GOOS

Publicly traded companies mentioned herein: Canada Goose Holdings Inc (GOOS)

Please note, following this presentation, the company reported 2Q22 earnings on Nov. 05. 

Highlights

The presenter believes luxury outfitter Canada Goose Holdings Inc (GOOS) has an attractive growth path ahead from current levels. The company’s vertical integration and Canada-based manufacturing mean that its supply chain relies on non-congested routes—Canada to Asia or Canada to the US. The company has no exposure to the S. California ports where the massive bottleneck is causing a big issue for hundreds of brands and retailers. 

Canada Goose has diversified their product line, adding more colors, styles and categories, which should appeal to what he calls a “fanatical” segment of its customer base. For that segment, the investment in new and additional styles, colors and categories should create a bigger selling opportunity.

For several years pre-COVID, the company CAGR’d topline at 30%. That number was slowing down meaningfully into COVID. But even against a COVID-impacted number, the presenter conservatively sees topline growth of +16% on a two-year basis (’21 vs. ’19). 

Growth drivers include price, DTC expansion, and store count expansion– especially in Asia. The company has taken about 20 points of price in the last 2 years. Stores represent between 33% - 40% of total sales and store count is up 90% vs. 2019. In China, store count is up 230% in that period. This is good because China stores are far more productive than North American stores. He also noted the opening of the first California store which points to the ability to expand outside of cold weather geographies.

During that same two-year period, DTC has gone from 58% of total sales to 70%. That change in wholesale to retail mix produces a 12-point revenue uplift. This helps gross margins, which he expects to be up 450bps vs. pre-COVID. Along with the DTC shift, gross margins will benefit from the shift to China where the company enjoys about 1,000bps of higher margin.

The presenter believes both the company’s guidance and sell-side estimates are conservative, in part due to the volatility in the stock over the past several years. In the interim, management has adopted a more conservative approach to guidance to avoid such big movements in the stock price going forward.

There’s one caveat and two risks worth noting. EBIT margins are the caveat, in that they are expected to be 300 bp lower than pre-COVID with the company detailing investments in marketing, digital and store count expansion. Management may not be fully accounting for some of that investment in their top-line guidance.

The prospect of a China slowdown presents one notable risk. Even though the company is still early in the penetration curve in China, stores have grown materially. 

Saturation of the product in North America represents the other risk. The jackets are everywhere in NYC, Boston and Canada. The presenter wouldn’t be surprised to see the business decline materially if the company does a poor job investing in new product, but he is confident that the company is in fact making the right investments. 

At a high level, the presenter has the company beating on earnings by 15% - 20% this year and next year. He is estimating $2 in EPS on a next-12-month basis and puts a 30x - 35x multiple on earnings to get to a target price of $70.