Shares of Canada Goose, Inc. reached an all-time low of $9.81 in over-the-counter trading as the outerwear maker axed its outlook for the year amid concerns over luxury spending, China’s recovery and warm weather.

Shares closed Wednesday at $10.13, down 97 cents, or 8.7 percent. The stock is now trading below its IPO price at Canadian C$17, or U.S. $12.78 per share.

On an analyst call, CEO Dani Reiss noted that earnings for the fiscal second quarter exceeded the firm’s guidance. However, sales in September slowed “noticeably,” reversing momentum seen over the summer.

“For Q3, we are taking a more conservative approach in regards to our expectations, given the macro environment we see across many of our markets today,” said Reiss. “As a result, we are revising our full year outlook to reflect a moderation in sales growth and continued investments in our priorities, balanced with prudent expense actions.”

The updated outlook in Canadian dollars for its fiscal year ended March 31, 2024 includes:

  • Revenues at C$1.2 billion to C$1.4 billion, down from a range of C$1.4 billion to C$1.5 billion projected earlier. In FY23, sales were C$1.22 billion.
  • Adjusted EBIT between C$135 million and C$225 million, representing a margin of between 11 percent and 16 percent, compared to original guidance of non-IFRS adjusted EBIT of C$210 million to C$240 million, representing a margin of 15 percent to 16 percent. In FY23, adjusted EBIT was C$1 million, or 14.4 percent.
  • Adjusted EPS in the range of C$0.60 to C$1.40, moving the range down from the C$1.20 to C$1.48 forecast before. In FY23, adjusted EPS was $C1.05.

In the fiscal second quarter, revenue increased 1 percent to C$281.1 million ($202.7 mm), down 3 percent on a currency-neutral basis. Results were about the midpoint of guidance in the range of C$270 million to C$290 million

By channel, DTC revenue grew 15 percent in the second quarter to C$109.4 million ($78.9 mm), up 12 percent on a currency-neutral basis, driven by growth of in-store retail sales. Sales from DTC channels increased to 39 percent of revenues from 34 percent in the same reporting period last year.

DTC comparable sales decreased 7 percent year-over-year with comparable store sales up slightly compared to the same period in the prior year and e-commerce sales showing a decline.

Reiss said that while profit grew significantly both online and offline across all regions, DTC comp growth was down in the U.S., EMEA and Mainland China. Growth was “robust” in Hong Kong, Taiwan and Macau, fueled by the return of Mainland Chinese tourists. Canada DTC comps growth also increased particularly in cities with high levels of tourism, including Vancouver, Bath and Toronto.

Reiss said, “Overall, we saw softer conversion in Q2 year over year, which we believe may be due to the macroeconomic environment, in which consumers are spending closer to need, exacerbated by the late arrival of colder weather that many regions have been experiencing.”

Wholesale revenue decreased 10 percent, or 15 percent on a currency-neutral basis, consistent with expectations across all geographies. The decline reflected the streamlining of wholesale relationships as the brand emphasizes DTC sales, partially offset by earlier shipments of orders to wholesale customers.

Jonathan Sinclair, EVP and CFO, said, “Similar to Q1, we delivered earlier shipments to our wholesalers who are excited to have the products available ahead of the peak season. We continue to see caution by the wholesale community, which is reflected in our order book across all geographies as a challenging macroeconomic backdrop continues to present headwinds.”

By region, revenue in North America was down 7 percent, or 8 percent on a currency-neutral basis, to C$124.1 million. Lower wholesale revenue was partially offset by DTC-segment growth in the single digits year over year due to a “solid” store performance, said Sinclair.

In the U.S., DTC sales grew by low-double-digits due to new store sales. Traffic was substantially higher year over year as Canada Goose more than doubled its store count to 13 permanent stores.

Sinclair said of the U.S. region, “We’re taking meaningful steps to grow the female consumer while continuing to build on the success of the men’s business. In the second quarter, the share of transactions from women remained stable year over year with pieces from our Fall Winter 23 collection resonating.”

From a product standpoint, apparel and rainwear categories led U.S. growth in the non-heavyweight-down portion of the business. Sinclair said, “This demonstrates our ability to provide an all-season relevant product offering to our customers.”

