Canada Goose Holdings Inc. (NYSE:GOOS) Q3 2024 Earnings Call Transcript

Canada Goose Holdings Inc. (NYSE:GOOS) Q3 2024 Earnings Call Transcript February 5, 2024

Canada Goose Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to introduce you to the Canada Goose Q3 FY ‘24 Earnings Call. [Operator Instructions] I will now hand the call over to Ana Raman, Head of Investor Relations. Ana, you may begin your conference.

Ana Raman: Thank you, operator, and good morning, everyone. With me are Dani Reiss, Chairman and CEO; Jonathan Sinclair, EVP and CFO; Carrie Baker, President of Brand and Commercial; Beth Clymer, President of Finance, Strategy, Administration; and Neil Bowden, Deputy and Incoming CFO. After Dani’s and Jonathan’s prepared remarks, we will open it up for your questions. Our call today, 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. Certain material factors and assumptions were considered and applied in making these forward-looking statements.

Additional information regarding these statements, factors and assumptions and regarding material factors that could cause actual results to differ from those projected is available in our earnings press release issued this morning, as well as in our filings with U.S. and Canadian securities regulators. 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. We report in Canadian dollars. So all amounts discussed today are in Canadian dollars unless otherwise indicated. Please note that financial results described on today’s call will compare third quarter results ended December 31, 2023, with the same period ended January 1, 2023, unless noted otherwise.

Lastly, our commentary today will also include certain non-IFRS financial measures, which are reconciled at the end of our earnings press release. With that, I’ll turn the call over to Dani.

Dani Reiss: Thanks, Ana, and good morning, everyone. Our performance for the third quarter reflected strong execution in a mixed consumer environment. Sales were up 6% over the last year, with adjusted EBIT of $207.2 million or a 34% margin, in-line with our guidance range. While we continue to see headwinds in North America and Europe driven by economic conditions, the strength of our results in Asia Pacific, the increase of demand for our emerging product lines, and the growth we have achieved during key holiday shopping days across all regions, each clearly demonstrate our branding, and taken together, they demonstrate a differentiated luxury positioning. Our products are rooted in performance and performance pushed far enough becomes luxury.

This is what inspires us to continue to reinvent our icons, expand our categories and introduce newness with style. In Q3, key consumer moments were strong. With sales over the Black Friday long weekend up more than 40% versus last year. In what is typically a promotional retail environment, our sales were full price and revenue grew across all regions with record traffic in our stores. We had our best single day ever in China outperforming our industry as a leading luxury outdoor brand on Tmall, again at full price. This, along with our overall third quarter results in Asia Pacific, validates the strength of our brand in the region especially in the context of a highly promotional environment outside of our own channels. In Q3, we remain focused on building for the long-term, guided by our three strategic pillars: driving consumer-focused growth, building our DTC network, and product category expansion.

Let me take you through the progress that we’ve made on each of these pillars during the past quarter. First, driving consumer-focused growth. In Q3, we invested in our brand to inspire and engage customers via elevated experiences and exciting collaborations. Last quarter, I spoke about elevating the customer experience through Canadian warmth, an experience that defines the Canada Goose customer journey, warmth in every interaction, expertise behind every recommendation. Early results have been promising. Our store Net Promoter Score in Q3 improved meaningfully compared to the same period last year, and on an already high base. And we saw a significant increase in the percentage of shoppers, indicating that our in-store brand and product storytelling is positively impacting their perception of the brand.

I’m excited about the long-term benefits of our focus on experience. I saw this firsthand at our stores while working on our Yorkdale store in Toronto over the Black Friday weekend, as did our entire leadership team, as they worked in many of our other stores around the world. And now turning to collaborations, which we leverage to tap into new and diverse audiences. In the third quarter, we launched six, including with BAPE, Concepts, OVO, The Shoe Surgeon, Pyer Moss and with Masai Ujiri’s Giants of Africa organization, which empowers and inspires African youths through basketball to make lasting change in their communities, work that is incredibly important to Canada Goose. Our Q3 collaboration is delivered on our objectives to drive brand heat and reach new target audiences.

As a result of our efforts, consumer engagement metrics and sign-ups to our owned database were above our year-to-date average. Last week, our brand was featured in the most recent Vogue Business Index, an index of the world’s leading luxury brands. We’re pleased to see ourselves on the list again and to see a ranking improvement year-over-year. Turning to our second pillar, building our DTC network. In Q3, we added two permanent stores, one in New Jersey’s American Dream Mall and one in Kobe, Japan. We also converted our Fifth Avenue store in New York City to permanent, bringing us to 65 permanent stores at the end of the period. We also opened a permanent store in January in Nanjing in China, where we now have 22 permanent locations.

