Canada Goose Holdings, Inc. significantly cut its outlook for its fiscal year ending March 2023 as COVID-19 restrictions continue to slow the recovery in China and macroeconomic concerns mount. The downward adjustment comes despite Canada Goose reporting second-quarter results that handily topped analyst targets.

All figures are in Canadian dollars.

The updated outlook for the fiscal year calls for:

  • Total revenue in the range of $1.2 billion to $1.3 billion compared to original guidance of $1.3 billion to $1.4 billion. Sales were $1.1 billion in fiscal 2022;
  • Adjusted EBIT in the range of $215 million to $255 million, representing a margin of 17.9 percent to 19.6 percent compared to original guidance of adjusted EBIT in the range of $250 million to $290 million, representing a margin of 19.2 percent to 20.7 percent. Adjusted EBIT was $174.6 million in FY22; and
  • Adjusted EPS in the range of $1.31 to $1.62 compared to the original guidance in the range of $1.60 to $1.90. Adjusted EPS was $1.09 a year ago.

For the third quarter of fiscal 2023, the company expects:

  • Total revenue $580 million to $660 million against $586.1 million a year ago;
  • Adjusted EBIT in the range of $220 million to $255 million against $206.9 million a year ago; and
  • Adjusted EPS in the range of $1.47 to $1.72 against $1.42 the prior year.

In the second quarter that ended October 2, revenue grew 19.0 percent on a reported basis to $277.2 million and 22.3 percent on a constant currency revenue basis. The strength of the U.S. dollar compared to the Canadian dollar was outweighed by the depreciation of the pound sterling and euro relative to the Canadian dollar.

Net income declined 66.7 percent to $3.3 million, or 3 cents share, from $9.9 million, or 9 cents, a year ago. On an adjusted basis, EPS improved 69 percent to 22 cents a share from 13 cents a year ago, well ahead of the consensus analyst estimate of 4 cents.

On a call with analysts, Dani Reiss, chairman and CEO, said Canada Goose’s strong top-line flowed through to meaningful bottom-line returns. He said, “We significantly exceeded our adjusted EBIT expectations as well as earnings per share. This performance demonstrates the marginal strength of our business, and we are in season and delivering.”

By channel, wholesale revenue in the quarter increased 21.2 percent, or 24.7 percent on a constant currency basis, to $180.7 million, reflecting shipments requested by customers and an increase in order book value, particularly in Europe.

“Our strong wholesale performance was driven by two factors: one, our ability to fulfill requests from wholesale partners to ship orders earlier in the season; and second, an increase in order book value driven by higher units and price, particularly in Europe,” said Reiss. “This shift in wholesale timing not only allows our consumers the ability to shop the full assortment of Canada Goose earlier in the season but also opens the door to potential reorders.”

Canada Goose also noted that the earlier timing of shipments represents a full return to normalized shipping patterns pre-pandemic.

DTC revenue increased 15.6 percent, or 18.5 percent in constant currency, to $94.8 million. The increase reflected continued retail expansion and an increase in existing store sales in North America and in EMEA. Asia-Pacific continued to be impacted by COVID restrictions, which reduced store traffic through store closures, restricted store hours, mass testing and mandatory quarantines.

DTC comparable sales declined 4 percent but grew 3.2 percent excluding China. In the year-ago quarter, China DTC revenue was up 86 percent with materially fewer COVID restrictions in place.

By region, sales in Canada grew 25.2 percent on a currency-neutral basis, 25.2 percent reported, to $58.7 million. Sales in the U.S. grew 19.3 percent on a currency-neutral basis, 20.3 percent reported, to $74.2 million. The North American region benefited from strength at DTC with four stores set to open to support holiday selling.

Sales in the EMEA region jumped 43.7 percent on a currency-neutral basis, 34.4 percent reported, to $87.9 million. The gains were largely driven by wholesale through key partners across the region and to a lesser degree, improved productivity in existing stores.

Jonathan Sinclair, EVP and CFO, said on the call, “Europe has continued to benefit from travel corridors reopening and increased U.S. tourism. That said, the macroeconomic environment is challenging with soaring inflation. To date, however, we have not seen any material impact on demand and the luxury consumer appears to be quite resilient, but we continue to monitor this closely.”

In the Asia-Pacific region, sales dipped 0.7 percent on a currency-neutral basis, 4.2 percent reported, to $56.4 million. The decline reflects the impact of COVID restrictions in China as well as the temporary closure of the brand’s Macau store. Sinclair said, “Although these challenges have been more prolonged and restrictive than anticipated, optimism about the strength of our brand in this market is unabated as evidenced by our continued investment in the region.”

Canada Goose is also further diversifying in the region through a joint venture in Japan and a new distributor partnership in Korea, all of which helped offset some of the challenges in China in the quarter.

Added Sinclair, “Despite very tight restrictions, particularly around Beijing, leading up to the party Congress mid-month, we saw sales momentum improved during Golden Week in the first week of October. Since then, however, we have not seen the business build in line with our expectations for our peak season. Dynamic COVID restrictions, closures, mandatory quarantines and lockdowns in most of our key markets where we have retail distribution have curbed store traffic and consumer buying.”

Gross margins in the quarter expanded 180 basis points to 59.8 percent, benefiting from pricing actions and lower product costs from increased production efficiencies. Fewer distributor sales due to the creation of the Japan joint venture also boosted margins. Both DTC and wholesale gross margins expanded coming in at 77 percent and 51 percent, respectively. Stated Sinclair, “We were able to deliver stronger margins compared to the prior-year quarter despite inflationary pressures and the diversification of our product mix away from a concentration in heavyweight down.”

Adjusted EBIT increased 70.1 percent to $29.6 million, well ahead of the top end of guidance of $18 million, primarily due to higher gross profit and the timing of marketing spend partially offset by incremental personnel costs as well as the expansion of its retail network and investments in strategic initiatives.

Looking ahead, Sinclair said the weakening in China since the first week of October “alongside the broader global macroeconomic uncertainty” led the company to downwardly revised guidance. He added, “Critically, this does not change our confidence in our brand strength globally, nor in our conviction in China as a significant growth market for Canada Goose, especially given how underpenetrated we are. For all the reasons we’ve detailed, we remain excited about our future prospects here.”

Photo courtesy Canada Goose