Crushing the company’s first year public, Canada Goose Inc. lifted the company’s growth targets for the next three years ahead while spelling out the company’s big expansion opportunities in China and DTC.
“We have continued to drive amazing results from every part of the business,” said Dani Reiss, president and CEO, on a conference call with analysts.
In the year ended March 31, revenue jumped 46.4 percent to C$591.2 million ($448 mm) and gained 47.7 percent on a currency-neutral basis
Net income reached C$96.1 million ($72.9 mm), or C86 cents per share, compared to net income of C$21.6 million, or C21 cents, the prior year. On an adjusted basis, net income catapulted 131.7 percent to C$94.1 million ($71.4 mm), or C84 cents.
Adjusted EBITDA surged 84.1 percent to C$149.2 million ($113.1 mm). Adjusted EBITDA margin expanded by 517 basis points to 25.2 percent.
Reiss noted that the company handily surpassed all targets the company had set at the start of the year. Canada Goose had expected annual revenue growth on a percentage basis in the mid-to-high teens, adjusted EBITDA margin expansion in excess of 75 basis points and growth in adjusted EPS of approximately 25 percent
Said Reiss, “These results say a lot about global demand for our product and our ability to execute on that.”
Gross margins in the year improved to 58.8 percent from 52.5 percent. The gain was primarily attributable to a greater proportion of DTC revenue, partially offset by higher inventory provisions.
SG&A expenses rose 21.3 percent to C$200.1 million ($151.7 mm) due to increases in retail store operating costs, corporate headcount, professional fees for public company compliance, marketing spend and administration costs. As a percent of sales, SG&A was lowered to 33.8 percent from 40.9 percent.
Wholesale revenue increased 16.5 percent to C$336.2 million ($255.0 mm), driven by order book growth from existing accounts and higher re-order volumes late in the year. Wholesale gross margins rose to 46.9 percent from 43.3 percent due to product mix, with a greater proportion of higher-margin jackets from the company’s fall/winter collection, and lower material costs. Wholesale operating income improved 27.8 percent to C$120.6 million ($91.4 mm), an operating margin of 35.9 percent.
DTC revenue expanded 121.3 percent to C$255.0 million ($193.4 mm) due to the strong performance of existing retail stores and e-commerce, including a full year of operations for Toronto and New York City locations and incremental revenue from four new stores and eight national e-commerce sites opened during the year.
DTC gross margins eased slightly to 74.4 percent from 75.5 percent. The slight DTC margin decline was due to product mix, with a greater proportion of lower-margin styles, such as lighter-weight jackets, and to a lesser degree, foreign exchange fluctuations. The DTC margin was in line with expectations. DTC operating income surged 126.4 percent to C$134.7 million ($102.2 mm), an operating margin of 51.7 percent.
Offering some highlights, Reiss said revenues grew 39.7 percent in the U.S. and 52.6 percent in the rest of the world. In Canada, the brand’s most mature market, sales jumped 47.5 percent.
Reiss noted that that the company has built up DTC business to C$255 million in annual revenues in under four years while growing wholesales last year faster-than-planned. Stated Reiss, “This is unprecedented in our space.”
The wholesale growth reflected further collaboration with key partners in areas like merchandising, content creation and customer events that helped build better brand awareness and affinity while supporting full-price sell-through. Canada Goose also broadened the company’s fall/winter collections and successfully introduced knitwear, the company’s first ever non-outerwear category.
Lastly, Canada Goose in fiscal 2018 continued to invest aggressively in internal capacity to support growth, on-boarding over 700 new manufacturing employees in Canada over the last year. In-house manufacturing grew to 35 percent of units produced from 30 percent.
Said Reiss, “Going forward, we believe we are just scratching the surface of our potential across all or our growth strategies, from market development on a global scale to product expansion and operational excellence.”
Canada’s Goose’s fourth quarter, seasonally the second slowest after the first quarter, was likewise strong.
Revenues catapulted 144 percent to C$124.8 million. Net income improved to C$6.6 million, or C7 cents a share, rebounding from a loss of C$23.3 million, or 23 cents, a year ago. On an adjusted basis, earnings came to C$9.9 million, or C9 cents, against a loss of C$14.7 million, or C15 cents, in the same period a year ago. Wall Street’s consensus estimate had been a loss of C7 cents a share.
But Canada Goose’s officials only addressed full-year results, and Reiss attributed the brand’s success to a fixation on long-term planning.