And on the wholesale front, we expanded our travel retail prevalence in South Korea, a couple of pop-up locations, following the opening of the Frankfurt airport store in the second quarter. I’m very encouraged by all that we’re learning in our early stages of this new channel, and we believe that this will help us reach a new clientele. Q3 DTC revenue increased by 14% over last year, reaching $514 million, primarily driven by DTC performance in Asia Pacific and specifically Greater China. The strength of our brand and product assortment, combined with healthy consumer spending during key shopping moments across Greater China, contributed to the stronger online and offline sales in Q3 versus the previous year. Our results demonstrate that our investment in China is gaining traction, from our expanding retail prevalence to our local brand initiatives, like our fifth anniversary event that we celebrated in Shanghai last October, our brand is strong in China.

As a result of our continued investment, we saw both – growth both inside and outside Mainland China. We intend to continue managing our expansion in China prudently, focusing on initiatives that elevate our brand and achieve optimal ROI. North America and European sales grew robustly over the Black Friday shopping weekend. However, we believe the delayed onset in cold weather through December contributed to softer domestic demand for our Heavyweight Down products in Q3, dampening categories health in these regions. Direct-to-consumer comparable sales, which include our brick-and-mortar and online stores, were down 1.6% year-over-year in Q3. Store-only comparable sales grew in the high single digits year-on-year, driven by strength in Greater China, offset by a decrease in store and e-commerce comp sales in North America and EMEA, mainly due to lower conversion.

We believe that the highly promotional environment, combined with continued pressure on consumer spend in the quarter, contributed to challenges converting our digital traffic and, to some extent, our store traffic as well, especially outside of key holiday shopping moments. As a result, the progress we made on the merchandising front was largely offset. Ahead of our Q3 peak season and as part of our efficiency driving transformation program, we reorganized our merchandising group focusing on centralizing our team to improve merchandise and inventory management globally across all channels and product categories. This has enhanced assortment planning and driven improvements in localized assortments for our stores. During Q3, we measured an improvement in both productivity and inventory turnover directly resulted from this initiative.

While the benefits we achieved were muted due to the external environment, the improvements set us up to capture opportunities in the future. In addition to continuing our merchandising and sales planning efforts, we remain focused on enhancing our e-commerce business by reducing friction points for our customers online on the front and on the back end. Through this work, we expect to see improvements in cart conversion and return rates, the latter of which we’re making meaningful progress against. And I look forward to continuing to share updates on the progress we make within our digital ecosystem. And now turning to our third pillar, product expansion. In Q3, we acquired network manufacturer Paola Confectii, which marks our first European manufacturing facility and supports our objective to drive growth in our apparel category.

Knitwear is one of our leading segments within apparel, and we expect this acquisition will deepen our in-house expertise and enhance gross margins and supply control. We are a vertically integrated manufacturer. So this is familiar territory for us, now in a new category that will play an important role in driving year-round relevance for our brand. In Q3, our Non-Heavyweight Down category, which includes apparel, expanded its share of revenue within the overall product revenue mix compared to the same period last year. Apparel is the fastest-growing product within Non-Heavyweight Down increasing by double digits year-over-year in the U.S., Canada and EMEA, and doubling in APAC with sales of women’s apparel driving growth across all regions.

Apparel has steadily gained share within the Non-Heavyweight Down revenue mix over the past six quarters. We attribute the growth of non-heavy way down revenue to a few factors. First, the Canada Goose is increasingly resonating in the mind of consumers for products sold outside of cold weather year. And second, that the delayed onset of cold this winter influence the type of product consumer purchased later in the quarter. We also continue to generate year-over-year sales growth in our core Heavyweight Down category, which include our iconic heritage styles as well as our new styles. Heavyweight Down sales were led by APAC and came in lower in both North America and EMEA. The strength in APAC reflects both the colder weather in Greater China in Q3, as well as lapping the store closures last year relating to COVID restrictions.

In Mainland China, our Expedition Parka, one of our most iconic styles with our best-selling Heavyweight Down product, while the Shelburne and MacMillan parkas were top sellers in the U.S. and EMEA. In closing, while our top line results for Q3 were mixed in a challenging consumer environment, we are moving forward focused on performance and discipline across our operations, our brand and our product. We remain very confident in our brand and our strategy. Customers who experience Canada Goose firsthand know that we deliver performance function, quality and style, and more than ever before, customers are discovering our performance luxury offering beyond our only cold-weather products. We are excited about this opportunity in a future in which even more consumers wear Canada Goose, year-round.

