Canada Goose Stock: Recent Headwinds Are Temporary (NYSE: GOOS)

Stock Market


Canada Goose at the 2018 Sundance Film Festival - Director Suite

Matt Winkelmeyer / Getty Images Entertainment

As we gear up for a near-term rebound in the markets, my buying philosophy at the moment is to focus on high-quality long-term stocks that have seen a sharp sudden pull for potentially transitory factors. Canada Goose (NYSE: GOOS), in my view, is one of these names.

Canada Goose, the luxury jacket maker known for its very expensive, thick parkas worn and loved by men and women alike, has seen a sharp reversal of fortune since the market started turning south in November. Though Canada Goose had plenty of fundamental tailwinds behind it – including rapid growth in its direct channels, strong China expansion plans, and launching a footwear lineup in the back half of 2022, it got a major setback through Omicron, which forced new restrictions up across its large fleet. As a result, Canada Goose cut its guidance for the remainder of the fiscal year in early February, sending shares spiraling downward even further. Year to date, the stock has lost nearly 30%; while relative to 52-week highs notched in November, the company has shed roughly half of its value.

Canada Goose (<span class =
Data by YCharts

The guidance cut – how bad is it?

Before we overreact, let’s assess the situation. Note that Canada Goose has a May fiscal year-end and the company just completed its third quarter, so the guidance the company is providing only goes out one quarter (through Q4, the May quarter).

Canada Goose outlook revision

Canada Goose outlook revision (Canada Goose Q3 earnings release)

The company cut full-year revenue by C $ 35 million on the low end of its range, and C $ 70 million on the high end of the range. Now, this is not a small number – versus the C $ 208.8 million that Canada Goose did in FY21, this cut represents 17 points of growth on the low end and 34 points of growth on the high end. But we do note that even the low end of the revenue range for Q4, at C $ 214.7 million, still represents 3% y / y growth.

I view this slip as more transitory in nature or perhaps even a channel mix shift. Here are my predicted impacts of a lingering COVID situation on Canada Goose’s quarter:

  • For direct channel customers: Canada Goose’s flagship parkas are expensive, thought-out purchases. If the Canada Goose store is closed due to Omicron, shoppers may wait until the store reopens or find the product online. Actual perishable demand should be low. This is not like the early onset of the pandemic that carried an economic shock and forced people into “savings mode”.
  • For channel partners: Yes, retailers who have to close their doors will not be ordering as many Canada Goose products in Q4. But again as above, if we believe total end-demand is not perishable and shoppers will simply wait until they can buy their jackets, retailers will just “push” their orders from Q4 to Q1.

In other words, it’s my view that demand either shifts between channels, or gets pushed out to Q1: but minimal demand is lost overall.

Note as well that Canada Goose’s CFO Jonathan Sinclair also characterized the guidance cuts as temporary in nature during his prepared remarks on the Q3 earnings call:

The temporary reductions we have faced do not change our optimism for fiscal 2023. We will share our views at year end in detail. As we see it today, there is no reason why we can not have strong growth and margin expansion even without a full retail recovery globally. Our DTC journey continues. Our brand momentum is robust. Our lifestyle relevance is expanding. Our one-of-a-kind supply chain and our pricing power gives us stability and flexibility in a disrupted retail environment. “

Lastly, we note that Canada goose has a lot of exciting growth drivers ahead. Recall that the company recently launched a new footwear lineup and is leaning more into general apparel. In addition, the company is making a big push into Japan by entering into a 50/50 joint venture. According to a recent press release, the company is expecting to drive C $ 50-65 million in Japanese revenue in FY23, which is double the contribution of Japan in FY22.

The bottom line here: I do not view any glaring red flags that prevent me from buying Canada Goose on the dip. Transitory Omicron factors will subside (especially as the US continues to drop restrictions and masking) and lead into a strong FY23.

Q3 recap

Let’s now cover Canada Goose’s latest Q3 results in greater detail. As a reminder, Q3 is Canada Goose’s biggest and most important quarter – in FY21, it generated roughly half of full-year revenue. The Q3 earnings summary is shown below:

Canada Goose Q3 results

Canada Goose Q3 results (Canada Goose Q3 earnings release)

Canada Goose’s revenue grew 24% y / y to C $ 586.1 million. We note there is a bit of a tailwind in the y / y compare here, as Canada Goose has a 53-week fiscal year in FY22 with the extra 14-week quarter slotted into Q3.

Regardless, the quarter was still strong, particularly in Canada Goose’s rapidly expanding direct channel. DTC revenues grew 49% y / y to C $ 445.4 million, representing 76% of the company’s revenue. Similarly to the past several quarters, this direct mix shift has been a big driver in Canada Goose’s upward margin drive: and this quarter, gross margin improved 380bps to 70.6%.

We will note here the richness of that gross margin, especially for a consumer retail company. A 70% gross margin profile puts Canada Goose basically at the level of a technology company.

Other highlights of note: Canada Goose’s non-parka revenue grew 75% y / y. While the company did not outright disclose much revenue was generated from these newer, non-core categories, the strong growth showcases the large market Canada Goose has to expand into for general apparel, and over time should also reduce the seasonal dependence that Canada Goose currently has for winter gear.

Here’s some additional commentary from Canada Goose’s CEO Dani Reiss on the Q3 earnings call, detailing the success of the company’s product roadmap journey:

We are building an enduring global lifestyle brand and expanding year-round roles. I’m proud of the dedication our team has shown delivering against this objective, and we are encouraged by the results that we are seeing across the business. This quarter, non-parka revenue grew by 75%. We are seeing tremendous success across our expanded offering. One highlight I’d like to touch on being our pastel collection, our first full expression of the Canada Goose lifestyle, including sweat, outerwear, accessories and footwear. The collection resonated particularly with women, and we plan to expand this offering later this year.

Another milestone from this past quarter was the efficient launch of our first-ever footwear collection. The collection has driven excitement demand and a strong response from consumers. Looking forward to our spring collection, we will launch several new styles, growing our year-round relevance. There is so much potential within footwear, both in the near and long-term, and I look forward to continuing to update you.

Innovative collaborations are hallmark of our brand and a massive driver of brand heat. In December, we evolved our annual collaboration with concepts with the addition of renowned Japanese fashion brand, BAPE. The response was incredible and the collection sold out within days. And tomorrow, we launched our second annual capsule collection with NBA All-Star as part of our multiyear partnership. This year, we teamed up with Salehe Bembury as our guest designer for the collection. Bembury is one of the world’s most innovative designers today and the collection has received outstanding interest presale. I look forward to seeing our brand in Cleveland next weekend. “

One additional note: in Q3, Canada Goose also rolled out a new website design in North America. The company notes this interface upgrade has led to increased online conversion rates.

On the profitability front, Canada Goose grew its adjusted EBIT by 31% y / y to C $ 206.9 million. Margins, meanwhile, rose by an impressive 200bps to 35.3%, driven primarily by the gross margin gains.

Canada Goose adjusted EBIT

Canada Goose adjusted EBIT (Canada Goose Q3 earnings release)

Key takeaways

In my view, investors have a great opportunity now to buy into a well-known brand expanding in a number of ways (geographically and through product category growth), that also continues to be margin-rich with plenty of headway for profit expansion. Stay long here and wait on the rebound.



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