Canada Goose Holdings, Inc. reported a wider loss in the first quarter ended July 3 due to the timing of marketing expenses, while sales grew 24 percent on improving store productivity. Both the loss and sales topped guidance. Canada Goose maintained its guidance for the year.

All amounts are in Canadian dollars unless indicated.

“Our first quarter fiscal 2023 results reflect strong early leading indicators for the year, and we have seen encouraging trends in store productivity,” said Dani Reiss, chairman and CEO. “This fall, we look forward to our planned store openings, in some of the most exciting cities and shopping districts around the world, as well as our upcoming collection launches, thoughtfully curated and designed to drive brand heat and capture new consumers globally.”

Revenue
Q1 2023 revenue grew 24.2 percent on a reported basis to $69.9 million and 24.0 percent on a constant-currency revenue
basis. Sales exceeded Canada Goose’s guidance calling for sales between $60 million and $65 million.

DTC revenue grew 19.6 percent to $34.8 million due to improved productivity in existing stores represented by DTC comparable sales growth of 10.7 percent, continued retail network expansion and the reopening of existing retail stores, which were closed in the comparative quarter. Wholesale revenue grew by 27.2 percent to $33.2 million due to pricing and customer requests for earlier shipments.

Revenue By Geography
By region, sales in Canada grew 80.8 percent to $17.9 million. Sales to athe U.S. gained 68.8 percent (60.2 percent currency-neutral) to $15.7 million. Sales to the Asia Pacific region were down 28.1 percent (35.3 percent currency-neutral) to $16.1 million. Sales to the EMEA region were up 37.4 percent (53.1 percent currency-neutral) to $20.2 million.

Revenue growth in Canada was largely driven by stores that were open in Q1 2023 which experienced closures due to COVID-19 restrictions in the comparative quarter. Q1 2023 revenue growth in the U.S. was largely driven by DTC comparable sales growth. EMEA revenue growth was largely driven by retail network expansion and stores that were open in Q1 2023 but had experienced closures due to COVID-19 restrictions in the comparative quarter. Asia Pacific revenue declined from Q1 2022 as eight out of 16 stores in Mainland China experienced closures due to COVID-19 restrictions in Q1 2023. All stores in the region reopened as of the end of June 2022.

Q1 2023 revenue in Japan was minimal compared to Q1 2022 revenue of $9.3m as revenue recognition in this market will shift to later in the year due to the creation of Canada Goose Japan Joint Venture (Japan Joint Venture) with Sazaby League, Ltd. on April 4, 2022. The Japan Joint Venture agreement replaced an exclusive national distributor arrangement between Sazaby League, Ltd. and Canada Goose and sets the stage for accelerated growth in Japan, across DTC and Wholesale segments. As a result, revenue recognition for the Japan Joint Venture is expected to shift to later in the year, which is more in line with the seasonality of the Wholesale and DTC segments for the rest of the company.

Gross Profit And Gross Margin
Gross profit improved 39.1 percent to $42.7 million from 30.7 million. Gross margins rose 660 basis points to 61.1 percent from 54.5 percent.

The increase in gross profit was largely attributable to higher revenue as noted above and gross margin expansion. Q1 2023 gross margin was favorably impacted by pricing and lower product costs due to increased production efficiencies. The gross margin in Wholesale also benefited from product mix driven by higher parka sales on customer requests for earlier shipments compared to Q1 2022. These benefits were partially offset by an unfavorable region mix with higher North American revenue and lower revenue in the Asia Pacific and an unfavorable impact from the fair value inventory acquisition adjustment related to the Japan Joint Venture.

Operating Loss And Adjusted EBIT
The operating loss expanded to $80.7 million from $61.8 million a year ago. Adjusted EBIT widened to negative $75.6 million from negative $61.3 million. Adjusted EBIT was above Canada Goose’s guidance between negative adjusted $80 million to $75 million.

