Canada Goose Holdings Inc. (NYSE: GOOS) has recovered from a harrowing plunge in March. It now looks set to continue its solid performance as expansion and acceptance in China continue to affirm long term prospects. Expansion into new segments such as footwear also continues to underscore the company’s growth metrics.
While COVID-19 pandemic has brought about a string of challenges for cold weather apparel specialist, China is turning out to be a soft spot. Jay Sole, an analyst at UBS, has already initiated coverage of the stock with a buy rating and a $30 price target.
According to the analyst, the luxury apparel company could generate 25% compounded annual growth in China over the next five years. Affirming the sentiments is a survey that indicates 50% of Chinese consumers are aware of Canada Goose compared to 43% in the U.S.
Expansion into China provides an exciting opportunity for the company to diversify and strengthen its revenue streams. The company generates about a fifth of its total revenue from Asia. It operates three stores in China in addition to running a robust e-commerce platform in Tmall. Likewise, Canada Goose remains well-positioned to thrive in the rapidly changing retail landscape, given its strong direct to consumer business.
The company has continued to enjoy sales growth despite not offering any promotions on its website. The UBS analyst believes the company’s direct to consumer mix is poised to rise from 52% of sales in 2019 to 67% of the estimated sales in 2021.
In addition to pursuing sales opportunities in China, Canada Goose Holdings has also sought to diversify its product line away from the luxury apparel. Faced by a challenging environment fuelled by the COVID-19 pandemic, the company has ramped the production of personal protective equipment to respond to the COVID-19 epidemic.
The Canadian company known for the production of luxury parkas has already started manufacturing scrubs and patient gowns for distribution in local hospitals. The company has also pivoted its resources with factory partners to enhance the manufacturing of masks, gowns, and scrubs.
The company is leveraging its eight manufacturing facilities to produce L2 gowns for healthcare facilities around Canada. Backed by a robust apparel manufacturing infrastructure, Canada Goose Holdings is well-positioned to re-tool its facilities to respond to the COVID-19 pandemic. Production of a variety of personal protective equipment affirms how agile the company is.
Expansion into the footwear business is another development that continues to affirm Canada Goose long-term prospects and growth metrics. The company has confirmed the appointment of Adam Meek as the new General Manager of Footwear, tasked with the responsibility of plotting the company’s global footwear strategy.
Adam joins the company with more than 20 years in global footwear experience. His entrepreneurial spirit and passion should be a great addition as the company looks to execute in the right way and at the right time. His product development and global product management experience should help plot the way in Canada Goose Holdings, becoming a key player in the footwear business.
In a bid to cushion itself from the COVID-19 fuelled shocks, Canada Goose holdings intend to limit shipments to department stores. With shopping patterns changing significantly given the social distancing policies in place, the company has to change its sales strategy.
Likewise, the Canadian apparel makers say it will focus on its own outlasts and website in a bid to shore up profit margins. The luxury winter-wear maker intends to base its recovery at its retail outlets amid the COVID-19 pandemic. By selling directly to consumer’s the company should generate significant returns on selling coats and gown jackets at a triple profit.
The move comes when most department stores have been forced to shut down as part of lockdown and social distancing restrictions put in place to curb the spread of the deadly virus. With a deep recession on the horizon, demand is not expected to improve any time soon. By focusing on its stores, the company should be able to lock in triple profits.
Stellar Earnings- Choppy Guidance
The company had an impressive March quarter that was badly hit by the COVID-19 pandemic. Net loss in the quarter came in at C$13 million in line with expectations. Sales, on the other hand, came in at C$137.5 million, better than consensus estimates of C$126.5 million.
For the Fiscal year 2020, Canada Goose Revenue increased 15.4% to $958 million. Direct To Customer revenues surged to $525 million from $431 million reported in 2019. Revenue growth can be attributed to, among other things, to the impact of new retail stores. Full-year net income surged to $151.7 million from $143 million reported a year earlier.
4Q 2020 4Q 2019 3Q 2020 FY 2020 FY 2019
Revenue 140.9M 156.2M 452.1M 958.1M 830.5M
Gross Margin 66.4% 65.6% 66.0% 61.9% 62.2%
Operating margin -12.2% 7.5% 35.7% 20.1% 23.7%
Income before income taxes -21.7M 8.6M 155.6M 163.7M 182.5M
Net Income 2.5M 9.0M 118.0M 151.7M 143.6M
EPS – Basic 0.02 0.08 1.08 1.38 1.31
EBIT -17.2M 11.7M 161.4M 192.1M 196.7M
Adjusted net income per share – Basic -0.12 0.09 1.09 1.34 1.39
Cash 31.7M 88.6M
Inventories 412.3M 267.3M
Deferred income taxes 40.8M 12.2M
Total Assets 1112.7M 725.4M
Total Liabilities 592.5M 326.3M
Looking ahead, the company warned it expects negligible levels of revenue in the June quarter given the pronounced impact of the COVID-19 pandemic. Historical purchasing trends have also been low in the quarter the company having reported a 7% decline in sales last year, same quarter.
June quarter sales will be hurt by the fact that 15 of the company's 20 retail stores in the direct to consumer sales channel remained closed, representing 75% of the total retail network. Tourism restrictions also continued to hurt the company’s sales channels, with two stores in Hong Kong remaining closed.
While the company has resorted to online sales, its operations have been affected significantly, given that overseas shipments have stalled significantly as many retail stores remain closed.
In response to the challenging environment, the cold weather apparel specialist has embarked on a cost-cutting drive in a bid to shore the bottom line, given the challenging working environment. The restructuring drive has resulted in voluntary salary cuts throughout the company’s C-suite Temporary store closures have also helped the company save on operating capital.