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: GOOS declared its quarterly results, wherein the Company reported a significant decline in sales, primarily attributable to a store closure and a weak consumer sentiment. Sales stood at CAD 26.1 million, as compared to CAD 71.1 million. DTC revenue was CAD 10.4 million from CAD 34.8 million due to store closures and reduced working hours, partially offset by stable e-commerce sales. Wholesale revenue was down to CAD 8.7 million from CAD 35.6 million on account of disruptions to partner operations. Gross profit stood at CAD 4.8 million, representing a gross margin of 18.4%, as compared to CAD 40.9 million in Q1FY20 along with a gross margin of 57.5%. Slide-in gross margin was a result of lower gross margins within the Wholesale and Other segments and a significant decline in the DTC revenue, offset by an increase in DTC gross margin. The Company’s operating loss 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.

Q1FY21 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: EV/EBITDA Based Relative Valuation (Illustrative)

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

Stock Recommendation: The stock corrected ~33% so far this year. The company has opened 21 of 22 retail stores in the DTC channel globally. 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. We believe, the demand would pick up as the economy revives and tends towards normalization. The company has refocused its investments across the retail segment due to the extended lock-down scenario across several areas. New openings this year will be concentrated in Mainland China, where the recovery of traffic remains ahead of other markets. The company has witnessed a significant pile of inventory in the recent past and hence took a prudent measure of manufacturing nearly one-third of FY20 output, augers well for the preservation of working capital. Further, to accelerate sales, the group is enhancing its digital presence through the launch of mobile omni-channel capabilities in U.S. stores, coupled with a cross-border solution to expand international access. We have valued the stock using EV/EBITDA based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered VF Corp, Lululemon Athletica Inc, and L Brands Inc etc., as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the Closing price of CAD 31.51 as on August 14, 2020.

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

New Look Vision Group Inc.

New Look Vision Group Inc. (TSX: BCI) offers eye care products and services including eyewear, contact lenses, sunglasses and eye care accessories across Canada. The Company reported operates through popular brands like New Look Eyewear, Greiche and Scaff, Vogue Optical, etc.

Q2FY20 Financial Highlights: BCI announced its quarterly results, wherein the Company posted a drastic fall in revenue and reported a significantly higher net loss as the overall performance has been impacted due to temporary store closure. Revenue stood at CAD 27.423 million as compared to CAD 78.053 million in pcp. The quarter was marked by significantly lower material consumed, a decline in the employee remuneration and other operating expenses. However, depreciation and finance expense stood relatively higher in this quarter. The Company reported a net loss of CAD 12.558 million as compared to a net profit of CAD 7.049 million in the previous corresponding period (pcp). Cash flows from operating activities stood at CAD 5.5 million, reflecting a fall of 46.3% on y-o-y basis. The Company ended the quarter with a cash balance of CAD 47.1 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Company witnessed a drastic fall in the top-line due to the closure of physical stores which subsequently impacted the overall performance. Continuation of the store closure might hinder the performance drastically.

Valuation Methodology: EV to Sales Based (Illustrative)

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

Stock Recommendation: The stock of BCI corrected ~8% and ~10% in the last six months and nine months, respectively, due to weak investor’s sentiment on account of COVID-19. The Company has a decent product presence while the performance has been severely impacted due to the closure of physical stores. The group reported gradual reopening of physical stores since mid-May and store reopening was completed by June 21st when the last local retail operation restrictions were lifted. Retail operations re-started in each market as soon as local regulatory restrictions allowed and under all-encompassing safety- first internal protocols and the group is witnessing brisk trade since the re-start. We believe the demand for the group’s offerings to rebound as all of the stores are operating. The Company took prudent measures to support its liquidity levels by controlling its cost structures and suspension of dividend payment in the near future, which is noteworthy. The Company also made a pay cut of its existing staffs combined with cancellation of capital expenditure in the near future. Further, The Company successfully secured an additional CAD 73.9 million in the bank and subordinated debt financing to strengthen its balance sheet and boost liquidity for both working capital and acquisition and development purposes. As of June 27, 2020, the group had CAD 47.1 million of cash on hand and undrawn credit and subordinated debt facilities of CAD 52.7 million. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like Park Lawn Corp, Savaria Corp, National Vision Holdings Inc Ltd etc. Hence, considering the aforesaid facts and risk, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 28.04 on August 14, 2020.

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

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.