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01/11 03:07
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal a positive outlook with strong financial performance, strategic product development, and effective market strategies, especially in China and APAC. Despite some uncertainties, such as the lack of specific guidance and SG&A growth, the company's focus on innovation, marketing, and store execution is promising. The market cap suggests moderate volatility, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
Revenue Revenue for the first quarter was $108 million, up 22% year-over-year. The increase was driven by strong performance in the direct-to-consumer (D2C) channel, which showed a 15% growth in comparable sales, and standout performance in North America and APAC regions.
D2C Revenue D2C revenue increased to $78 million, up 23% year-over-year. This growth was attributed to the success of the broader D2C strategy, including improved execution, elevated customer experience, new product introductions, and greater marketing investments.
Wholesale Revenue Wholesale revenue increased by 11% year-over-year, driven by fulfilling the order book, travel retail, and some wholesale replenishment activity. However, timing shifts may cause quarterly fluctuations.
Other Revenue Other revenue was $12 million, up from $9 million in Q1 last year, mainly due to hosting 2 Friends & Family events this year compared to 1 in the prior year.
North America Revenue Revenue in North America was up 27% year-over-year, driven by strong D2C channel performance, particularly in the U.S., which showed exceptional growth.
APAC Revenue Revenue in APAC increased by 27% year-over-year, with strong D2C growth in Mainland China driving the region's performance. However, softer trends in Japan tempered growth.
EMEA Revenue Revenue in EMEA was down slightly year-over-year due to a planned decline in wholesale revenue, partially offset by higher D2C revenue. The decline in wholesale revenue was primarily due to timing shifts and planned reductions in the order book.
Gross Margin Gross margin expanded by 170 basis points year-over-year to 61.4%, favorably impacted by margin expansion from the European manufacturing facility. Pricing, product, and channel mix did not have a significant impact.
SG&A Expense SG&A expense for the quarter was $225 million, up 50% year-over-year. This included a one-time charge of $44 million related to an arbitration award and a $9 million earn-out linked to a knitwear manufacturing facility purchase. Excluding these, adjusted SG&A was up 16% year-over-year due to investments in marketing, product creation, and store labor.
Adjusted EBIT Adjusted EBIT was a loss of $106 million, compared to a loss of $96 million in Q1 last year. The increase in loss was due to higher SG&A expenses.
Adjusted Net Loss Adjusted net loss attributable to shareholders was $88 million or $0.91 per share, compared to a loss of $76 million or $0.79 per share in Q1 of fiscal '25. The increase in loss was due to higher SG&A expenses.
Inventory Inventory was $440 million, down 9% year-over-year, marking the seventh consecutive quarter of inventory declines. This was driven by higher demand and tighter inventory management.
Net Debt Net debt was $542 million, compared to $766 million at the end of Q1 fiscal '25. The improvement reflects strong operating cash performance, better inventory management, and lower borrowings.
New Product Launches: Introduced more newness than ever before, including the Emerson T-shirt, Beckley Polo, and Chilliwack Fleece. Apparel was the fastest-growing category in Q1.
Seasonal Relevance: Focused on making stores more seasonally relevant with a selection that resonated with consumers.
Geographic Revenue Trends: Revenue in North America and APAC increased by 27%, driven by strong D2C growth. Mainland China showed strong performance, while Japan experienced softer trends. EMEA revenue declined slightly due to planned wholesale reductions.
Store Expansion: Opened a new store at WF CENTRAL in Beijing, marking the third store in the city.
Direct-to-Consumer Strategy: D2C revenue increased by 23%, with comparable sales growth of 15%. Strong alignment across product, marketing, and channel operations drove higher store conversion rates.
Inventory Management: Inventory reduced by 9%, marking the seventh consecutive quarter of year-over-year inventory declines.
Sustainability Efforts: Achieved a 9% reduction in Scope 1 emissions, 25% reduction in Scope 3 emissions, and invested in 10 renewable energy projects.
Marketing Investments: Focused on Spring-Summer and Snow Goose campaigns to build brand momentum and challenge old perceptions.
Operational Efficiency: Adjusted SG&A grew slower than revenue, improving as a percentage of revenue by 850 basis points year-over-year.
Retail health monitoring: The company is monitoring retail health in every market due to some spots of caution, indicating potential challenges in maintaining consistent retail performance.
Macroeconomic challenges in EMEA: Macroeconomic challenges are affecting traffic and consumer behavior in the EMEA region, particularly in the U.K., where consumers remain under pressure.
Wholesale revenue decline in EMEA: There is a planned decline in wholesale revenue in the EMEA region, which could impact overall revenue performance.
Arbitration award expense: A one-time charge of approximately $44 million related to an arbitration award to a vendor in a commercial dispute has impacted SG&A expenses.
Higher tariffs in Europe: The company is paying modestly higher tariffs for European products, which could have a financial impact, albeit minimal at present.
Potential new U.S. tariffs: The company is monitoring potential new U.S. tariffs on Canadian goods, which could have second-order impacts on the consumer and financial performance.
Softer trends in Japan: Softer trends in Japan have tempered growth in the APAC region, indicating challenges in maintaining consistent performance in this market.
Revenue Growth: The company expects continued revenue growth, with a strong start to fiscal 2026 marked by a 22% year-over-year increase in Q1 revenue. Direct-to-consumer (D2C) sales are a key driver, with 15% comparable sales growth in Q1 and positive momentum expected to continue into the peak season.
Geographic Performance: North America and Mainland China are highlighted as strong performers, with double-digit D2C comparable sales growth in North America and robust growth in Mainland China. The company anticipates these regions to continue driving growth.
Product and Marketing Strategy: The company plans to expand its product offerings to enhance year-round relevance, with a focus on seasonally relevant assortments and new product launches. Strategic marketing investments, such as the Spring-Summer and Snow Goose campaigns, are expected to drive brand momentum and customer engagement.
Operational Efficiency: The company is focused on operating efficiently with pace and accountability, aiming for EBIT margin expansion over the long term. Adjusted SG&A as a percentage of revenue is a key metric being tracked.
Capital Expenditures: Higher capital expenditures are planned for store openings and renovations to support revenue generation and brand elevation.
Trade Environment: The company is monitoring potential new U.S. tariffs on Canadian goods and evolving trade dynamics, with a strong operational foundation to navigate these challenges.
The selected topic was not discussed during the call.
The earnings call presents a mixed picture: strong D2C growth and gross margin expansion are offset by weak wholesale revenue, increased SG&A expenses, and adjusted EBIT loss. Q&A insights reveal confidence in DTC momentum but highlight operational risks and lack of clarity in management responses. Given the market cap of $1.27 billion, these factors suggest a neutral short-term stock price reaction, potentially within the -2% to 2% range.
The earnings call summary and Q&A reveal a positive outlook with strong financial performance, strategic product development, and effective market strategies, especially in China and APAC. Despite some uncertainties, such as the lack of specific guidance and SG&A growth, the company's focus on innovation, marketing, and store execution is promising. The market cap suggests moderate volatility, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
Despite strong financial results, including record revenue and improved margins, the lack of clear guidance and uncertainty in the consumer environment temper expectations. The absence of a shareholder return plan and concerns over economic factors and competitive pressures further contribute to a neutral sentiment. With a market cap of approximately $1.27 billion, the stock is likely to see a more muted reaction, balancing positive financial performance with cautious future outlook.
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