Before I hand it over to Jonathan, I’d like to thank him for his leadership over the past 5.5 years. Jonathan, I’m looking forward to the contributions you will make in your new role as President of APAC. As well, I’d like to congratulate Neil Bowden, who will transition into the role of CFO in April. I’d also like to welcome Beth Clymer, our new President of Finance Strategy and Administration. Beth is very familiar with our brand, our strategy and our people having worked closely with us through our IPO, and I’m very happy to have her onboard. I plan to work closely with Beth, as I do with Carrie, and I look forward to staying very close to the commercial, financial and operational areas of the business and, at the same time, spending more time focused on our product and our brand, leading into the critical drivers that are the foundations of our success.

Beth, I will now pass it to you to say a few words.

Beth Clymer: Thank you for the warm welcome, Dani. Good morning. I’m currently in the midst of my first month here at Canada Goose, and I’m getting up to speed on all aspects of the company. The Canada Goose team and business isn’t new to me. I worked closely with the company from 2015 to 2019. I wanted to give you all a sense of what to expect from me as I step into the role. First and foremost, I’m spending my onboarding time learning from the front lines of our business, spending time in our stores and in our manufacturing facilities. I’ve spent much of my career in retail businesses, and I’m a huge believer of how much you can learn from both our customers and our operations from seeing the front lines. Second, I’m diving deep into the priority, the KPIs, the financials of the business.

I’m a really data-driven person, and this work helps both me and the leadership team ensure we’ve got our arms around the strength of our business as well as our areas of opportunity so we can pursue them with urgency. I look forward to partnering closely with Dani, Carrie, Neil and the rest of the leadership team to effectively chart the course for our next phase of growth and margin expansion. We have a tremendous amount of opportunity ahead of us, and I’m excited to support our journey towards becoming a leading luxury and lifestyle brand. With that, I’ll hand it back to Dani.

Dani Reiss: Thanks, Beth. And with that, I will turn it over to Jonathan.

Jonathan Sinclair: Thank you, Dani, and good morning, everyone. Our third quarter results reflected our continued attention to operational performance and cost discipline, which drove top and bottom-line growth in the context of a dynamic and challenging operating environment. Revenue in our third quarter was $609.9 million, up around 6% year-over-year or 5% on a constant currency basis. DTC sales of $514 million grew 14% on both a reported and constant currency basis over the same period last year. This was driven by brick-and-mortar sales and backed by shopping during key consumer moments, both online and in person. We continue to shift our revenue mix intentionally to our more profitable DTC segment, which represented 84% of total revenue in Q3, up from 78% a year ago.

Q3 wholesale revenue of $81.8 million was 28% down year-over-year, or 30% down on a constant currency basis, primarily due to a planned lower order book resulting from lower orders from existing customers compared to the same period last year and the ongoing streamlining of our wholesale accounts. We also estimated higher returns from our wholesale partners in Q3 as we proactively manage our inventory. Our focus remains on keeping wholesale as a brand-accretive channel. This means partnering with key opinion leaders that help reach our target customers and rationing inventory in the channel to keep it as healthy as we can, which is particularly important in a promotional environment. Q3 revenue in our Other segment of $14.1 million increased by 17% year-over-year on a reported and constant currency basis.

That was principally due to the incremental revenue contributed by our recently acquired manufacturer, Paola Confectii. Moving to performance by geography. Q3 revenue increased in Asia Pacific year-over-year, while declining in North America and in EMEA. Revenues from Asia Pacific grew 62% year-over-year to $270.7 million or 63% on a constant currency basis. Mainland China was a standout in terms of strong performance across all channels. Store traffic more than doubled year-over-year as the lifting of COVID restrictions resulted in a strong rebound in domestic spending. Our stores in Hong Kong and Macau continued to benefit from Mainland Chinese tourism, while Taiwan witnessed solid local demand. Sales for our core Heavyweight Down products in the region rose significantly coinciding with the colder weather that arrived in December.

Within Non-Heavyweight Down, apparel and footwear were distinct to outperformance, doubling in revenue year-on-year. Turning to North America. Revenue of $252.4 million was down 14% or 15% on a constant currency basis, reflecting a year-over-year decrease in DTC and wholesale revenues in both the U.S and in Canada. U.S DTC revenue was down year-over-year as lower e-commerce revenue was partially offset by higher store sales, which was driven by contribution from new stores. A warmer December also meant our consumers preferred our Non-Heavyweight Down offerings with healthy category growth, partially offsetting the year-over-year decrease in heavyweight down sales in this geography. DTC revenues in Canada were also lower year-over-year as both store and e-commerce revenues came under pressure.

