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Canada Goose Addresses Hong Kong Protests After Q2 Revenue, Earnings Beat

Driven by wholesale and DTC gains, Canada Goose was able to sidestep short-term headwinds in the second quarter, surpassing Wall Street expectations for both earnings and revenue.

In a Nutshell: Positive results were still not enough to sway investors who remain worried about the brand’s growing presence in protest-stricken Hong Kong, however, and stock for the cold-weather outerwear brand plunged 12.6 percent after the company published its quarterly financial report Wednesday.

Canada Goose CEO Dani Reiss told investors in the brand’s quarterly conference call that the company worked diligently to fulfill partner requests for earlier shipments in the second quarter, boosting wholesale revenue and building an inventory ahead of growth to “maximize production efficiency and long-term commercial flexibility.”

Over the past two-and-a-half years, Canada Goose has prioritized increasing its in-house production capacity alongside contracted production, Reiss said. As a result, the outdoor and lifestyle brand now manufactures more than half of its own downfield production.

However, it was the ongoing and increasingly violent civil unrest in Hong Kong that received top billing from Reiss and Canada Goose during the call.

“With the impact on tourism and retail traffic, the performance of our store at IFC (Hong Kong’s International Finance Center) has been impacted significantly. The same goes for our recently opened location at Ocean Center, which is the fifth of our nine openings this year,” Reiss explained.

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“With this addition,” Reiss added, “we are established in the two most important luxury retail districts in the city, complementing the mix of guests we already reach through IFC. Although we wish that the situation was different today, we are developing markets and building stores for decades, not just for the next quarter.”

Canada Goose will be monitoring the Hong Kong situation closely, and begin examining options to lower costs on the ground—perhaps by renegotiating rents with landlords, Reiss noted.

Sales: Revenue for Canada Goose was up 27.7 percent to $294 million Canadian dollars ($222.46 million), well above the $266.8 million Canadian dollars ($201.7 million) predicted by Wall Street. Despite the turmoil in Hong Kong, Canada Goose reported that it nearly doubled sales in Asia to $48.9 million Canadian dollars ($36.97 million).

In North America, sales grew by 38.5 percent in the United States and by 29.9 percent in Canada, the brand’s most developed region with the toughest comps. Canada Goose also saw its DTC channels grow by 47.2 percent while wholesale channels turned in a healthy growth rate of 22.9 percent. Reiss said this was helped by the nature of the wholesale channel, likening it to a “planned economy” that benefits from increased visibility throughout the year.

However, the second quarter saw an above-average push for wholesale product and Reiss suggested this will lead to a difficult comparison over the next quarter.

“It comes down to a balance of when our partners want delivery and when we can manufacture their orders most efficiently,” Reiss explained. “This year, we have been well-positioned to fulfill customer needs earlier. The shape of every year has always been different, and so movements of orders between quarters or months is not a reliable indicator of annual performance. I am really pleased that we’ve shipped so much of our fall/winter order book earlier, which naturally means less shipments in the next quarter. It does not mean that the underlying demand in the channel is changing.”

Canada Goose held to its outlook of 20 percent revenue growth overall in FY20 and still expects wholesale revenue to grow in the high-single digits throughout the rest of the fiscal year.

Earnings: The outerwear brand turned in an adjusted EPS of 55 cents, reflecting growth of 23.9 percent and surpassing Wall Street expectations of 43 cents. Adjusted EBIT was also $79.2 million Canadian dollars ($59.88 million) in the second quarter, resulting in a margin of 26.9 percent for the brand.

Canada Goose said it will be holding to its full-year outlook of 25 percent growth in terms of adjusted net income per diluted share.

CEO’s Take: Reiss praised the brand’s performance, pausing briefly to applaud the rollout of Canada Goose’s new Branta line, composed of limited-edition silhouettes that were released as an “elevated interpretation” of the brand’s heritage heading into its primary sales window.

Overall, he said Canada Goose was prepared to capitalize on what appears to be a cold winter.

“Our performance in the first half reflects the strength of our brand and power of our unique business model. Through global brand equity, selective distribution and operational flexibility, we delivered another set of strong results despite continuing external uncertainties,” Reiss said in a statement. “Alongside continued growth at home, we are making great strides internationally, and we believe we are well-positioned going into our peak selling season.”