Canada Goose on Wednesday reported a wider first quarter loss, but said demand is on the rise and it expects more DTC revenue in the back half, leading the company to reiterate its previous fiscal year 2022 guidance.
In a Nutshell: “Our business has shifted from recovery to growth, and that has continued into this quarter,” Canada Goose’s president and CEO Dani Reiss told Wall Street analysts on a conference call.
He said results were driven by strength across all channels and regions, with global e-commerce revenue increasing by more than 80 percent and low triple digit growth in both APAC (Asia Pacific) and EMEA (Europe, Middle East and Africa) regions. “In North America, Canada led the way with a growth rate in the high-70s and in the US, where the majority of its stores were open for the quarter, the company strong e-commerce growth in the high-40s,” Reiss said.
Canada Goose is focused on growing its business in Mainland China. “We saw firsthand the opportunity ahead of us, with our DTC revenue in mainland China increasing by 188 percent. This quarter, even beyond Q1, we continue to build our business in mens and over the past month, we’ve celebrated three new store openings in key markets in the region, with three more expected to follow this fall,” Reiss said.
In the wake of launching knitwear in 2017, Canada Goose’s “apparel business is expected to exceed $45 million in sales,” with the fast growing category becoming a “meaningful business” with a strong growth trajectory, Reiss said. The non-parka business has shown strength overall and in the quarter contributed to “roughly half of our DTC revenue,” he added.
The premium outerwear maker is on track to launch footwear this fall and to stop buying fur by the end of this year, with plans to cease manufacturing fur products no later than the end of 2022. It joins a host of pees on the no-fur bandwagon, including Holt Renfrew, Saks Fifth Avenue, Macy’s, Michael Kors, Armani and Gucci.
“We are transforming the way we do business to ensure that we’re doing everything we can to create the future that we want to see in the world,” Reiss said.
During the call, chief financial officer Jonathan Sinclair said that the flexibility of Canada Goose’s supply chain and DTC distribution have been incredible assets for navigating a dynamic environment, adding that “we have the building blocks for significant upside in our profitability.”
All of Canada Goose’s stores are now open, along with its eight Canadian manufacturing facilities, Sinclair said. The factories are back to much more normalized levels of production, compared with last year, he added. With distancing regulations still in place, Sinclair said the company is utilizing extra shifts to lessen the impact, while a big plus is that it doesn’t have significant exposure to the production shutdowns and shipping delays the sector is currently facing since the vast majority of it revenue base is in Canada. He added that those factors also mean the firm’s “shipping routes are also different. We generally start outbound from Canada to our global network of distribution centers.”
Net Sales: Net sales for the first quarter ended June 27 more than doubled to 56.3 million Canadian dollars ($45 million) from 26.1 million Canadian dollars ($20.8 million). The company said DTC revenue was 29.4 million Canadian dollars ($23.5 million) from 10.4 million Canadian dollars ($8.3 million), helped by a lower level of Covid-19 disruption, e-commerce growth and new retail expansion. Wholesale revenue was 25.8 million Canadian dollars ($20.6 million), up from 8.7 million Canadian dollars ($6.9 million) a year ago. The balance of revenue was from personal protection equipment sales, which fell from a year ago and were temporarily manufactured in support of Covid-19 response efforts.
The company reported a DTC gross margin of 72.8 percent, versus 66.3 percent a year ago, and wholesale gross margin of 35.3 percent, versus 17.2 percent last year. The increase in DTC gross margin was due to higher sales volumes from retail stores and the uptick in wholesale gross margin was driven by a higher proportion of sales to wholesale partners compared to international distributors.
Inventory at the end of the quarter was 404.5 million Canadian dollars ($323.1 million), versus 428.6 million Canadian dollars ($342.3 million) in the year-ago quarter. The decrease was due to a reduction in finished goods of 22.4 million Canadian dollars ($17.9 million), supported by sales growth and reduced production in fiscal 2021, the company said.
Earnings: The net loss widened to 56.7 million Canadian dollars ($45.3 million), or 51 Canadian cents ($0.41), versus the net loss of 48.1 million Canadian dollars ($38.4 million), or 46 Canadian cents ($0.37), in the year-ago period.
The company reiterated its fiscal 2022 outlook.
“For the second quarter of fiscal 2022, this outlook assumes low double digit wholesale revenue growth, and DTC revenue at roughly one and a half times last year’s level,” Canada Goose said.
Sinclair said during the call that for the second quarter, the company expects a DTC gross margin percentage in the mid-70s and wholesale gross margin in the mid-40s, in line with historical annual levels.
He also said the company is more DTC-centric today, adding that “naturally puts a lot more revenue into Q3 and Q4, when consumer buying is at its peak.”
CEO’s Take: “Our digital business continued at a rapid pace of growth globally, alongside improving retail trends. With strong momentum in a less disrupted operating environment, and an exciting product pipeline—including our growing apparel business and footwear launch later this fall—we are well positioned for fiscal 2022,” Reiss said.