Canada Goose Holdings reported better-than-expected results in the fiscal fourth quarter ended April 2 on strength in its EMEA region and China. However, Canada Goose’s shares are trading down about 11 percent in late-afternoon trading Thursday as company officials struck a cautious note on its U.S. business as luxury spending cools.

On an analyst call, Jonathan Sinclair, EVP and CFO, noted that while the U.S. has been “gradually improving” after weakening toward the end of the fiscal third quarter and beginning of the fourth quarter, macroeconomic pressures are driving Canada Goose’s cautious stance for the region.

“We’re not being super ambitious this year in the U.S.,” said Sinclair. “We think that for this year the market’s going to be a little bit more challenging in the U.S. because of the macro-economics.”

In the fourth quarter, sales grew 31.4 percent to C$293.2 million (U.S. $218 mm), topping company guidance in the range of C$251 million to C$271 million. Sales grew 30.1 percent on a constant currency revenue basis.

Adjusted EBIT vaulted 122.6 percent to C$27.6 million, near the mid-point of company guidance in the range of C$19 million to C$35 million.

Adjusted net income catapulted 267.5 percent to C$14.7 million, or C$14 cents a share, from C$4.0 million, or C$4 cents, a year ago. The gains reflect higher operating income partially offset by higher income tax expense. EPS of C$14 cents just exceeded company guidance in the range of break-even to 12 cents a share.

On the call, Dani Reiss, chairman and CEO, said the outperformance was helped by a healthy performance by Canada Goose stores in every market, with traffic rebounding, especially the EMEA and APAC regions. China saw a “strong recovery” after being impacted by a number of COVID-19 infections amid a reopening in the third quarter.

Reiss said, “We’ve seen the same momentum continue across all of our key geographies beyond the fourth quarter, which is a clear indication of the strength of our brands, and the demand for our performance luxury products.”

Channel Performance
By channel, DTC revenue grew 22.6 percent (22.1 percent on a currency-neutral basis) to C$227.5 million, largely due to continued retail store expansion and improved growth and performance within its existing store network. Canada Goose ended Q423 with 51 permanent stores compared to 41 a year ago. DTC comps grew 6.9 percent and 3.3 percent, excluding China. The gains were driven by growth within the existing store network more than offsetting lower e-commerce sales as consumers return to shopping at physical stores.

Wholesale revenue increased 30.4 percent (27.2 percent on a currency-neutral basis) to C$45.5 million due in part to the timing of shipments delayed from the third quarter as well as higher-order book values compared to the prior quarter.

Other revenue jumped to C$20.2 million from C$2.6 million primarily due to higher product availability to employees, friends and family.

Regional Performance
Revenues in Canada rose 41.2 percent to C$55.2 million. Reiss said, “I’m pleased to see one of our most mature markets driving such a strong result. Our apparel collection was the fastest growing category in North America in Canada, growing more than 170 percent compared to the same quarter last year.”

Revenue in the U.S. totaled C$67.5 million, down 4.5 percent on a reported basis and 7.9 percent on a currency-neutral basis. Sales gains from physical stores were offset by e-commerce declines. Reiss noted that Canada Goose had already noted a softening in the region toward the end of the fiscal third quarter and the start of the fourth quarter.

“We attribute this to the macro environment in the quarter with economic uncertainty affecting consumer behavior,” said Reiss. “U.S saw an acceleration at the end of the quarter through to the current quarter today, which provides us with confidence that the business is recovering.”

Asia Pacific revenues totaled C$114.1 million, up 65.4 percent on a reported basis and ahead 66.5 percent on a currency-neutral basis. Asia Pacific was boosted by re-openings after the lifting of COVID-19 restrictions and saw growth in both DTC and wholesale channels.

Reiss said Mainland China reported a record growth rate of approximately 40 percent year over year after being impacted by a wave of COVID infections in the prior quarter. Overall APAC DTC sales grew 24.5 percent. Said Reiss, “Our apparel collections saw notable growth in APAC in the quarter, more than doubling compared to the same quarter last year approaching C$10 million in revenue.”

EMEA sales advanced 27.3 percent (24.2 percent on a currency-neutral basis) to C$56.4 million. Strong growth in both channels supported EMEA’s growth with the countries in the region benefiting from a more normalized operating environment. Reiss said, “Over the last two years, we’ve seen EMEA gradually stabilize with steady growth in tourism. We’re still below the benchmarks we saw in 2019 with a lot of potential upside.”

Lightweight down was a standout performer in EMEA in the quarter with category revenue growing more than 30 percent.

Gross Margins
Gross margins eroded 420 basis points in the quarter, to 64.9 percent, reflecting an increase in obsolete raw material provisioning, higher product costs and the unfavorable impact of the fair value adjustment for inventory acquired through the Japan Joint Venture, partially offset by pricing.

Operating income significantly improved to C$17.2 million against C$900,000 a year ago. The improvement was largely traced to higher gross profit, partially offset by higher operating costs related to incremental personnel costs driven by headcount, higher costs related to expanded store networks, higher fees in support of strategic activities including its Transformation Program and costs associated with the Japan Joint Venture. The increase in operating expenses was partially offset by lower impairment charges in Q423 compared to the prior-year quarter.

On a reported basis, the loss of C$3.1 million, or C$3 cents a share, compared with a loss of C$9.1 million, or C$9 cents, a year ago.

