A as a percentage of revenue. DTC gross margin was 74.7% and that reflects a greater proportion of non-parka revenue. To achieve a gross margin at this level alongside such substantial new product revenue, it's frankly a great outcome. The tailwinds that we get in our core from pricing and efficiencies, fund measured investments and product expansions when margins are somewhat low. We also concentrate on newness in DTC, where we can best tell the story and earn full retail margins. As a result, the economics of how we evolved our year-round offering are really quite unique. DTC operating income was $6.5 million, an operating margin of 18.7%. Strong underlying sales productivity partially was offset by a larger store opening program. We incurred $2.3 million in pre-store opening costs and that relates primarily to rent for locations not yet opened. Excluding these pre-opening costs in both periods, DTC operating margin increased to 25.3% from 21.6%. Unallocated corporate expenses were $36.9 million compared to $25.9 million last year, while unallocated depreciation was $2.1 million compared to $1.5 million. The increase in corporate SG&A was primarily driven by increased investment in marketing including activation ahead of planned, 2019 retail openings and of course incremental spend to support Greater China, which you will recall was not in the cost base at this point last year. Combined this results in a total operating loss of $27.5 million compared to $19.9 million. On a non-IFRS basis, adjusted EBIT was a $25.9 million loss compared to a loss of $17.3 million last year. The net loss was $29.4 million or $0.27 per basic and diluted share compared to a loss of $18.7 million or $0.17 a share last year. Adjusted net loss, which excludes $7 million of unamortized cost triggered by the closing of the term loan refinancing in May was $22.8 million or $0.21 per basic and diluted share compared to $16.7 million loss or $0.15 a share last year. As we expected and as we outlined in our guidance assumptions, we had a materially larger loss in the quarter and that was driven by our corporate SG&A growth investments as well as the larger store opening program. I'd also note that the adoption of IFRS 16 the standard for lease accounting is not material to year-over-year comparisons of adjusted earnings. For income statement items where there are more meaningful impacts like depreciation and amortization and interest, I encourage you to look at our table in the MD&A which describes them in detail. Turning to the balance sheet, we ended the quarter with net debt of $494.1 million, which includes $208.7 million of capitalized lease liabilities. Average net debt-to-EBITDAR under IFRS 16 for the trailing 12-month period was 0.9 times or 2 times on a spot basis. Net working capital was $335.6 million reflecting the planned seasonal build of inventory for future growth. We are in a very clean position in market and we're also right where we want to be relative to the coming fall/winter season. This includes a meaningful element of staging for both Greater China and Europe, which is where we are expanding our DTC footprint and there are naturally longer lead times to get products into these geographies compared to North America. So while fiscal 2020 has just started, we're really encouraged by what we've seen so far. The relevance of our brand has never been stronger at this time of the year and we're fully on track operationally with our preparations for the upcoming fall/winter season. We're really excited about what lies ahead and I look forward to updating you on our progress on our next call. Now, I'll turn it back to Dani for some closing remarks.

Dani Reiss, President and CEO

Thank you, Jonathan. As I said before, we were very pleased with our start to the year. I encourage you all to check out Live in the Open, our new global ad campaign for our fall/winter season. It features three inspiring stories of artists Aliche Aswini; expedition guide and actor, G.I. Jao; and the first NHL player Jordin Tootoo, who have all bravely broken new ground and are driven to give back to the people and places who inspire them. The global 3-part series will begin its first leg shortly in Italy, which we're activating ahead of our Milan retail opening. And there's a lot more to come, so please stay tuned. And with that, I'll turn it over to the operator to begin our Q&A session.

Operator, Operator

Thank you. Your first question comes from Omar Saad from ISI. Your line is open.

Omar Saad, Analyst

Good morning. Thanks for taking my question. Congrats on the progress. We're a little surprised that China is already 25% of revenue. Can you talk a little bit about where you see that revenue by geography landing in the longer-term with China in mind? And I also wanted to ask about pricing. Anything you're doing in the pricing front given the continued really strong demand for the brand as we look ahead at the future seasons? Thanks.

