By Eric Smith
Canada Goose Holdings Inc. President and CEO Dani Reiss couldn’t hide his excitement on Wednesday morning’s conference call with analysts when discussing the company’s recent addition of footwear maker and fellow Canadian and cold-weather brand Baffin Inc.
“This is a dream acquisition for me as I’ve been watching and admiring Baffin for many years and I know them very well,” Reiss said. “I believe this is the right move for us to be able to start exploring the category look to ultimately launch Canada Goose footwear.”
Canada Goose announced the C$32.5 million (US$24.8 million) deal earlier this month, the first step on what the company is calling its “footwear journey.”
The press release detailing the acquisition touted Baffin, whose roots in footwear manufacturing date back to 1979, as a “recognized leader in technically advanced, high quality products for adventure and work.”
Baffin has 80 employees and predominantly sells its products through distributors and retailers in Canada and the United States, giving Canada Goose the ability to launch into the footwear category with a depth of knowledge and a breadth of distribution.
“We are building an enduring brand for generations to come and getting footwear right is an important part of that vision,” Reiss said. “Buying the company that makes the best of warmest boots is a … right first step for Canada Goose in this exciting journey. Baffin is the still mantra of footwear in the coldest places on earth and our products have lived alongside each other for decades. We will leverage back an innovative technology and infrastructure as well as a world class expertise of Baffin President Paul Hubner to inform our strategy and ultimately launch Canada Goose footwear.”
Read more: Canada Goose Steps Into Footwear With Acquisition of Baffin
As a new wholly owned subsidiary of Canada Goose, Baffin will continue to operate on a standalone basis out of its headquarters in Stoney Creek, Ontario. Canada Goose does not expect the acquisition of Baffin to have a material impact on fiscal 2019 results, and Reiss stressed to analysts on Wednesday’s call that he will remain dedicated to Canada Goose while Hubner runs Baffin.
“As I said before, this is not a merger,” Reiss said. “Canada and Baffin have distinct channels with all different customers … and that’s not going to change. Paul Hubner is a great footwear visionary and I’m very happy that he has joined our team and he’s going to help us form our strategy for Canada Goose footwear. And I’m really excited that this is the first step in us to be able to bring to market the best-in-class footwear products for Canada Goose, and I think this is the right way of doing that. At the same time we’re also going to make sure Baffin has resources that it needs to continue to thrive and to become the best version of itself.
The deal, announced less than two weeks ago on Nov. 1, served as a nice warmup for Canada Goose’s latest quarterly performance, which saw the company post Q2 earnings and revenue above estimates while it also raised guidance for 2018.
Total revenue increased by 33.7 percent to C$230.3 million from C$172.3 million, or 31.5 percent on a constant currency basis. Net income per diluted share increased by 36.4 percent to 45 cents (Canadian), while adjusted net income per diluted share increased by 58.6 percent to 46 cents (Canadian). Adjusted EBITDA increased by 53.1 percent to C$70.9 million.
Adjusted earnings of 46 cents a share came in well above Wall Street’s targets of 26 cents. Revenues million exceeded consensus targets of C$200.6 million.
Wall Street was clearly impressed from opening to closing bell. Canada Goose shares shot up 21 percent Wednesday morning before settling at a solid gain of $5.84, or 10 percent, by market close.
“Continuing the momentum of the first quarter, the results we delivered in the second quarter are exceptional. With such an outstanding first half of the fiscal year, we are in a strong position ahead of our peak selling season,” Reiss said. “Our wholesale growth and DTC sales productivity further accelerated, which more than offset strategic growth investments that will carry us into the future, including opening a third manufacturing facility in Winnipeg, the build-out of our Greater China business, and the commercial launch of our DTC channel in that market.”
Wholesale was the “standout performer” for Canada Goose in the quarter, Reiss said. Q2 is the largest quarter for wholesale shipments in the fiscal year, and this period saw wholesale revenue grow to C$179.9 million from C$152.1 million. “These are higher order values from existing partners and earlier shipment timing,” Reiss said. “In response to customer requests, we fulfilled a higher proportion of our total seasonal fall/winter order book in this quarter relative to last year.”
Equally impressive was Canada Goose’s gross margin in the wholesale channel, which grew to 50.4 percent from 47.5 percent, driven by “production efficiencies from manufacturing and the reduction of duties on goods sold due to the CETA Trade Agreement between Canada and the EU,” Reiss said.
Based on the strength of performance across the business, with a particularly significant contribution from the DTC channel, the company now expects fiscal 2019 results to exceed the outlook that was originally provided with the release of fourth quarter and fiscal year 2018 results on June 15.
For fiscal 2019, Canada Goose now expects annual revenue growth of at least 30 percent, adjusted EBITDA margin improvement of at least 150 basis points compared to full year fiscal 2018 and annual growth in adjusted net income per diluted share of at least 40 percent.
“We delivered exceptional results today and we’re building a very strong foundation for the future,” Reiss said on Wednesday’s earnings call. “I am truly, extremely proud of what our team has accomplished and could not be more excited about what’s coming next.”
Photo courtesy Baffin
[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]
