Canada Goose Holdings Inc. raised its guidance for the year after reporting second-quarter earnings that came in well ahead of Wall Street’s targets.
Second Quarter Fiscal 2019 Highlights (in millions of Canadian dollars):
- Total revenue increased by 33.7 percent to CS230.3m
- Net income per diluted share increased by 36.4 percent to CS0.45
- Adjusted EBITDA increased by 53.1 percent to CS70.9m
- Adjusted net income per diluted share increased by 58.6 percent to CS0.46
“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,” said Dani Reiss, president and CEO. “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.”
Second Quarter Fiscal 2019 Results (in Canadian dollars, compared to Second Quarter Fiscal 2018):
- Total revenue increased by 33.7 percent to CS230.3m from CS172.3m, or 31.5 percent on a constant currency basis(1).
- Wholesale revenue increased to CS179.9m from CS152.1m. The increase was attributable to higher order values from existing partners, earlier shipment timing relative to last year and favorable foreign exchange rate fluctuations.
- DTC revenue increased to CS50.4m from CS20.2m. The strong performance of well-established retail stores and e-commerce sites, and incremental revenue from four new retail stores opened in the third quarter of fiscal 2018, were both significant contributors.
- Gross profit increased to CS128.5m, a gross margin of 55.8 percent, compared to CS87.1m, a gross margin of 50.6 percent.
- The increase in gross margin was driven by a greater proportion of DTC revenue, as well as underlying gross margin expansion at the respective channel levels.
- Wholesale gross profit was CS90.6m, a gross margin of 50.4 percent, compared to CS72.2m, a gross margin of 47.5 percent. The increase in gross margin was due to production efficiencies from manufacturing scale and a reduction of import duties on goods sold due to the Canada-European Union Comprehensive Economic and Trade Agreement.
- DTC gross profit was CS37.9m, a gross margin of 75.2 percent, compared to CS14.9m, a gross margin of 73.8 percent. The increase in gross margin was primarily due to the same production efficiencies which benefited wholesale gross margin.
- Operating income was CS65.0m, compared to CS48.2m. The increase in operating income was driven by revenue growth and gross margin expansion, partially offset by SG&A growth investments.
- Unallocated corporate expenses were CS34.2m, compared to CS16.2m. The increase was due to investments to support growth including marketing, corporate headcount and IT, as well as higher professional fees and other costs relating to public company compliance.
- Unallocated depreciation and amortization was CS3.6m, compared to CS2.3m, driven by the retail store opening program and upgrades to our manufacturing capacity.
- Wholesale operating income was CS80.1m, an operating margin of 44.5 percent, compared to CS60.1m, an operating margin of 39.5 percent. On a significantly larger quarterly revenue base, wholesale SG&A as a percentage of sales was lower.
- DTC operating income was CS22.7m, an operating margin of 45.0 percent, compared to CS6.6m, an operating margin of 32.4 percent. The increase in operating margin was driven by strong off-peak retail store productivity and lower channel SG&A as a percentage of sales.
- Net income was CS49.9m, or CS0.45 per diluted share, compared to CS37.1m, or CS0.33 per diluted share. The increase in operating income was partially offset by increased net interest and finance costs, and a higher effective tax rate due to differences in the timing of taxable income in foreign jurisdictions.
- Adjusted EBITDA(1) was CS70.9m compared to CS46.3m.
- Adjusted net income(1) was CS51.0m, or CS0.46 per diluted share, compared to adjusted net income of CS32.8m, or CS0.29 per diluted share.
Adjusted earnings of 46 cents a share came in well above Wall Street’s targets of 26 cents. Revenues of CS230.3 million exceeded consensus targets of CS200.6 million.
Revised Fiscal 2019 Outlook
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 which was originally provided with the release of fourth quarter and fiscal year 2018 results on June 15, 2018.
For fiscal 2019, the company currently expects:
- Annual revenue growth of at least 30 percentAdjusted EBITDA margin(1) expansion of at least 150 basis points compared to full year fiscal 2018
- Annual growth in adjusted net income per diluted share(1) of at least 40 percent
Key assumptions underlying the fiscal 2019 outlook above are as follows:
- Wholesale revenue growth in the high-single-digits on a percentage basis
- Five new retail stores in operation by the onset of the peak winter selling season
- SG&A growth investments in infrastructure and people including IT and the establishment of a country office in Greate China to lead market development efforts
- SG&A fees to operating partners on DTC sales in Greater China
- Capital expenditures of approximately CS70 million including investments in new retail stores, IT and manufacturing capacity
- Weighted average diluted shares outstanding of 112.1 million
- Effective annual tax rate approximately in-line with fiscal 2018
Image courtesy Canada Goose