Jonathan Sinclair, EVP and CFO

Yeah. Thanks Omar. I think the thing to remember is first of all, it's a small revenue quarter and there are significant shifts in timing in Europe and Asia. And on that basis, I wouldn't get too fixated on these percentages being representative. Where these numbers ultimately land is really an output of our strategy not the target in its own right. Now that said, and if you look at luxury spending globally, it splits roughly one-third, one-third, one-third between the Americas, Asia, and EMEA. Relative to Canada, we're in an earlier stage of developing our international markets measured by addressable consumers and luxury apparel spend. They obviously represent larger long-term opportunities. Our international DTC expansion is central to unlocking this potential. Certainly over the long run and as an output of that, you would expect sales outside of Canada to grow to larger proportions. That said, and as you can see, our Canadian business is also growing really healthily and we feel good about our runway. Canada is also becoming an increasingly important international shopping destination. I think in the end what matters to us is that we continue to grow our top line in all markets including at home and we're a truly global story and we're executing against that. I think when it comes to pricing and as we've said before, we do follow the international pricing matrix. We've been able to take pricing in the mid-single digits and that's something that we don't see changing.

Omar Saad, Analyst

Thank you.

Operator, Operator

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

Kate Fitzsimons, Analyst

Yes, hi. Good morning guys. My question would be on the outlook for fiscal 2020. You reiterated for 40 basis points of EBIT margin improvement. Any sense of how we should frame the drivers between gross margin and operating expenses? Particularly as we see some of these mix shifts hitting on the gross margin line? And then secondly just on that gross margin if you could just dig in to how you see gross margin evolving this year by channel that would be helpful? Thank you.

Jonathan Sinclair, EVP and CFO

I believe we are maintaining our guidance and aiming for at least a 40 basis points increase in EBIT margin and a minimum of 20% revenue growth. Our gross margins are where we expect them to be over the next 12 months. For wholesale, we concluded last year just above 48.1, which we are pleased with, and that is where it should be. Meanwhile, mid-70s is an appropriate range for our direct-to-consumer margins, aligning with the sector and our expectations. There are positive trends from pricing and efficiencies, which will continue to support us, particularly with our new product initiatives. Last year, margins were higher in the first half and lower in the second, but this year, it appears to be the opposite, which is acceptable and does not change our outlook for the year. We are intentionally investing in both capabilities and marketing, particularly in preparation for key seasons, which are usually Q3 and Q4, ensuring we are ready when new stores open. The positive response from opening new stores and enhancing existing markets demonstrates the effectiveness of this strategy.

Kate Fitzsimons, Analyst

Great guys. Best of luck.

Jonathan Sinclair, EVP and CFO

Thank you.

Operator, Operator

Your next question comes from Oliver Chen from Cowen & Company. Your line is open.

Oliver Chen, Analyst

Hi. Thank you. We've definitely noticed a lot of the non-parka innovation across the knits and other categories. What are your thoughts on how you manage breadth versus depth? And also your thoughts on markdowns as there could be a different kind of fashion risk versus the parkas. I would love your longer-term thoughts on brand segmentation as you think about Black Label and international markets and how the brand may evolve as your product assortment broadens. Thank you.