Lastly, EMEA revenue was down 26% year-over-year to $86.8 million or 27% down on a constant currency basis. This was largely driven by lower wholesale revenue, but also pressured by softer DTC performance. Apparel was a standout performer with an increased share of revenue within the product mix. Turning to gross profit. Our third quarter gross profit grew 8% year-over-year to $449.7 million. That outpaced revenue growth and was driven by higher revenues and, of course, margin expansion. Q3 gross margin expanded 150 basis points to 73.7%, primarily due to pricing and partially offset by higher product costs. Q3 gross margin in DTC was 78.5% in Q3, up 50 basis points, while wholesale gross margins rose to 53.4%, up 40 basis points, each compared to the same period last year.

Gross margin in the DTC segment was higher due to pricing, partially offset by higher inventory provisioning and freight costs. Wholesale margin was up primarily due to pricing with the Euro strengthening relative to the Canadian dollar. And that was partially offset by higher inventory provisioning and product costs. Adjusted EBIT was $207.2 million, up from $197.1 million in Q3 of last year. And that was due to higher gross profit, partially offset by higher SG&A spend. The increase in SG&A spend was primarily due to the costs associated with the expansion of our retail network as we invest in the right locations and the right people to help drive long-term growth. While SG&A costs related to our transformation program are excluded from adjusted EBIT, we do expect this expense to largely conclude in Q4 as we wind down our consulting engagements.

Adjusted net income attributable to shareholders was $138.6 million or $1.37 per diluted share. Turning to our balance sheet. We ended the third quarter of fiscal ‘24 with inventory of $478.4 million, which was relatively flat year-over-year. And that’s after slowing year-over-year inventory growth for the previous two consecutive quarters. We continue to focus on optimizing inventory productivity, closely monitoring demand and supply levels in each of our sales channels and in each of our geographies. In Q3, we also bought back around 3.6 million shares for a total cash consideration of $56.6 million. We ended the quarter with $587.4 million of net debt on our balance sheet compared to $419.2 million at the end of the third quarter of fiscal 2023, and that includes the value of our leases.

Q3 net debt decrease from Q2 due to cash generation from our operations. In addition, we repaid all amounts owing our revolving credit facility as at December 31. In turn, our net debt leverage reduced 2.1x adjusted EBITDA at the end of Q3 compared to 3.3x at the end of Q2. At December 31, we had completed the repurchase of the entire amount authorized under our fiscal ‘23 normal course issuer bid program. And that amounted to 5.4 million shares for a total cash consideration of $111.2 million. Further, we renewed our NCIB in November, reflecting share buybacks as a component of our capital allocation strategy. During the third quarter, we advanced our transformation program with a heavy focus on our merchandising and planning stream, as Dani described earlier.

We expect our work in this area to support improved inventory turnover and margin expansion at our stores globally, the impact of which we anticipate will become more apparent over the coming quarters. We remain on track to meet an estimated annual savings run rate of approximately 15% of our $150 million target this fiscal year, and we’re targeting more than this. Now turning to our outlook. Year-to-date, we have progressed initiatives across our strategic pillars, investing in our brand, expanding our DTC presence in key markets, and increasing demand for our emerging product lines, while growing our core Heavyweight Down category. And while we’re still in the early days of implementation of our transformation program, we are realizing efficiencies sooner than we expected.

The mixed consumer environment has proved more of a headwind compared to the benefits we’re seeing, although the traction we saw in Asia Pacific in Q3 was very promising. In January, North America and Europe started to turn a corner, with DTC performance moving back into positive growth territory, once again coinciding with the onset of colder weather in each region. As Lunar New Year is later this year and given that our comparative performance was stronger last year, our Asia Pacific business did not experience a comparable environment in January, and therefore, our business was somewhat slower. Against this backdrop, our guidance for the fourth quarter is as follows. We expect total revenue between $310 million and $330 million. Non-IFRS adjusted EBIT of between $14 million and $27 million.

