Investors think Canada Goose Holdings should be growing faster than it is and, fearing a slowdown, are now disappointed with its growth prospects.
In a Nutshell: Dani Reiss, president and chief executive officer, said, “We entered the year with a very ambitious agenda of global growth, and we have surpassed it with flying colors.”
But shares of Canada Goose were trading down all day, hitting the range of a 28.7 percent decline to $34.92 by late afternoon trading. Essentially the company had a slight miss on revenue estimates for the first time since completing its initial public offering in March of 2017.
Ike Boruchow, a retail analyst at Wells Fargo, said, “While the [Canada Goose] story continues to be one of the most compelling in our space, their [fourth-quarter] release today was simply not good enough for a stock that had been trading at a substantial premium to the branded space [at 40 times PE multiple and 25 times EBITDA] and marks the second straight quarter that carried some investor red flags.”
The analyst noted that although the company updated its three-year targets, they were essentially in line with prior outlooks. He said the key issue was really over near-term concerns, citing the slight miss on fourth quarter revenues at the reported 156.2 million Canadian dollars ($115.56 million) when the expectation instead was for revenues to come in at 158 million Canadian dollars ($116.89 million).
Boruchow added that the miss was a “big surprise” since the company has beat the top-line “every quarter since the IPO by 10 percent or more.” The company also said that the first quarter loss will be “materially larger” year-over-year due in part to store openings in off-peak periods. Another concern was that growth in the direct-to-consumer segment might be moderating, which in turn would put pressure on the business to outperform so it can make up the difference during the holiday period.
In a conference call to Wall Street analysts, Reiss said, “Our global platform has never been stronger. In addition to continued growth in Canada, we have made great strides in developing larger international markets. We grew revenue by 36.3 percent in the United States, and by 60.5 percent in Rest of World. Notably, this includes our very successful expansion in Greater China, which is the world’s largest luxury market.”
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He also said the company plans to open three new retail doors in Greater China in the upcoming year. Reiss noted that in just five years, the company’s DTC channel reached annual sales of 431.3 million Canadian dollars ($319 million), representing 51.9 percent of total revenues.
“Executing with discipline has been the most important thing in getting us to where we are today, and it is foundational to why we have such a long runway ahead of us. We are almost a 1 billion company now,” Reiss said.
Net Sales: Revenues for the fourth quarter ended March 31 rose 25.2 percent to 156.2 million Canadian dollars ($115.56 million), up from 124.8 million Canadian dollars ($92.33 million) a year ago.
The company operated a global footprint of 11 directly operated retail stores and 12 national e-commerce markets.
Earnings: Net income was 6 million Canadian dollars ($4.44 million), or 8 cents a diluted share, versus 6.7 million Canadian dollars ($4.96 million), or 7 cents, a year ago.
For fiscal 2020, the company said it expects annual revenue growth of least 20 percent, helped by wholesale revenue growth in the high-single digits on a percentage basis, eight new retail doors by the end of the winter selling season and one new digital concept store set to open in the same time period as an experiential showroom to drive local e-commerce sales in the Greater Toronto area.
During the year, the company acquired Baffin, which provides it with the expertise and infrastructure to develop a standalone Canada Goose footwear offering in the years to come. Canada Goose also said that over the next three years, it expects average annual revenue growth of at least 20 percent.
CEO’s Take: According to Reiss, “We have come a long way in a short time and we have done it the right way–by preserving the purity of our brand and building for the future….I believe that we are still just scratching the surface of our long-term potential as we continue to define performance luxury globally.”