In a Nutshell: Canada Goose CEO Dani Reiss called out Mainland China’s direct to consumer growth of 86 percent as a bright spot in what was overall a strong quarter.
The Canadian company’s business is “trending up and performing well in every region,” he told Wall Street analysts on a call Friday, which bodes well heading into the holiday season with a new category launching to market.
The outerwear specialist’s expansion into footwear marks “one of the most significant milestones in our more than six-decade history,” Reiss said, describing Canada Goose’s foray into shoes as offering a “completely new perspective” balancing “performance and luxury.”
Reiss said the new boots and shoes for men and women were put through the paces prior to launch. “We do not bring anything to market until our global team of experts [has] validated it. Adventurers, athletes, researchers and cinematographers logged thousands of kilometers and broke new ground to get us to this moment, and we have tremendous confidence in our offering,” he said.
The brand’s Italian-made Journey Boot was designed both for the technical demands of the trails and the rigors of urban living, underscoring the collection’s versatility and lifestyle appeal, Reiss said.
“Footwear is natural next step in our product portfolio, something we have been working on for a year on a category we know our customers have been asking for,” he added.
Canada Goose’s “basecamp community” got first dibs on the new footwear, and bought out 10 percent of the collection in just a week. The collection will launch globally this week with its True to our Brand campaign exploring the real stories of real people’s resilience and perseverance.
Despite some lost production last year, Canada Goose leveraged its agile supply chain to ensure it has sufficient inventory to meet demand. Unlike others throughout fashion, the company doesn’t expect any material revenue headwinds relating to supply or shipping constraints for the fall/winter season.
As Canada Goose transitions to a sourcing matrix free of virgin fur, Reiss believes adopting faux alternative won’t hinder the trajectory of the “high-growth company.”
Reiss warned Wall Street not to expect blowout out margins on footwear until the category gains some traction—and the company figures out efficiencies. The knitwear business, for example, went from zero to $45 million in revenue in four years, he added, illustrating that Canada Goose has “a proven playbook on this” and is “launching new categories and getting into them in the right way…for our brand.”
Chief financial officer Jonathan Sinclair believes footwear gross margins could someday mirror apparel’s. “As you scale, you get the benefits of it over time,” he said, “and that’s not very different from what we experienced in other categories.”
Though Canada Goose is “not back to pre-pandemic levels,” it is “clearly seeing recovery in the store productivity,” Sinclair said.
Cowen analyst Oliver Chen cited the parka maker’s owned production and preferred manufacturer partnerships as factors behind the company’s ability to “deliver on order commitments early and completely within the wholesale channel.” In contrast to many companies battling through supply-chain and shipping bottlenecks, Canada Goose “even has the ability to consider reorders if necessary,” he wrote in a research note. “The company’s strong supply chain operations have also contributed to the successful and on-time launch of Goose’s footwear collection, which we believe will be influential in evolving Goose into a lifestyle brand.”
Net Sales: For the quarter ended Sept. 26, Canada Goose reported a 20 percent net sales gain to 232.9 million Canadian dollars ($187 million) from 194.8 million Canadian dollars ($156.4 million).
Higher store sales, digital growth and retail expansion drive an 80 percent DTC revenue increase to 83.2 million Canadian dollars ($66.8 million) from 46.2 million Canadian dollars ($37.1 million). Mainland China’s DTC revenue rose 85.9 percent, while global e-commerce revenue climbed 33.8 percent. For contrast, the company reported a 188 percent spike in the region’s DTC revenue for the first quarter ended June 27, which compared against 2020’s widespread store closures.
Wholesale revenue gained 25 percent to 147.9 million Canadian dollars ($118.7 million) from 118.5 million Canadian dollars ($95.1 million). The company said the increase was due to earlier order shipments compared with a year ago as retailers sought to minimize Covid-19 shipping delays.
DTC gross margin for the quarter fell to 73.7 percent from 76.8 percent, due in part to a higher proportion of sales in lower-margin non-parka categories. That was partly offset by a higher proportion of sales from retail stores. In wholesale, the gross margin was 49.4 percent, up slightly from 47.6 percent in the year-ago period. The increase was driven by a lower proportion of sales to international distributors.
For the six months, net sales rose 31 percent to 289.2 million Canadian dollars ($232.2 million) from 220.9 million Canadian dollars ($177.3 million).
Earnings: For the quarter, the company posted net income decline of 26 percent to 9.0 million Canadian dollars ($7.2 million), or 8 Canadian cents ($0.06) from 10.4 million Canadian dollars ($8.3 million), or 9 Canadian cents ($0.07), a year ago.
Based on year-to-date performance, the outerwear firm raised revenue guidance for fiscal 2022. It now expects total revenue between 1.125 billion Canadian dollars ($903.2 million) and 1.175 billion Canadian dollars ($943.3 million) up from May’s $1 billion Canadian dollars ($802.8 million) outlook. Canada Goose said its estimates were based on no material change in either economic conditions or any operation disruptions, DTC revenue at 70 percent of total revenue and wholesale revenue growth in the mid-single digits. The prior forecast estimate wholesale revenues in-line with fiscal 2021.
For the six months, the company widened its net loss to 47.7 Canadian dollars ($38.3 million), or 43 Canadian cents ($0.35), from a net loss of 39.7 Canadian dollars ($31.9 million), or 36 Canadian cents ($0.29), in the year-ago period.
CEO’s Take: “Across all channels, we are seeing strong leading indicators of peak season demand. With accelerating DTC trends, growing lifestyle relevance and unique supply chain flexibility, we believe we have the right foundation in place for an outstanding fiscal 2022,” Reiss said.