Canada Goose Holdings Inc (GOOS,
$42.08): “Canada Goose on the loose”
By: Molly O’Neill, AIM Student at
Marquette University
Disclosure: The AIM Equity Fund
currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
• Canada Goose Holdings Inc.
(NYSE:GOOS) is a market leader that operates in Canada, United Sates, Asia
Pacific, and internationally. GOOS designs, manufactures, and sells premium
outdoor apparel for men, women, and children.
• GOOS operates in two business
segments: Wholesale which makes up 48.1% of sales and Direct-to-Consumer which
makes up 51.9% of sales.
• GOOS is currently partnered up
with Baffin Inc. GOOS offers Baffin footwear through their sales channel.
• Management has indicated that they
plan to focus on product expansion of their fall, winter, and spring
collections of outerwear and knitwear. Likewise, GOOS plans on creating their
own line of shoes.
• GOOS’s stock price has dropped 28%
over the past 12 months.
Key points:
Canada Goose Holdings Inc has been
focused on expanding their DTC channel and has opened 11 retail stores in the
past 3 years. They have expanding their Direct-to-Consumer segment into Canada,
United Sates, United Kingdom, and China. For the first time in FY2019, Canada
Goose generated more than half of their revenues from the Direct-to-Consumer
channel.
Canada Goose has also focused on
expanding their product across season and category. A majority of GOOS’s
revenues are generated during the second and third fiscal quarters. This is due
to the seasonal fluctuations, because Canada Goose primary focuses on producing
outerwear. Canada Goose’s management team is focused on implementing growth
strategies to close the gap on seasonal fluctuations. In FY2018, Canada Goose
offered a knitwear collection creating a ~11% increase in sales in FY2019.
Management has discussed their plan for producing a cold weather footwear,
which has no timeline yet. The footwear has the opportunity to grow Canada
Goose’s sales.
Management is highly focused on
their strategic approach on inventory. Canada Goose disclosed that they manage
their inventory differently, relative to other businesses. Management looks at
finished goods for delivery and manufacturing. Their products are made to sell
at full price and they never intend for the items to go on sale. On the
manufacturing side, management looks at their projected order books to produce
the inventory before future growth occurs. In turn, this causes the inventory
to show up on the balance sheet earlier than other companies, affecting their
quarterly sales.
What has the stock done lately?
Since Canada Goose reported their Q1
earnings on August 14th, Canada Goose's stock is up ~5%. Compared to FY2019 Q1,
revenue has increased by 40.4% in Canada and 15.8% of revenue growth in the
United States. Likewise, the revenues from both Europe and Asia market grew by
79.7%. The small expansion of product lines has clearly made a positive impact
on Canada Goose creating a total revenue growth of 59.1%, compared to FY2019
Q1.
Past Year Performance:
Over the past 52 weeks, GOOS has had
a price change of –26.55%. Last November, GOOS was at its high at $70.05. This
past July, GOOS hit its 52-week low at $32.92. Following the dip in July 2019,
GOOS has been fluctuating around $40.00.
Source: FactSet
My Takeaway:
GOOS’s management is working to
overcome its recent growth struggles. Canada Goose continues to try and improve
the problem they face with seasonality, by expanding their product lines.
Likewise, with their expansion of the Direct-to-Consumer channel. With an
emphasis on inventory strategies and strong growth of revenues Canada Goose has
positioned themselves as a strong competitor. I believe once the margins start
to improve, GOOS will have the ability to generate stronger returns. Even
though the stock has not been performing its best, I rate GOOS at a hold, with
the potential of future growth and revenue.
Source: FactSet