Operating loss increased and adjusted EBIT decreased compared to Q1 2022 primarily due to the timing of $12.6 million in marketing investments, which occurred earlier in the year compared to fiscal 2022, to drive brand salience ahead of its peak season, $6.9 million in higher costs related to opening new stores and running stores at full capacity, $3.8 million investment in strategic initiatives including digital, and $2.9 million in costs to support the new Japan Joint Venture.

Net Loss And Adjusted Net Loss
Net loss expanded to $62.4 million from $57.5 million a year ago. Adjusted net loss grew to $58.5 million from $50.8 million. Net loss and adjusted net loss were higher compared to Q1 2022 as a result of the factors described above. In addition, net loss in Q1 2022, included a $9.5 million charge for the acceleration of amortization costs related to the refinancing of its term loan.

The adjusted net loss was 56 cents against a loss of 46 cents a  year ago. The net loss was smaller than Canada Goose’s guidance calling for a loss in the range of 64 cents to 60 cents a share.

Balance Sheet Highlights
Cash was $81.8m as at Q1 ended July 3, 2022, compared to $305.9m as at Q1 ended June 27, 2021 largely due to share repurchases in fiscal 2022 for a total cash consideration of $253.2m, and greater investment in working capital.

Inventory was $504.7m as at Q1 ended July 3, 2022, compared to $404.5m as at Q1 ended June 27, 2021. Of the increase, $27.3 million was acquired when entering the Japan Joint Venture. Inventory levels increased ahead of its peak selling season, as domestic production gradually returned to pre-pandemic manufacturing levels and supply chain risks were mitigated by the earlier acquisition of offshore production than in the comparative quarter. The company sees growth in the proportion of non-parka inventory as nearly 59 percent of its inventory units comprise non-parka compared to nearly 44 percent as it broadens its collection. More inventory is being held in the Asia Pacific in the current quarter as the size of that business grows in anticipation of peak season with more points of distribution across the region. Management is monitoring the levels of inventory in the sales channels and across geographic regions and aligning with the forecasted demand in each region.

Second Quarter and Full Year Fiscal 2023 Outlook

For fiscal 2023, the company currently expects:

  • Total revenue $1.300Bn to $1.400Bn;
  • Non-IFRS adjusted EBIT $250 million to $290 million, representing a margin of 19.2 percent to 20.7 percent; and
  • Non-IFRS adjusted net income per diluted share $1.60 to $1.90.

For the second quarter of fiscal 2023, the company currently expects:

  • Total revenue $255 million to $275 million;
  • Non-IFRS adjusted EBIT $8.0 million to $18.0 millon; and
  • Non-IFRS adjusted net income per diluted share $0.02 to $0.14.

This outlook is based on a number of assumptions for fiscal 2023, including:

  • Improved traffic and lower levels of operating disruptions globally, including mandatory closures in both company and partner-operated retail stores, relative to fiscal 2022;
  • With respect to Mainland China’s contribution, the lower end of the company’s full year guidance ranges for revenue and profitability assumes there will continue to be limited, periodic COVID-19 disruptions in the region during the company’s peak season and the higher end of the range assumes a return to regular trading levels during its peak season in Mainland China;
  • The company expects $60 million to $65 million in total revenue in fiscal 2023 from the Japan Joint Venture, which is roughly double the contribution from the Japanese market in fiscal 2022;
  • Approximate percent of fiscal 2023 total revenue by quarter—Q2 20 percent, Q3 50 percent and Q4 25 percent;
  • DTC percent of total revenue 70 percent to 73 percent, driven by low- to high-teens comparable sales growth and continued channel expansion;
  • Wholesale revenue growth of 6 percent;
  • Gross margin in the high 60s as a percent of total revenue, with expansion driven by a DTC mix shift;
  • Effective tax rate in the low 20s as a percent of income before taxes for fiscal 2023; and
  • Weighted average diluted shares outstanding of 107.7 million for fiscal 2023.

Photo courtesy Canada Goose/Shanghai