Stores Re-opening and eCommerce segment to Support Topline: 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. 

Q4FY20 Financial Highlights: The group recently released its quarterly numbers wherein revenue declined 9.8% y-o-y to CAD 140.9 million. The decline was majorly attributable to temporary store closure, lower operating hours, lower shipment coupled with a drastic fall from the tourism segment. The quarter was marked by a lower consumer demand within the Canada and United States regions, while partially supported by improved demand from Asia and Europe regions. Gross profit stood at CAD 93.6 million, reflecting a decline of 8.6% over Q4FY19.  However, gross margin improved 80 basis points to 66.4%, driven improved gross profit from the DTC channel. Selling, general and administrative expenses were higher at CAD 95.9 million, against CAD 85 million in the previous corresponding quarter. The Company posted an operating loss of CAD 17.2 million, as compared to an income of CAD 11.7 million in pcp. Net income stood higher at CAD 7.3 million, supported by an income tax recovery of CAD 24.2 million.

Q4FY20 Financial Highlights (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The group is expecting the pandemic to severely affect the group’s financial in the first quarter of FY21. The group is expecting negligible revenue during this period as 75% of the group’s stores were temporarily closed during the first seven-week of 1QFY21. Though the first quarter is historically the smallest contributor in the fiscal year and the group generates its business at the backend of the year. 1QFY20 contributed 7.4% of annual sales in fiscal 2020. Few of the group’s stores were reopened recently, and further store openings are being evaluated on a staged region-by-region basis. Going forward, the group is likely to increase its focus on selling directly to consumers through its own branded retail stores and through e-commerce as thee channels command more profits. The group has decent liquidity with a cash balance of CAD 119.7 million and undrawn revolving credit facility of CAD 239.4 million as on June 01, 2020. The current liquidity position seems sufficient enough to meet the group’s near-term requirement. Further to retain the cash flow levels, the group took a 20% salary cut for all Executive Team members while the Company’s President & CEO Dani Reiss went for a full salary cut during the period. The group is focusing on marketing investments towards e-commerce and lowering its retail and manufacturing fixed rent expenses in order to improve performance and efficiency. The management is confident that demand is likely to return once the situation normalizes. We have valued the stock using Price to Cash flow based relative valuation method and have arrived at a target upside offering double-digit (in percentage terms). For the said purposes, we have considered industry (Textiles & Apparel) median on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 33.78 on June 4, 2020.

GOOS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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