Canada Goose Holdings Inc. (TSX: GOOS) is a leading luxury apparel manufacturer company which designs, manufactures, distributes and retails premium outerwear for men, women, and children. The products are sold through select outdoor, luxury and online retailers and distributors across America, Europe, Asia etc. 

Key Highlights

• Recognizing higher revenues from different geographies: The company's traction is increasing as revenue climbed across all regions during the third quarter ended January 2, 2022, compared to the previous corresponding quarter, owing to an increase in DTC revenue. In Canada, revenue increased by 31.8 percent, excluding CAD 10.7 million in PPE sales in pcp. Revenue growth was driven from existing retail locations, e-commerce growth, and retail store expansion across all regions.

   Source: Company, Analysis by Kalkine Group

• New product launch: In H1 2022, the company launched its first-ever Performance Luxury Footwear Collection, with two innovative styles for men and women: the Snow Mantra Boots and the Journey Boots. This marks the company’s presence within the footwear segment and would cater to the segments like adventurers, athletes, researchers, cinematographers etc. Moreover, the company intend to continue investing in innovation and the development and introduction of new products across styles, uses, and climates.

• Growth from eCommerce segment: The company is witnessing strong traction from its online segment and reported a whopping 48.8% y-o-y growth in Q3 2022. Notably, DTC revenue grew by CAD 146.0 million to CAD 445.4 million during the period, compared to CAD 299.4 million in pcp. The majority of the increase was driven by higher sales from existing retail stores, complemented by e-Commerce growth and retail expansion. Considering the recent purchase pattern of the consumer, we expect the above momentum to continue in the coming days, which would support the upcoming performance.

• Registering sequential growth in operating matrix: Despite the unrest environment, the Company maintained its pace and witnessed spirited performance across its operating margin profile. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

• Industry Beating Margins: In Q3 FY22, the company's robust determination and business resilience helped them leapfrog the industry median margins on numerous fronts, implying that the company has a competitive advantage over its peers, which is a key positive. This is depicted in the graph below.

• Accelerates expansion in Japanese market: With plans to accelerate DTC expansion, including retail stores the company and Sazaby League Ltd. have entered into an agreement to create the joint venture Canada Goose Japan. This venture is also expected to generate CAD 60 – 65 million in total revenue in fiscal 2023, which is roughly double the contribution from this market in fiscal 2022.
  

• Impressive Outlook: For FY22, the company expects its revenue to touch one billion, higher than CAD 903.7 million in FY21. The increase is expected to be driven by improved performance from the company’s DTC segment. Moreover, the company expects its wholesale revenue to grow in a range of 6% - 7%.
  

Risks associated with investment

Any further government’s restrictions on the closure of stores, on the back of Covid spread would be likely to dampen the company’s sales volume and the overall performance of the company. Also, there is a possibility that consumers might cut down on discretionary spending. 

Financial overview of Q3 2022 (Expressed in mn of CAD)

• Uprise in revenue: In Q3 FY22, the company posted higher revenue, which increased by 23.6% to CAD 586.1 million, compared to CAD 474.0 million in pcp. An increase was attributable to higher revenue from existing stores complemented by e-Commerce growth of 28.1% and new retail expansion.
• Higher gross profit: The company’s gross profit surged to CAD 413.8 million, much higher than CAD 316.4 million in pcp, thanks higher revenue coupled with slightly lower costs of sales.
• Elevated operating income: Despite rise in operating expenses in the reported period of Q3 2022, the company posted higher operating income of CAD 205.9 million against CAD 153.3 million in pcp.
• Robust net income: The company reported strong net income of CAD 151.9 million in Q3 2022, compared to CAD 107.0 million in pcp.

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 47.93% of the total shareholding. Morgan Stanley Investment Management and Fidelity Management & Research Company LLC hold the company's maximum interests at 15.97% and 7.44%, respectively. The company's institutional ownership stood at 88.63%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group 

Stock recommendation

Canada Goose's brand momentum and supply chain resiliency propelled the company to a solid result in its most recent quarter. Along with a dramatic improvement in retail efficiency, the company's digital division continues to outperform last year's outsized growth. Furthermore, despite the appearance of transitory and unanticipated COVID-19 interruptions in select regions, it remains optimistic in its long-term revenue growth and margin expansion trajectory.

Additionally, for FY22, the company expects its revenue to cross CAD 1.0 billion, higher than CAD 903.7 million in FY21, which will be a key positive. Moreover, it is focusing on new products and recently it launched its first premium footwear collection. We believe this stream will open fresh avenues for cash flows. 

Hence, considering all above discussed rationales we recommend a ‘Buy’ rating on the GOOS stock at the last closing price of CAD 30.30 as on April 13, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 13, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.