And non-IFRS adjusted net income per diluted share between $0.02 and $0.13. As such, our fiscal ‘24 outlook is as follows. We expect total revenue between $1.285 billion and $1.305 billion for the full year. We continue to assume DTC revenue to be around 70% of total revenue, which represents a low single-digit decrease to a low single-digit increase in year-over-year DTC comparable sales growth versus last year. It also reflects continued store expansion. We plan to open three new permanent stores in Q4, bringing our total permanent store count to 68 at the end of the fiscal year. We also expect wholesale revenue to decrease year-over-year by a high teens percentage, reflecting the continued editing of our wholesale door count, returns from our wholesale partners, revised reorder expectations, and the impact of our retail store network.

We expect non-IFRS adjusted EBIT of between $146 million and $158 million in fiscal 2024, representing an operating margin between 11% and 12%. This assumes a gross margin percentage to be in the high 60s on a full year basis, with DTC and wholesale gross margin in the mid-70s and the low-50s, respectively. We continue to expect SG&A expense to grow at a mid-teens percentage rate year-over-year due to the larger DTC network and its associated operating cost base, moderated by cost savings initiatives including around $15 million in savings from the transformation program in fiscal 2024. And lastly, we expect non-IFRS adjusted net income per diluted share to be between $0.82 and $0.92. This assumes an effective tax rate in the high teens as a percentage of net income before taxes and weighted average diluted shares outstanding of 101.7 million units for fiscal 2024.

In closing, our performance in Q3 showcased the strength of our brand in a challenging consumer environment. We have advanced our strategic priorities and are focused on unlocking further opportunities across our global retail network. We’re confident in our runway for growth as we seek to deliver our unique value proposition as a performance luxury lifestyle brand across our entire distribution network to our customers around the world. Lastly, I would like to take this opportunity to thank Dani for the privilege of serving as CFO for the last 5.5 years. As this is my last earnings call as CFO prior to moving to head up Asia Pacific in April, I would like to welcome Neil to this role of CFO. He’s highly talented and extremely knowledgeable about the business.

I’m confident you’ll be in good hands. And with that, operator, please open up the line for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Oliver Chen with TD Cowen. Your line is open.

Oliver Chen: Hi. Thank you very much. In the prepared remarks, you mentioned that conversion rate is something you are watching. If you could speak to what’s happening there and if it improved in January as well. Also localized assortments, I feel like a big opportunity. Where are you in that journey in terms of where that can go over time? And finally, you have seen some really, really nice momentum in Asia Pacific. The compares get a little tougher. How are you thinking about how traffic and volatility may evolve on the toughening comparisons? Thank you very much.

Carrie Baker: Thanks Oliver, it’s Carrie here. So, first, a question on conversion rates, so yes, you heard us talk about the pressure specifically in North America and EMEA on conversion, strong traffic, both in store and online, where we saw the pressure was just consumers feeling that pinch, a little less loose, I guess with their wallets, given a couple of things. One, weather didn’t help in terms of winter just didn’t come for them. And so they didn’t have that same sort of spur to get their typical winter jackets. Second one was just a highly promotional environment, so whether it was outerwear as a category, just in general, there was a lot more choice at lower [indiscernible] price points, particularly in the wholesale market where that channel was feeling pinched as well.

And then the – in terms of whether it’s improved in January, yes. So, we are making – just to speak to the first quarter, we did major improvements in terms of the back end as well as the front end, just to make sure it’s easy for them to find the product they need, reduce any friction, the whole process. You heard Dani talk about returns we have opportunities on. And so that’s where our focus has gone. And we did see that improvement in January. So, as Jonathan spoke to, the colder weather that appeared in the first couple of weeks really did help. And so that urgency was there, consumer spending, we saw that change significantly. Second question, you talked about localized assortment and where does that go. We see lots of opportunity on this.

Of course, as a brand you know as well as we do, you want to be showing up consistently. Around the world, we want to show what Canada Goose can offer, but there we recognize that one consumer in China is not the same consumer as in Toronto and as in Europe. And so we want to make sure that there was product that meets their needs at the right time, whether it’s seasonality, whether we know that something about that consumer, they use it in a different way. And so meaningful work has been under – in works on that already, and we think there is lots of opportunity to still continue to do that. Last question, actually I will turn it over to Jonathan to talk about APAC given his new role.

Jonathan Sinclair: Thanks Carrie. So, in the third quarter, to unpack this a little bit more, Hong Kong and Macau led the growth in Asia Pacific, driven by increased travel, particularly from Mainland China consumers. Mainland China growth followed and was extremely positive throughout the quarter, and then Japan. We have had a significant uptick in traffic across Greater China and obviously, we didn’t have the COVID restrictions that we had a year ago were in place at the same time. And we actually saw store traffic double in Mainland China in that timeframe. We are particularly focused on that because we see the Mainland China performance as a proof point of strength of the brand. And obviously, we executed on that increased demand by making sure that we place the right inventory in the right locations throughout the retail moments, seizing on the opportunity during key consumer moments.