In its home market of Canada, Canada Goose registered “modest” DTC growth compared to the same period last year due to growth at brick-and-mortar stores as revenue contributions from tourists continue to grow within the mix, alongside a reduced wholesale penetration. In the Asia-Pacific region, sales were up 13 percent on a reported basis and 11 percent currency-neutral to C$63.8 million.

“We have especially strong performance in our stores in Hong Kong, in Taiwan, and in Macau, with the continued return of Chinese tourists,” said Sinclair. “Store sales rose in Mainland China, where the lifting of COVID restrictions has led to a solid rebound in domestic spending.”

Sinclair said Canada Goose continues to expand its product base and grow its non-heavyweight down portion with rainwear, apparel and footwear representing a larger portion of total revenues on a year-over-year basis in the Asia-Pacific region.

In EMEA, revenue was up 6 percent year-over-year to C$93.2 million but down 4 percent on a currency-neutral basis as wholesale revenue was partially offset by a softer DTC channel performance. The wholesale outperformance was led by earlier shipments of wholesale orders. DTC store revenue growth was offset by lower e-commerce revenue as consumers “felt the pinch of weakening macro-economic conditions,” said Sinclair.

Sinclair said the EMEA region continues to see its share of revenue from international tourism grow as a proportion of total revenues. Said Sinclair, “Rainwear was a standout category during the quarter, growing significantly compared to last year with Europe experiencing more rainfall than average during the summer.”

Adjusted net income was down 20.2 percent year over year to C$16.2m, or C$0.16 per basic share, from C$20.3m, or C$0.19, a year ago, but topped guidance calling for a loss between C$0.24 to C$0.17 a share.

Net Income totaled C$3.9 million, or C$0.04, compared with net earnings of C$3.3 million, or C$0.03, a year ago. The latest quarter’s reported results were particularly impacted by consulting fees and severance costs tied to its  Transformation Program. The year-ago period’s reported earnings were impacted by a significant unrealized foreign exchange loss on its term loan facility.

Adjusted EBIT reached C$15.6 million (U.S.$11.2 mm), down 40.7 percent from $26.3 million a year ago but ahead of guidance in the range of a loss between C$30 million to $20 million. On a reported basis, operating income was C$2.3 million compared to C$21.5 million a year ago.

Gross margin for the quarter expanded to 63.9 percent compared to 59.8 percent in the year-ago quarter, primarily due to a higher proportion of DTC channel sales, pricing, and favorable product mix from the sale of higher margin styles within Heavyweight Down and non-Heavyweight Down categories, partially offset by higher product costs due to higher input cost inflation and freight and duty charges.

SG&A expenses jumped 22.8 percent to C$177.2 million, or to 63.0 percent of revenues against 52.1 percent. The hike was due to store openings and investments in initiatives to improve long-term operational efficiency through its Transformation Program, the majority of which were one-time in nature.

Inventory was C$519.7 million at the close of the second quarter, up 2 percent from the second quarter ended October 2, 2022, with decelerating year-over-year growth compared to the first quarter of fiscal 2024.

Elaborating on the outlook, Sinclair said DTC revenue is expected to account for around 70 percent of total revenue in the fiscal year. DTC comps are expected to show a high-single-digit increase to a low double-digit decrease in year over year. The brand plans to open 15 new permanent stores this year, nine of which are currently open. It had 62 permanent stores open at the quarter’s close.

Wholesale revenues in the fiscal year are projected to decrease year over year by a low-to-mid teens percent, reflecting the continued editing of its wholesale door count, downwardly revised reorder expectations and the expansion of its store retail network.

Sinclair concluded, “I think we had a solid first half of fiscal 2024, delivering on the top line and delivering on the bottom line expectations. And we’re making good progress across our strategic pillars and our Transformation Program, and seeing some early benefits of our work in the positive-adjusted EBIT achieved in the second quarter. We remain confident that our strategy is the right one to achieve long-term sustainable growth and improved profitability. All of that said, however, our outlook for the back half fiscal 24 has come under pressure due to an increasingly challenging global macroeconomic environment that has impacted consumer decision-making and prioritization of spend. As a result, we saw early momentum gathered in our second quarter begin to slow noticeably in September. While we began to see some improvement in late October, visibility remains reduced.”

Photo courtesy Canada Goose