Dani Reiss, President and CEO

Thanks, Oliver. It's Dani. I'm doing well, and I’m really excited about the progress of our new styles as well as how our off-season and spring sales have performed this quarter. They achieved their best results ever, making up 30% of our sales across all channels, which is fantastic. We manage our inventory with great care, and as you know, our products are rarely marked down. We do not have discount outlet stores and have no plans to create them, unlike many brands. We accomplish this by ensuring we don't overproduce. We focus on creating the right products in the right quantities. When introducing new products, we approach new categories gradually and responsibly, which is why it’s encouraging to see the continued growth of those categories this quarter. We also deepen our presence in stable categories where we have established classics that endure from season to season. This approach helps us avoid situations where we end up oversaturated in undesired styles. Regarding segmentation and new styles moving forward, we will continue to diversify, and it’s crucial that our styles remain authentic to Canada Goose. Every product we create is of the highest quality, and we have always held this belief. That's why our pace in adding new items is deliberate and considered. We will continue to develop within the existing categories and design new products accordingly. There's considerable excitement around footwear, and I share that enthusiasm. We see significant potential in that area, and we are committed to building it thoughtfully and at the right time. We haven’t announced any timelines yet, but we are diligently working on it. Bringing someone like Woody onto our team, who has extensive footwear experience, will be an essential factor in reaching our goals effectively and appropriately.

Operator, Operator

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

Michael Binetti, Analyst

Hey, guys. Thanks for all the help here and congrats on the quarter. Dani, can I just continue on the footwear? I know you don't want to get too close on timing, but it is the first time you kind of zeroed in on a Canada Goose brand for footwear. Is that something though that we should still not think about this calendar year, more of a long term maybe next winter? And then maybe just how you're initially thinking about the price points that you think your brand can exist at there to help us think about the competitive set and the TAM that you're looking at for that opportunity?

Dani Reiss, President and CEO

We haven't established a timeline for that yet, and we're not ready to do so because we want to ensure it's the right moment. We aim to move forward as soon as possible, but to address your question about next year, it won't happen this year. There's nothing to announce, and nothing is expected in the near future. As I mentioned, there is still significant commercial and strategic work to be done, and it's crucial that we prioritize quality over speed. We're actively working on it, and I look forward to sharing more when the time is right, including details about pricing. Based on the overall profile of our brand, you can make some inferences about our anticipated pricing for footwear.

Jonathan Sinclair, EVP and CFO

Thank you, Michael. Starting with wholesale, we are reaffirming our guidance. This indicates that we expect high single-digit growth in wholesale this year. Clearly, we have exceeded that in this quarter, but we anticipate a gradual correction as the year progresses. This will also depend on when customers replenish their inventory. Overall, we have made a solid start, which is the key takeaway. Regarding the DTC gross margin, historically, our margins remain stable over any 12-month period. The lower margins this period, due to a significant portion of our sales being non-parka items, suggests a shift in the margin mix. We expect to sell a higher proportion of parkas as we enter the colder months and move towards Q3 and Q4, which is when consumer demand for cold-weather products peaks.

Operator, Operator

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

Rosalie Frazier, Analyst

Hi. This is Rosalie on behalf of Alex. On tourist spend, you mentioned strong sales on existing stores. I wonder if you've seen any impact at all of softer tourist trends that are impacting some of the other brands, or are you not seeing that?

Dani Reiss, President and CEO

Thanks for the question. We're not seeing that. We're seeing our global tourist business is very strong and our traffic across our end markets and tourists from global tourists. And we're really happy with our ongoing performance of our DTC channel.

Rosalie Frazier, Analyst

Thank you.

Operator, Operator

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

Jonathan Komp, Analyst

Yes. Hi. Thank you. Just wanted to maybe follow up on your outlook for the DTC channel and I know there's some tendency to maybe look at the results relative to the store growth and assume that your DTC business at existing stores and e-commerce might be slowing and I'm just curious as you look to the year ahead and what you've embedded in guidance, how you think about kind of same-store like-for-like growth versus new contribution from the stores you're opening.

Jonathan Sinclair, EVP and CFO

Yes, we have a solid fleet of stores that you've noticed. Most of them are relatively new, having opened in the last two to three years, and we haven't set a larger opening program for this year compared to previous years. From this perspective, we anticipate the impact of these new stores to be quite significant this year, in addition to the ongoing productivity of our existing stores.

Dani Reiss, President and CEO

Yes, I agree with that. I would say that the fact that our direct-to-consumer sales accelerated to 50% in our smallest quarter is a great leading indicator. Also, the stores we have and the increased online presence is an exciting prospect for us. We're really looking forward to a great year.