2023 Results
Sales in the year grew 10.8 percent to C$1.22 billion from C$1.1 billion the prior year. Net income declined 27.2 percent to C$68.9 million, or C$69 cents a share, from C$94.6 million, or C$87 cents, a year ago. Adjusted EBIT improved 2.2 percent to C$175.1 million from C$171.3 million a year ago with EBIT margin at 14.4 percent against 15.6 percent a year ago. Adjusted net income declined 5.1 percent to C$110.7 million, or C$1.05 a share, from C$116.7 million, or C$1.07, a year ago.

Inventory was up 20.2 percent at year-end. The higher inventory levels were attributable to lower-than-expected sales in the Asia Pacific region due to COVID-19 disruptions for most of FY23 and production planning. Inventory of C$27.3 million was acquired through the Japan Joint Venture, and the inventory level tied to the venture was C$19.2 million as of April 2, 2023.

Said Sinclair, “We remain comfortable with finished goods inventory levels as the inventory composition continues to skew the high margin evergreen finished goods and raw material inventory levels were down 15 percent from the prior year.”

Strategic Plan Update
Reiss provided an update on its strategic plan outlined at its Investor Day in early February that targets $3 billion in revenue with an adjusted EBIT margin of 30 percent by FY28.

The plan includes three strategic pillars:

  • Accelerate consumer-focused growth: Reiss said, “We have a tremendous opportunity to further build loyalty with current and new customers. We’ve seen growth with our repeat customer cohort. We ended the fiscal year 2023 with repeat customers making up almost a third of our base. We plan to continue our focus on growing this metric through shifting marketing investments to drive greater ROI conversion, and ultimately lifetime value. And in this fiscal year 2024 we will begin to further unlock our CRM opportunities, leveraging our customer data platform to segment and personalize engagement with our clients through all touch points much more meaningful. Lastly, we plan to launch travel retail. We know travel is important to our customers and meeting them at a wholly new stage of their journey is a part of our commitment to consumer-focused growth. We plan to open two to three locations and I look forward to updating you on our progress as it evolves.”
  • Building out its DTC network: Reiss said, “Over the next five years, we plan to more than double our retail footprint from our current base of 51 permanent stores. In the next year, we plan to open 16 permanent stores with new store locations in the United States, China, Japan, and Australia. We expect the vast majority of the stores to be fully operational before our peak season starts in the fall. When it comes to our store network, we’re laser-focused on enhancing store performance through our digital platforms and in-store experience. We see a significant opportunity in our digital roadmap to support our goals by driving more traffic to stores, helping us to really know and connect with our high-value clients, and optimizing our inventory across our entire network. Having an omnichannel approach is critical to our success. We are making the necessary investments both in our people and systems. We are also excited to fully roll out omnichannel capabilities across Europe in fiscal 2024. Just last month, we announced the hiring of Matt Blonder, our first chief digital officer. I’m very excited for Matt to lead the growth of our digital presence globally.”
  • Expand product categories: Reiss said, “We continue to expand our product mix and grow our non-heavyweight down offerings, including categories such as apparel, footwear and fleece. Non-heavyweight down now makes up almost 43 percent of our product mix from 38.5 percent in fiscal 2022 and 19 percent in 2019 and this summer we will launch our first performance sneaker collection, a huge opportunity for our company. A selection of style-forward, wearable year-round with a performance credential to suit any adventure. And earlier this fall we plan to continue to expand a women’s-focused outerwear collection Following the successful expansion of a woman’s collection last fiscal year. The new styles sales were incredibly well received with several SKUs landing on our top 10 styles for the season.”

During the fourth quarter, Canada Goose launched a multi-phase transformation program to support the strategic pillars. Reiss said, “This is an evolution of our business to support both the strategic pillars and to take our business to the next level. Our work will focus on increasing operational efficiencies by optimizing production and procurement, developing people and resources, and focusing even more on our consumers to drive sustainable growth, profitability and long-term value.”

Outlook
For fiscal 2024, Canada Goose expects:

  • Total revenue of C$1.4 billion to C$1.5 billion, up in the range of 15 percent to 23 percent year over year against C$1.22 billion;
  • DTC revenue in the mid-to-high 70s as a percentage of total revenue, driven by mid-single digits to mid-teens comparable sales growth and continued channel expansion;
  • 16 permanent retail stores to open which we expect to be fully operational in the second half of the year, concentrated in Mainland China, the USA, and Japan;
  • Wholesale revenue decline of 6 percent (including revenue offsets from travel retail locations) is reflective of the continued editing of its wholesale door count (-6 percent) and expansion of its retail store network;
  • Gross margin in the high 60s as a percent of total revenue, with DTC and wholesale gross margins in the mid-70s and mid- to high-40s, respectively;
  • Adjusted EBIT C$210 million to C$240 million, representing a margin of 15 percent to 16 percent; and
  • Adjusted net income per diluted share C$1.20 to C$1.48, against C$1.05 to C$1.07.

For the first quarter of fiscal 2024, the Canada Goose expects:

  • Total revenue C$70 million to C$80 million;
  • Q1 fiscal 2024 DTC comparable sales growth in the high teens to low 20s partially offset by the later timing of wholesale shipments in fiscal 2024;
  • Adjusted EBIT loss C$(115) million to C$(105) million; and
  • Adjusted net loss per basic share C$89 cents to C$82 cents.

Photo courtesy Canada Goose