Canada Goose Holdings Inc.

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.

Q1FY21 Financial Highlights: Canada Goose announced its quarterly results, wherein the group reported revenue of CAD 26.1 million, significantly lower than CAD 71.1 million in the previous corresponding quarter. The slump in the performance was primarily attributable to a store closure and demand destruction scenario on account of COVID 19 pandemic. Revenue from DTC segment stood CAD 10.4 million, lower than CAD 34.8 million in the previous corresponding period (pcp) due to store closures and reduced working hours, partially offset by decent e-commerce sales. Wholesale revenue plunged to CAD 8.7 million from CAD 35.6 million in Q2FY19, on account of disruptions to partner operations. Gross profit stood at CAD 4.8 million against CAD 40.9 million in Q1FY20. Subsequent to a decline in gross profit, gross margin took a hit and fell to 18.4% against a gross margin of 57.5% in Q2FY19. Operating loss of the company widened to CAD 59.3 million against CAD 27.3 million in the previous corresponding period (pcp). The Company reported a net loss of CAD 50.1 million as compared to a loss of CAD 29.4 million. The company reported a cash balance of CAD 160.1 million, while total assets stood at CAD 1,264.4 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The unemployment rate is likely to increase on account of COVID-19 pandemic, which might change the consumer spending behaviour. There is a probability that consumers might cut down on discretionary spending. Any such scenario would affect the company’s business.

Valuation Methodology: Price to CF Based (Illustrative)

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

Stock Recommendation: The stock of GOOS corrected 22% so far this year. The company's business has witnessed improved traction in the recent past, post the re-opening of the stores. To improve the sales volume, the group is focusing on higher digital adoption and has accelerated investments in this area going into the Fall / Winter season.  Furthermore, the company has launched mobile omni-channel capabilities across U.S. stores, following a successful pilot in Canada, and a cross-border solution to expand international access. The business is experiencing decent consumer traction across China while the company reported better than expected demand across its four newly opened stores in Chengdu, which is encouraging. The group mentioned that a new opening this year will be concentrated in Mainland China, where the recovery of traffic remains ahead of other markets.  We have valued the stock using Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like VF Corp., Lululemon Athletica Inc etc. Considering the aforesaid facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 36.52 on September 15, 2020.

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

Aritzia Inc.

Aritzia Inc. (TSX: ATZ) is an integrated design house of exclusive fashion brands that designs apparel and accessories for its collection of exclusive brands and sells them under the Aritzia banner. 

Q1FY20 Financial Highlights: ATZ announced its quarterly results, wherein the company posted revenue of CAD 111.389 million, reflecting a fall of 43.4% on y-o-y basis. The decline was majorly affected due to the closure of its stores on account of COVID-19 pandemic, partially offset by more than 150% growth from eCommerce segment. Gross profit declined to CAD 13.061 million, as compared to CAD 85.561 million in Q1FY19 while Gross profit margin tumbled to 11.7% compared to 43.5% in the previous corresponding period, primarily attributable to significant deleveraging of costs related to occupancy, warehousing and distribution centre from the loss of retail revenue. The company incurred a loss before income tax at CAD 37.601 million, as compared to a profit of CAD 22.81 million in Q1FY19. Net loss stood at CAD 26.471 million, as compared to CAD 16.156 million in Q1FY19. The group reported cash and cash equivalents of CAD 6.159 million, while total assets stood at CAD 1,190.399 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company might face a slowdown in demand as there might be a change in consumer behavior owing to COVID-19 pandemic. As the unemployment rate might increase in the near term, people might reduce their spending on discretionary items.

Valuation Methodology: Price to CF Based (Illustrative)

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

Stock Recommendation: The stock has corrected ~6% so far this year. The business is categorized under the non-essential category, and hence, the demand was marred by lower traffic due to the closure of shops across the North America region. However, in the recent past, the company reported strong e-commerce growth, as most of the consumers are staying at home and preferring online- purchase. Further, during the month of July 2020, 89 of the 96 boutiques have reopened and are operating at ~55% to ~65% of FY20’s productivity levels.  Meanwhile, the demand from e-commerce channel remained strong. The Company expects its capital expenditures for FY21 within the range of ~CAD 30 million to ~CAD 35 million. In order to support the near-term working capital needs, the group has secured a CAD 100.0 million revolving credit facility and have issued letters of credit amounting to CAD 75.0 million. Furthermore, extended supports from the government would help the business to combat the current challenging time. We have valued the stock using Price to CF based relative valuation method and have arrived at a lower double-digit upside (in percentage terms). For the said purposes, we have considered industry (consumer cyclicals) average NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 18.0 on September 15, 2020.

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

Disclaimer

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