Shares of Canada Goose are running up about 20 percent in mid-day trading as the outerwear specialist reported second-quarter earnings topped Wall Street targets and lifted its outlook for the year. Officials also bragged that its Canadian production has helped to avoid widespread supply chain challenges.
“We’ve always believed that making our products where they’re supposed to be made and not chasing margins and low-cost environments was a sustainable decision,” said Dani Reiss, president and CEO, on a conference call with analysts. “That decision became, and continues to be, a competitive advantage. In today’s environment, we have seen just how much of an advantage it truly is. Despite losing production for three months last year, we are not short in supply. The weaknesses in unprepared supply chains have been exposed. Unlike others, the flexibility of our supply chain is an asset in the dynamic environment that we face today. Because of this, we do not expect any material revenue headwinds related to supply for shipping constraints this fall or winter.”
However, most of Reiss’ comments focused on demand with “accelerated momentum” seen across channels and regions. He said, “Across all channels, we see strong demand, positive leading indicators and we feel very good about the business heading into peak season.”
In the second quarter ended September 26, sales rose 19.6 percent to $232.9 million from $194.8 million a year ago (figures are Canadian dollars). Sales topped analysts’ consensus target of $206.6 million.
Total revenue increased by 40.3 percent, excluding $28.8 million of temporary PPE sales in the comparative quarter.
Direct-to-consumer (DTC) revenue in the quarter was $83.2 million against $46.2 million, a hike of 80.1 percent. The majority of the increase was driven by higher sales from existing retail stores, complemented by e-commerce growth and retail expansion. Reiss said, “This was fueled by a strong retail recovery in the quarter and continued growth across the digital business globally.”
Global e-commerce revenue increased by 33.8 percent, driven by growth in all major existing markets. DTC revenue in Mainland China increased 85.9 percent.
Wholesale revenue was $147.9 million versus $118.5 million, a gain of 24.8 percent. The increase was a result of earlier order shipment timing relative to fiscal 2021. This was driven by wholesale partner requests due to a lower level of COVID-19 disruptions to its operations.
Net earnings on an adjusted basis grew 14.8 percent to $13.2 million, or 12 cents per share, compared to $11.5 million, or 10 cents. Wall Street was expecting a loss of 10 cents. Net income came to $9.0 million, or 8 cents, compared to $10.4 million, or 9 cents, a year ago.
Beyond the top-line growth, the earnings improvement reflected an improvement in gross margins to 58.0 percent from 48.4 percent.
DTC gross margin eroded slightly to 73.7 percent compared to 76.8 percent, with the decrease driven by a higher proportion of sales in non-parka categories with lower margins (negative 170 basis points) and COVID-19-related government payroll subsidies in the comparative quarter (negative 380 basis points). This was partially offset by a higher proportion of sales from retail stores (positive 230 basis points).
Wholesale gross margin improved to 49.4 percent, compared to 47.6 percent. The increase was driven by a lower proportion of sales to international distributors (positive 490 basis points) and pricing (positive 210 basis points). This was partially offset by COVID-19-related government payroll subsidies in the comparative quarter (negative 510 basis points).
SG&A expense increased to 43.5 percent of sales from 32.0 percent a year ago.
DTC operating margin was 25.2 percent, compared to 15.4 percent. The positive impact of revenue growth was partially offset by the decrease in segment gross margin. Wholesale operating margin of 39.5 percent, compared to 37.9 percent. The increase in operating margin was attributable to higher segment revenue and gross margin.
Reiss highlighted the November launch of Canada Goose’s first footwear collection, calling the launch one of the most significant milestones in our more than six-decade history.”
He added, “We are bringing a completely new perspective to the category, balancing performance and luxury, which is the ultimate expression of our lifestyle brand.”
The category launch features two styles, the Snow Mantra Boot, shown lead photo, and Journey Boot. The Snow Mantra is “the most comprehensive boot, providing extreme protection and warmth. Like its namesake parka, Snow Mantra is the ultimate in performance, designed for the harshest environments on earth.”
The Journey boot, crafted in Italy, is “a performance luxury hiker designed for the trails and the demands of the city” with an emphasis on versatility.
“Footwear is a natural next step in our product portfolio, something we’ve been working on for years and a category we know our customers have been hankering for,” said Reiss.
Last week, a limited presale for its Base Camp community led to the sell-out of about 10 percent of the collection to signal strong demand. The collection will launch globally with a campaign built around its brand’s ambassadors.
Reis also noted that last week, Canada Goose opened its first retail store in California at the South Coast Plaza in Costa Mesa that features an expanded offering and its first Snow Room in the U.S. The Snow Room simulates a snowstorm with daily temperatures reaching as low as minus 20 degrees Celsius. He said, “We have seen strong demand indicators since opening.”
Reis said Canada Goose continues its strategic retail expansion in key markets worldwide and is “leaning harder than ever before” into its DTC business to drive growth.
“In just seven years, DTC has grown exponentially to become nearly 70 percent of our projected total revenue this year,” said Reis. “And through the pandemic, we have purposefully accelerated that trajectory. Retail profits and store productivity continues to be much stronger than last year, driving the lion’s share of our DTC growth. At the same time, we see strong growth across our digital business versus last year as well. Both our retail and our digital businesses are stronger than we were last year and, looking forward, this October, we saw strong acceleration across our DTC network globally. We consider that a positive indication of the months ahead.”
Looking ahead, Canada Goose expects total revenue in its fiscal year ended March 2022 in the range of $1.125 billion to $1.175 billion, up from guidance of exceeding $1.0 billion issued at the start of its fiscal year.
Non-IFRS adjusted EBIT is now expected in the range of $186 million to $208 million, which compares to $116.9 million in the fiscal 2021 period and $192.1 in the fiscal 2020 period. The guidance implies an adjusted EBIT margin in the range of 16.5 percent to 17.7 percent, up from 14.7 percent in the fiscal 2021 period and compared to 21.6 percent in the fiscal 2020 period. Adjusted EPS is expected in the range of $1.17 to $1.33, up from 77 cents in the fiscal 2021 period and against $1.32 in the fiscal 2020 period.
Photo courtesy Canada Goose
