Canada Goose sold 2.9 billion in Q3 last year but failed to win the favor of investors

“Hermes in the down jacket industry” Canada Goose released its financial report for the third quarter of fiscal 2022 after the US stock market closed on February 10, Eastern Time. The financial report disclosed that Canada Goose’s revenue in the third quarter was 586 million Canadian dollars (about 2.92 billion yuan), a year-on-year increase of 23.6%; net profit was 152 million Canadian dollars, a year-on-year increase of 42%; gross profit achieved 414 million Canadian dollars, with a gross profit margin of approximately It was 70.6%, and EBIT (earnings before interest and taxes) was 206 million Canadian dollars, an increase of 34.3% year-on-year; diluted earnings per share were 1.41 Canadian dollars, compared with 0.96 Canadian dollars in the same period last year.

Canada Goose sold 2.9 billion in Q3 last year but failed to win the favor of investors
Canada Goose failed to win the favor of investors

In the first three quarters, Canada Goose achieved revenue of 875 million Canadian dollars, a year-on-year increase of 26%; gross profit of 580 million Canadian dollars, a year-on-year increase of 39.5%, a slowdown compared with the 2022 interim report.
Despite continued growth in net sales and revenue in the third quarter, in the earnings report, Canada Goose lowered its 2022 financial guidance, which was clearly below Wall Street expectations. After the release of the financial report, Canada Goose’s share price fell from the closing price of $34.31 on February 9 to the closing price of $28.73 on February 10, a plunge of more than 16%, the largest one-day decline in two years, and the closing price on Friday continued. It fell to $26.92.
After lowering its revenue and profit forecast for fiscal 2022, Canada Goose’s share price crashed. What did this latest financial report reveal?

DTC and e-commerce revenue grew brightly

By business, Canada Goose is currently divided into three operating and reporting segments: DTC (Direct to Consumer), Wholesale, and Others. The DTC segment includes sales through country-specific e-commerce platforms and their company-operated retail stores located in luxury shopping locations; the wholesale segment includes a mix of sales to retailers and international distributors. Before 2019, the wholesale channel was one of the most important sources of Canada Goose sales revenue. However, the relatively single revenue channel makes Canada Goose lack a certain anti-risk ability, especially the decline in revenue during the epidemic, which once made its investors lose confidence in future profitable development. Canada Goose began to launch retail channels as early as 2015, and it took 5 years to achieve more than half of the revenue. The proportion of direct sales revenue increased from 4% in 2015 to 55% in 2020 and became the driving force for the company’s growth. main channel.
The financial report for the third quarter of last year also disclosed that, among the three major businesses, the growth of DTC sales revenue contributed the most to Canada Goose’s total revenue growth in the third quarter: revenue from DTC was 445 million Canadian dollars, compared with 299 million Canadian dollars in the same period last year. Yuan increased by 48.83% year-on-year, of which DTC’s revenue in mainland China increased by 35.1%. The increase in DTC revenue was mainly due to higher revenue from sales in existing stores, a 28.1% increase in online sales, and the expansion of new retail businesses. Among other income, wholesale revenue was C$137 million, down from C$161 million in the same period last year; another business revenue was C$4 million, compared with C$13.8 million in the same period last year. It can be seen that the revenue and proportion of Canada Goose DTC and e-commerce channels continue to increase significantly. In the latest financial report, Canada Goose management stated that in terms of DTC channel growth layout, it plans to continue to execute the global strategy through retail and e-commerce expansion, although the scale of such expansion may be delayed.

The forecast for the whole year has been lowered. How to play the next card?

However, even with the strong growth of directly-operated stores and e-commerce channels, the challenges facing Canada Goose are not small. First, Canada Goose has lowered its 2022 financial guidance due to lower-than-expected revenue and retail traffic in the Asia Pacific and EMEA, coupled with the mutation of the new coronavirus C$1.125 billion to C$1.175 billion previously expected. Just three months ago, in the financial report for the second quarter of 2021 as of September 26, 2021, released in November last year, Canada Goose stated that DTC sales in Greater China increased by 85.9% year-on-year due to its outstanding performance in the Chinese market. %, and raised its fiscal 2022 outlook. In terms of the supply chain, Canada Goose has 8 self-owned factories and completes the order production process and vertical integration through internal self-operated factories and long-term cooperation with third-party small suppliers, which brings better cost-effectiveness, but new The emergence of variants and mutants of COVID-19 may result in temporary closures of retail stores and manufacturing facilities, as well as wholesale partners, reduced foot traffic in retail stores, and continued impact on supply chains.
Because of its tradition of focusing on winter outerwear, Canada Goose has also been facing particular challenges with seasonal fluctuations in revenue and operating results. Historically, approximately 80% of Canada Goose’s revenue has come from fiscal second and third quarters, typically delivering a significant portion of annual wholesale revenue in fiscal second and third quarters and annual revenue in fiscal third and fourth quarters DTC income. The latest Q3 earnings report also showed the highest operating cash flow in the third and fourth fiscal quarters of fiscal 2022 due to revenue from the DTC channel and receivables collected from wholesale revenue at the beginning of the year. To balance these seasonal fluctuations, Canada Goose has launched its first non-outer knitwear line since 2017, and made its first foray into footwear in 2018, acquiring Canadian footwear company Baffin and operating Baffin as an independent company. It has since expanded its full-season collection but has never reported revenue by product line.
Today, it seems that continuing to expand the lifestyle category seems to be the next card that Canada Goose can play. Canada Goose believes that the footwear category has considerable development potential. In September last year, Canada Goose announced the launch of Men’s and Women’s high-top weatherproof boots Snow Mantra boots, and multifunctional Journey hiking boots, which have various high-tech performance attributes in sport’s shoes. This year New styles will continue to be introduced in the spring collection. According to the Q3 financial report, sales of non-parker down jacket products increased by 74.9% in the third quarter of fiscal 2022 and received a strong response from consumers. Facing the prospect of multi-category market development, Canada Goose said in its earnings report that it will continue to invest in innovation and the development and launch of new products across styles, uses, and climates. This includes Canada Goose footwear and Baffin-branded footwear obtained through Baffin’s unique distribution channels and expects that certain new products may have lower unit gross margins than long-run styles, which are produced in much higher volumes. The development of new categories is not easy. Criticized by environmental groups for its repeated use of animal skins, Canada Goose announced in June last year that it would phase out wild coyote furs, stop buying wolf skins by the end of 2021, and stop production entirely by the end of 2022 at the latest. Garments decorated with wolf skins put forward higher requirements for the update of clothing materials and craftsmanship, and face the challenge of higher sales and profit growth.