And on that note, we achieved on record Singles Day in Mainland China, and outpaced the growth rates of peers in luxury outerwear on Tmall. Now that said and we have talked about this before, China has not been immune to the soft macro that we have seen globally. But we remain very focused on the execution of our strategy to make sure that we are capturing the – all the available opportunities. Turning to what’s happened since the end of the year [ph], we do face tougher comps in January in Asia Pacific. A couple of reasons for that, last year, the resurgence of demand happened in between the turn of the calendar year and Lunar New Year, which was more or less baked into three-week period, all concentrated on January, and so that had one impact.

And of course, this year, there is a six-week period during which we can build our business in Mainland China. So, as we go to read that business, it’s not quite comparable in terms of the environment, but we are very pleased with the momentum we are continuing to see.

Oliver Chen: Thank you. Best regards.

Operator: Okay. Oliver, thank you. Our next question comes from Brooke Roach of Goldman Sachs. Your line is open.

Brooke Roach: Good morning and thank you for taking our questions. I wanted to follow-up on the China discussion. Now that we have cycled the 1-year mark on China COVID disruptions, can you discuss the per store average productivity and profitability that you are seeing in the region today, and how that compares to the per store productivity and profitability that you are seeing in your North America DTC business? And then perhaps for Jonathan, as you think about bridging the gap from adjusted EBIT margins in the low-double digit range to a multiyear cadence of recovery, can you speak a little bit more about the factors in your control that you think are achievable over the course of the next 12 months? Thank you.

Jonathan Sinclair: Okay. So, I am going to take that question in its two parts. So, let’s talk a bit about China first. In this business, our sales centers and our margins are in Asia Pacific in general, are pretty robust. They sit at the higher end of the range that we enjoy in, and of course, every region has its own ranges. If you look at the average of what we experienced in Asia Pacific, specifically in Mainland China, actually, we see good levels of revenue productivity and good levels of margin. So, we are very encouraged by that. We expected – we have expected to see that, but of course, it’s not going through really the first quite normal period of trading there for the first – a good period of time. So, that gives us a lot of encouragement as to both the current performance there, but also the potential for our performance in Asia Pacific generally.

And I think when it comes to adjusted EBIT and as we think about the opportunity for growth, I think I lean heavily on what we have been talking about in the transformation program. You have already heard Dani describe some of the work that went on this quarter, and we have seen that, as I have said in my prepared remarks, the benefit of that accruing progressively over time. But I would remind you that it’s something that is pretty comprehensive in its approach. It’s multi-stream and multi-year, but we don’t see that something that we have to wait for 5 years before we see any benefit from. So, for example, when we think about the organization and operating model, when we think about marketing, we think about technology and we think about the store program or procurement, and the supply chain, we see opportunity in each and every one of them.

And we are organized behind those streams to really drive benefit. So, we have always said it will – this will accumulate over time. But as I have said, we are already at the point where we have got – sorry, 15% of the benefit in the run rate come the start of next year, and we are targeting more than that.

Brooke Roach: Great. Thank you so much. I will pass it on.

Operator: Thank you. Our next question comes from the line of Rick Patel with Raymond James. Your line is open.

Rick Patel: Thank you. Good morning, everyone. Two questions for me. First, on Europe, I am hoping you can unpack the results in EMEA a little bit more. Just curious about the changes in trend you may have seen versus earlier in the year and your expectations going forward. And then second, just a follow-up to the last question. Curious how we should be thinking about the outlook for operating expenses, not just in the fourth quarter, but beyond that, as we think about the transformation program and the path to get to 30% margins over the long-term, and what seems to be a more challenging backdrop today?

Carrie Baker: Prefect. Let me give you some color on EMEA. So, as you heard, Q3 revenue was down 26%, and that was both in DTC and the wholesale revenue. When you think about that region, it’s a much more even split between DTC channel and wholesale. And so the – impacting on both channels as a significant – more significant impact than it would in other regions. Store revenue was slightly up. E-com was where we saw more pressure that was slowing down. Wholesale is really the big story there because the volume of wholesale business that we do there. And so again, reminding you that we were streamlining on purpose. We started with a lower order book than planned at the year, that’s because we are trying to strategically reduce.