Canada Goose does not expect tourism to recover in 2021 as customers hold back in their post-pandemic travels, but the lifestyle apparel brand is planning to open 10 more stores in the upcoming year as it expands it direct-to-consumer offering. Six of these stores will be in the Asia-Pacific region, while three will be in Europe and one will be built in California.
The luxury parka seller showed generated $172.5 million in revenue in its fiscal fourth quarter, a 48.2 percent jump, even as nine stores were closed for an average of eight weeks throughout the period.
In a Nutshell: As of May 13, six of 28 Canada Goose retail stores remain closed, representing 21 percent of the company’s brick-and-mortar network.
Looking to the future, Canada Goose is officially set to launch its first footwear line for the upcoming fall/winter with the focus in year one to “maximize awareness and demand with a focused and tightly controlled product,” Jonathan Sinclair, chief financial officer, said in an earnings call.
Dani Reiss, president and CEO of Canada Goose, added, “we definitely have potential to expand into a much broader footwear assortment…I think it’s a significant category, not just a couple of styles.”
Additionally, Canada Goose will add virtual appointments within its e-commerce site experience in the upcoming year.
Inventories totaled $342.3 million CAD ($282.8 million) at the end of the fourth quarter, down nearly 17 percent from the $412.3 million CAD ($340.7 million). The decrease was attributable to a planned reduction in finished goods of $71.5 million CAD ($59 million), supported by strong fall/winter sales performance and reduced production levels during fiscal 2021.
“Our current position gives us the right level of commercial flexibility for upside in the season, given the current uncertainties around store supply chains and shipping,” Sinclair said. “We believe that being a domestic manufacturer at scale with a staged evergreen offering is highly advantageous.”
Gross profit was $138.6 million CAD ($114.5 million), a jump from $93.6 million CAD ($77.3 million) in the year-ago period, while gross margin remained flat at 66.4 percent.
While gross margin rates benefited from a higher proportion of DTC revenue, it was offset by margin declines in the DTC and wholesale segments. This included a $4.1 million CAD ($3.4 million) increase in funds for raw materials and finished goods for certain colors to prepare for the high fall/winter sales velocity.
Despite the input cost inflation, Sinclair noted that the pressures aren’t ergegiously driving up consumer costs, as the brand already typically “moves price up in the mid-single-digits year in and out.”
DTC gross margin was 74.9 percent, compared to 75.5 percent in the year-ago quarter. The decrease was driven by a $2.4 million CAD ($2 million) increase in inventory writedowns (a 140-basis-point hit), offset by the favorable impact of pricing and volume (90 basis points) driven by parkas.
Wholesale gross margin of 29.1 percent decreased significantly compared to 34.8 percent in the year-ago period. The decrease was attributable to a $1.7 million ($1.4 million) increase in inventory writedowns (530 basis points) in a period with seasonally lower revenue.
Canada Goose currently expects total revenue for the upcoming 2022 fiscal year to exceed $1 billion CAD ($826.3 million), and anticipates annual DTC revenue approaching 70 percent of total revenue, with continued distribution expansion in-line with historical levels. The company assumes DTC revenue will be “roughly 2.5x last year’s level,” Sinclair said.
Annual wholesale revenue is expected to remain in-line with fiscal 2021.
Sinclair noted that Canada Goose’s adjusted earnings before interest and taxes (EBIT) margin would likely be in the “mid-to high-teens” growth range.
Total revenue in the upcoming first quarter is assumed to be “less than double” the $26.1 million CAD ($21.6 million) of total revenue from last year’s first quarter.
Cash was $477.9 million CAD ($394.5 million) as at year end, compared to $31.7 million CAD ($26.2 million) in the fourth quarter of 2020. Positive free operating cash flow and refinancing proceeds drove the increase. Canada Goose has $181.2 million CAD ($149.5 million) of available borrowing capacity in an undrawn revolving facility. positive free operating cash flow and refinancing proceeds.
Net Sales: Total fourth-quarter revenue at Canada Goose was $208.8 million CAD ($172.5 million) from $140.9 million CAD ($116.4 million), a 48.2 percent increase over the final quarter of the year prior. Revenue increased by 33.7 percent relative to the comparative quarter two years ago, which was prior to the onset of Covid-19.
Year-over-year revenue increased significantly in all geographic regions except Canada, which only decreased by 6.9 percent despite elevated mandatory retail closures relative to other markets. Revenue in the U.S. increased 59.3 perecent.
DTC revenue was $172.2 million CAD ($142.3 million), with $114.2 million CAD ($94.4 million) driven by e-commerce growth and continued retail expansion in Mainland China, offset by lower store revenue in other markets due to Covid-19 disruptions. DTC revenue in Mainland China increased by 101.4 percent.
Global e-commerce revenue increased by 123.2 percent, driven by high double-digit and low triple-digit growth rates in all major existing markets.
Wholesale revenue was up 33.2 percent to $33.3 million CAD ($27.5 million), from $25 million CAD ($20.7 million) in the year-ago period. The increase was due to the higher in-season orders relative to the comparative period. Other revenue also increased to $3.3 million CAD ($2.7 million) from $1.7 million CAD ($1.4 million).
Net Earnings: The retailer’s net income was $2.9 million CAD ($2.4 million), or $0.03 CAD (2 cents) per diluted share in the quarter, compared to $2.5 million CAD ($2.1 million), or $0.02 CAD (2 cents) per diluted share in the year-ago period.
Fourth-quarter operating income was $7.8 million CAD ($6.4 million), compared to an operating loss of $17.2 million CAD ($14.2 million).
Non-IFRS adjusted net income was $1.1 million CAD ($910,000), or $0.01 CAD (1 cent) per diluted share, compared to a loss of $13.3 million CAD ($11 million), or $0.12 CAD (10 cents) per diluted share.
CEO’s Take: In the call, Reiss commented on Canada Goose’s continued DTC growth and the upcoming flat expectations of the wholesale category, where the brand has exited 600 doors since its 2017 IPO.
“We make sure that all of our wholesale accounts are brand accretive and helpful to building our brand,” Reiss said. “For example, in fiscal 2021, we went from 2,100 points of distribution down to 1,900. When we first when public, we were over 2,500, so we’ve been rationalizing over time, and that’s to make sure we are continuing to partner with like-minded partners. It’s a continuous process.”