Can the Chinese market regain confidence?

From the current point of view, can Canada Goose regain confidence in the Chinese market? Canada Goose has grown by leaps and bounds outside of North America in the first three-quarters of the past two years. From the first three quarters of 2019 to the first three quarters of 2021, the Asia-Pacific revenue share increased from 20% to 29%, and EMEA from 20% to 23%. Divided by region, in the first three quarters of 2021, the Asia-Pacific region, EMEA (Europe, Middle East, Africa, and Latin America), the United States, and Canada accounted for 29.5%, 26.6%, 23.4%, and 20.5% of the revenue. Until the third quarter of last year, Canada Goose said its performance in the Asia Pacific and EMEA “temporarily” hit a speed bump due to the new coronavirus outbreak. According to the Q3 financial report, Canada Goose DTC’s revenue in mainland China increased by 35.1%, while the sales of direct sales channels in Greater China in the second quarter of last year increased by 85.9% year-on-year. In the fourth quarter of 2020 and the first quarter of 2021 released earlier, the sales of direct sales channels in Greater China increased by 188.7% and 101.4% respectively.
When other markets around the world encountered “Waterloo” during the epidemic, the Chinese market has already become the main driving force for Canada Goose’s “life extension” elixir and performance growth. However, as an important market share of Canada Goose’s revenue, Asia and Europe can easily lead to its heavy reliance on retail traffic in Asia and Europe. As of the third quarter of last year, of the 45 stores, including pop-up stores, there were 20 in the Asia Pacific, 10 in EMEA, 9 in Canada, and 6 in the United States. As of December 2 last year, according to CCTV, Canada Goose, which opened its first store in China at the end of 2018, has reached 20 stores in the Chinese market.
Since September last year, Canada Goose has continued to be negatively affected in China: it was fined 450,000 yuan for falsely promoting down fillers; the domestic “double-standard” return and exchange policy, which treats Chinese and foreign consumers differently, has been hotly debated; the price of masks is as high as Thousands of yuan, etc. are questioned as “intelligence quotient tax”… There are many risks in the brand building being less than expected by consumers.
Although the company issued a statement on its official Weibo that all products sold in specialty stores in mainland China can be returned and refunded in compliance with relevant laws and regulations, Canada Goose still fell into the altar in the Chinese market and encountered an unprecedented crisis of controversy. It has continued to fall from $45/share at the end of November last year to the current $26/share, and the market value has shrunk significantly. The competition for high-end down jackets is also becoming more and more fierce. The opening ceremony of the Beijing Winter Olympics held on February 4 has become a “trade fair” for down jacket brands around the world. Canadian athletes did not wear Canada Goose to participate in the Winter Olympics, but Lululemon. Netizens were concerned and hotly discussed: “Where’s the goose”?
In the earnings conference call on February 10, Canada Goose CEO Reiss said he had confidence in the Chinese market when faced with analysts’ questions about the Asia-Pacific and Chinese markets, and said that in the third quarter of 2021, China’s online business has grown by more than 60%. It shows that Chinese consumers have a demand for the company’s products. He is optimistic about the development prospects and space of the Chinese market, saying that he will continue to develop in China in the next few years. “As an international brand, it is very important to market specifically to the Chinese market. In addition, we work with local designers to keep the demand for Canada Goose from Chinese fans.”
CFO Sinclair mentioned that the traffic of stores in China is currently picking up every week. Whether it is around the epidemic or the ongoing Winter Olympics, many stories are happening in the Chinese market. Based on the current situation, he judges that the Asian market will return to normal, and the factors affecting the stability of passenger flow will gradually weaken. However, Reiss emphasized in the conference call that the biggest problem at present is that the epidemic restrictions have weakened the store traffic, and did not directly respond to the decline of public opinion and support faced by Canada Goose on social media.

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