Jonathan Komp, Analyst

Okay, great. And then, just for the overall business, when you look at the year. I'm curious from a geographic standpoint, how you think, or if you have any insight, kind of from a shape perspective, how you expect North America growth versus Asia and Europe and other countries to play out, when you look over the next few quarters?

Jonathan Sinclair, EVP and CFO

We are experiencing diverse growth across different regions, seeing positive performance in every area. Opening more stores, especially in a primarily wholesale basis, significantly enhances the impact of our expansions. This year, we plan to open three stores in Greater China, along with locations in Milan and Paris, all of which are outside North America. Consequently, you can anticipate a more noticeable impact from these openings.

Dani Reiss, President and CEO

I'll add to what Jonathan said regarding our expectations for the remainder of the year. We experienced very strong global demand in the first quarter, which was very encouraging. This robust demand came from all regions, and we see that we remain relevant throughout the year. The strength of our counter-seasonal business this quarter was also fantastic, and we are eager to see its continued growth. This reflects the success of our manufacturing investments over the past few years. We are very optimistic about the rest of the year and our long-term goal of becoming a $1 billion brand and beyond.

Operator, Operator

And your last question comes from Ike Boruchow from Wells Fargo. Your line is open.

Ike Boruchow, Analyst

Hey! Good morning, everyone.

Jonathan Sinclair, EVP and CFO

Good morning.

Ike Boruchow, Analyst

I have two questions, focusing on the wholesale and gross margin aspects. Jonathan, could you provide some details on the shift you've mentioned regarding the distributor business? We want to understand how to evaluate wholesale growth for the second quarter, as we're trying to break that down. Additionally, given your description of it as a lower-margin business, does that imply that wholesale gross margins for Q2 might benefit from some positive momentum? Should we anticipate some improvement, considering that sales shift? I'm just trying to clarify that quarter-to-quarter relationship.

Jonathan Sinclair, EVP and CFO

To evaluate the health of the first quarter regarding wholesale gross margin, it's helpful to consider the margin from two years ago when we had a strong distributor mix in Q1, which was 35%. This indicates that there is positive underlying progress in wholesale gross margin when accounting for that mix. Looking ahead, we're using last year's wholesale gross margin as a benchmark. However, I believe this year will build momentum gradually over time rather than starting strong. Therefore, you shouldn’t expect the margin to match last year's figures in this quarter or the next, since those were significantly higher than the full-year average.

Ike Boruchow, Analyst

Thanks, Jonathan. I have a quick question—could you provide some guidance on inventory levels? It would help us understand how inventory is expected to flow for the remainder of the year.

Jonathan Sinclair, EVP and CFO

I think when it comes to inventory, you've heard both from Dani and me this morning about our approach to inventory and why it simply doesn't align with revenue trends. We are not going to change our strategy; we will efficiently build ahead of future growth in manufacturing, where we have a strong level of confidence. As you will notice, we will see some seasonality as we enter larger sales quarters in Q2 and Q3. Currently, we are receiving less than we are shipping out. That said, if you compare us to other fast-growing seasonal businesses in this sector and adjust for our position in manufacturing, you will find that our stock turnover is quite comparable.

Dani Reiss, President and CEO

Yeah. I agree completely. I think that, it's important to highlight that our inventory is exactly where we want it to be. And we're not concerned, whatsoever about it. We're really excited with the position of it and the opportunity it provides for us for the rest of the year.

Ike Boruchow, Analyst

Thank you.

Operator, Operator

I will now turn the call back over to Dani Reiss for closing remarks.

Dani Reiss, President and CEO

Great, well, thank you all for your questions. And thank you all for your time, and taking time to be here with us today. We appreciate your interest and support in Canada Goose. I look forward to updating you on our progress when we report our second quarter results in the second quarter. Thank you.

Operator, Operator

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