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Canada Goose CEO: ‘We Have Not Seen Any Signs of Slowing Demand’

Canada Goose saw first-quarter revenue grew 24.2 percent to 69.9 million Canadian dollars ($54.8 million) even after its Asia Pacific revenue plunged more than 28 percent. Net losses for the luxury outerwear seller amounted to 63.4 million Canadian dollars ($49.7 million).

As Canada Goose reaffirmed its full-year outlook and both constant-currency revenue and adjusted net earnings per share surpassed estimates by Refinitiv, company stock shot up more than 10 percent in pre-market trading on Thursday before leveling back out later in the day.

In a Nutshell: Following in the footsteps of other luxury players like Ralph Lauren and Capri Holdings, Canada Goose CEO Dani Reiss was bullish about his company’s ability to keep driving sales in the current uncertain macroeconomic environment.

“We have not seen any signs of slowing demand,” Reiss told Wall Street analysts on a quarterly earnings call Thursday.

Reiss believes Canada Goose can build on its 43-store global footprint, particularly in the U.S. where the retailer is launching new stores in Las Vegas and Denver before the end of 2022. The company also plans to open three new stores in China this fall, as well as two stores in Japan later this year as part of a new joint venture in the market.

Over the next three-to-five years, Canada Goose envisions multiple new store openings in both Japan and South Korea, as well as dedicated e-commerce capabilities deployed in both markets.

Inventory was 504.7 million Canadian dollars ($395.7 million) at the end of the quarter, an increase of 24.8 percent compared to 404.5 million Canadian dollars ($317.1 million) as of June 27, 2021. Of the increase, 27.3 million Canadian dollars ($21.4 million) of inventory was acquired upon entering the joint venture.

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Inventory levels increased ahead of the company’s peak selling season as domestic production gradually returns to pre-pandemic manufacturing levels and supply chain risks are improving as it gets product made outside of Canada into the country earlier compared to the prior-year quarter.

Canada Goose is seeing significant growth in the proportion of non-parka inventory as nearly 59 percent of its stock units now comprises non-parka merchandise. More inventory is being held in Asia Pacific in the current quarter as the size of that business grows in anticipation of peak season with more points of distribution across the region.

Gross margin is 61.1 percent, a 660-basis-point (6.6-percentage-point) increase over the 54.5 percent increase in the prior-year first quarter. This year’s gross margin was favorably impacted by pricing, and lower product costs due to increased production efficiencies. DTC gross margin expanded to 72.7 percent, while wholesale margin increased to 50.6 percent.

The gross margin in wholesale also benefited from product mix driven by higher parka sales on customer requests for earlier shipments compared to a year ago. These benefits were partially offset by an unfavorable region mix with higher North American revenue and lower revenue in Asia Pacific as well as an unfavorable impact from the inventory acquisition adjustment related to the Japan joint venture.

Canada Goose reaffirmed its full-year outlook initially reported in May, and unveiled its second quarter guidance, anticipating total revenue between 255 million and 275 million Canadian dollars ($199.9 million and $215.6 million)—a 9.5 percent to 18 percent growth range. Additionally, the luxury outerwear company expects adjusted EBIT between and 8 million and 18 million Canadian dollars ($6.3 million to $14.1 million).

Cash was 81.8 million Canadian dollars ($64.1 million) as of July 3, 2022, compared to 305.9 million Canadian dollars ($239.8 million) at June 27, 2021 largely due to share repurchases in fiscal 2022 for a total cash consideration of 253.2 million Canadian dollars ($198.5 million), and a greater investment in working capital.

Net Revenue: Net revenue at Canada Goose first-quarter revenue grew 24.2 percent on a reported basis to 69.9 million Canadian dollars ($54.8 million), up from 56.4 million Canadian dollars ($44.1 million). Revenue grew 24 percent on a constant-currency basis.

DTC revenue grew 19.6 percent to 34.8 million Canadian dollars ($27.3 million) due to improved productivity in existing stores, continued retail network expansion and the reopening of existing retail stores which were closed in the comparative quarter. DTC comparable sales growth was 10.7 percent.

Wholesale revenue grew by 27.2 percent to 33.2 million Canadian dollars ($26 million) due to pricing, and customer requests for earlier shipments.

On a market basis, Canada saw revenue skyrocket 80.8 percent to 17.9 million Canadian dollars ($14 million) from the 2021 first quarter’s 9.9 million Canadian dollars ($7.8 million). Revenue growth in Canada was largely driven by stores that were open in Q1 2023 which experienced closures due to COVID-19 restrictions in the comparative quarter.

The U.S., which currently generates the smallest portion of regional revenue, saw revenue jump 68.8 percent to 15.7 million Canadian dollars ($12.3 million). Constant-currency revenue leapt 60.2 percent.

Asia Pacific, which includes China, saw a significant 28.1 percent revenue plunge to 16.1 million Canadian dollars ($12.6 million). On a constant-currency basis, revenue declined $5.3 percent. Eight out of 16 stores in Mainland China were closed due to Covid-19 restrictions in the quarter. All stores in the region had reopened as of the end of June.

Additionally, $9.3 million in revenue from Japan will shift to later in the year due to its new joint venture.

EMEA revenue soared 37.4 percent to 20.2 million Canadian dollars ($15.8 million) from 14.7 million ($11.5 million) Canadian dollars. Revenue jumped 53.1 percent on a constant-currency basis.

Net Earnings: Net loss was 63.4 million Canadian dollars ($49.7 million), widening slightly from the net loss of 57.5 million Canadian dollars ($45.1 million) in the year-ago quarter. Basic and diluted losses per share came in at 59 cents (46 cents).

In addition, net loss in the quarter included a charge of 9.5 million Canadian dollars ($7.5 million) stemming from accelerated amortization costs related to the refinancing of the company’s term loan.

Operating losses totaled 80.7 million Canadian dollars ($63.3 million), extending from 61.8 million Canadian dollars ($48.5 million) in the 2021 period.

CEO’s Take: “In our apparel category, fleece and knitwear have grown more than 60 percent over the same period. Non-heavyweight down revenue accounted for approximately 60 percent of our total sales in the first quarter,” Reiss said, noting that lightweight down sales have grown more than 90 percent year over year, and represented 40 percent of the DTC division’s total sales in the quarter. “That’s the highest percentage of non-heavyweight down that we have ever realized. This is just a snapshot of one quarter, but this gives us confidence in our ability to successfully expand new categories. Expanding on that, in September, we will launch a new collection that combines the style, performance and versatility women consumers are looking for with new silhouettes and elevated fabrics and trims.”