“Much of the success we’ve had this year was driven by decisions and investments made many years ago, before we were a public company,” said Reiss. “I’ve always said a great idea without great execution is someone else’s success story. Without the right infrastructure and people in place, great execution just doesn’t happen.”
For 2019, the major initiative is ramped-up DTC expansion in China.
The moves, first announced last May, include establishing a regional head office in Shanghai and launching the company’s direct-to-consumer business. Two stores will open in Beijing and Hong Kong with operating partner ImagineX Group and e-commerce operations will be launched with Alibaba Group’s Tmall.
Said Reiss, “We have experienced strong demand from China’s consumers aboard for years and we are eager to meet that in-market opportunity directly.”
Reiss said that in contrast to the way some other apparel manufacturers are approaching China expansion, Canada Goose had no plans on “managing the Chinese market from a Canada base.” The Shanghai office is being established to take advantage of local experience. Fourteen to 16 employees are expected to be added to the Shanghai office in the current fiscal year across a variety of disciplines.
In e-commerce, Canada Goose will be transitioning from the company’s cross-border e-commerce pilot project and will relaunch on Tmall’s luxury pavilion in fall 2018. Said Reiss, “Tmall has the right capabilities to deliver on our vision of digital experience with a deep commitment to brand protection.”
Reiss noted that ImagineX will only be handling day-to-day store operations with Canada Goose’s Shangai team overseeing control of leases, staff and overhead. Said Reiss, “With a high level of awareness already established and increasing, we can and should be in control our own destiny in China.”
At the same time, the partnerships with ImagineX and Tmall will help Canada Goose “hit the ground running.”
Outside DTC, Canada Goose is also expanding the company’s wholesale footprint in Greater China, where the company arrived six years ago, with deeper collaborations with Lane Crawford, Galeries Lafayette and others.
Beyond China, Reiss stressed that the company still sees “significant runway to strengthen brand affinity and expand customer access” in the company’s most mature markets. On Friday, Canada Goose revealed plans to open three more North American stores in Vancouver, Short Hills and Montréal. The brand currently operates stores in seven cities including London, Toronto, New York, Boston, Chicago, Calgary and Tokyo, which are operated by the company’s distribution partner.
Said Reiss, “The past two years we have seen an amazing impact our retail stores have on local market activation. Building on these successes and innovating for the future, we’re excited to continue to bring our authentic brand experience unfiltered through world-class retail destinations.”
Other key initiatives in 2019 include a doubling of the size of the company’s IT team, as well as related investments. Said Reiss, “It’s clear that what we have in place today is supporting us well. What we are investing in now is long term.”
The IT investments include incremental upgrades to the company’s ERP system, enhancing financial reporting workflows to more easily address public company reporting requirements. The company is also transitioning from a shared environment to an in-house solution for order management, in part to help the company’s ability to better customize e-commerce. Significant investments are also being made in planning tools and digital customer experiences.
In manufacturing, a third factory will be added in Winnipeg and be built out in two phases over the next three years. The factory will be Canada Goose’s largest single-production facility.
For fiscal 2019, Canada Goose expects annual revenue growth of at least 20 percent, adjusted EBITDA margin expansion of at least 50 basis points and annual growth in adjusted EPS of at least 25 percent. The growth assumes the mid-single-digits growth in wholesale revenue on a percentage basis. The top-line gains also reflect five new retail stores in operation by the onset of the peak winter selling season, as well as six stores in operation in off-peak periods in the first half of the year versus only two in fiscal 2018,
Over the next three fiscal years, Canada Goose now expects average annual revenue growth of at least 20 percent, annual adjusted EBITDA margin of at least 26 percent in fiscal 2021 and average annual growth in adjusted EPS of at least 25 percent.
The updated growth rate marks an acceleration from projections given at the start of the fiscal 2018 for annual revenue growth on a percentage basis in the mid-to-high teens. Expectations around EPS also increased from the previous projections of growth of approximately 20 percent per year. Under the former forecast, adjusted EBITDA margin was expected to expand in excess of 75 basis points per year
In the Q&A sessions, Reiss attributed the updated guidance to the company’s ability to accelerate DTC growth, including higher sales from DTC last year than expected, as well as the company’s push into China. He noted that now Canada Goose expects only modest margin improvement in the years ahead because the company “captured all of the EBITDA margin expansion and then some in one year” since setting the company’s last three-year forecast.
He added that due to DTC and the company’s much larger sales base, “our business is very different than when we started in fiscal 18.”
Photo courtesy Canada Goose