Here’s a company that:
(a) is not a Cloud blank-a-a-s rocket ship, not even in any technology sector;
(b) is neither an American nor PRC company;
(c) is operating in the black with a $6.5 billion market cap;
(d) was founded in 1957 (that’s not a typo error) in a small warehouse and 60 years later, backed by Bain Capital (which controls 70% of this company) went public on 3/16/17, with an IPO priced offering at USD $10.40 to $11.88/share, opening at $18 and closing at $16.08/share, up 55% for the day. Since its IPO, this company reached its highest price on 6/20/2018 at $68.75/share, up 328%; it has since pulled back to $59.31/share on July 3, 2018, perhaps a buying opportunity for first time investors.
(e) expects annual revenue growth of at least 20% in their guidance for FY 2019 and at least over 20% in its Long-Term Outlook for the next 3 years; this guidance is far too conservative because this company has realized YoY annual revenue growth of 33%. 39% and 46% for FY 2016. 2017 and 2018, respectively.
(f) on 5/31/2018 announced its expansion plans for Greater China, opening a regional head office in Shanghai, and beginning business operations this Fall 2018 in Beijing and Hong Kong. Its President and CEO stated: “As the world’s largest luxury market, the opportunity for our company in China is massive. We have already seen exceptional demand from Chinese consumers – locally and internationally – for years, and we are excited to bring our authentic and immersive experience directly to our fans there. We are making significant investments and putting the right people and partners in place now, to drive long-term brand affinity and a sustainable business for years to come.”
(g) is in the consumer discretionary sector, specifically, apparel, accessories and luxury goods. Just lost Putnid :^(, who does not invest in this sector. However, many thanks to him, although I have not been an active TA (technical analysis) user, I now use his “Tricks of the Trade” websites for a quick look see, which, after running this company through, I found more leanings on the positive side. For those who missed it, here’s Putnid’s “Tricks of the Trade” post. http://discussion.fool.com/mercatorn-and-others-ask-the-age-old-…
This company is Canadian, headquartered in Toronto. Anyone here familiar with or holding such a company?
Okay, it’s Canada Goose Holdings Inc (GOOS). From its humble beginning in 1957, Canada Goose has grown into one of the world’s leading makers of performance luxury apparel. Every Canada Goose product is informed by the rugged demands of the Arctic and inspired by relentless innovation and un-compromised craftsmanship. From Antarctic research facilities and the Canadian High Arctic, to the streets of New York, London, Milan, Paris, Tokyo and beyond, people have fallen in love with its brand and made it a part of their everyday lives.
Canada Goose is deeply involved in every stage of their business as a designer, manufacturer, distributor and retailer of outerwear, knitwear and accessories for men, women and children. This vertically integrated business model allows them to directly control the quality of their products while capturing higher margins. As of March 31, 2018 , their products are sold through their Direct-to-Consumer (DTC) channel, which has e-commerce operations in 12 countries and 6 retail stores, and through their wholesale channel, which is comprised of select luxury and outdoor retailers and distributors in 38 countries and their partner-operated retail location in Tokyo, Japan.
In December 2013, Canada goose partnered with Bain Capital through a sale of a 70% equity interest in their business to accelerate their growth. In connection with such sale, Canada Goose Holdings Inc. was incorporated under the Business Corporations Act (British Columbia) (the “BCBCA”) on November 21, 2013. The initial public offering of their subordinate voting shares in the United States and Canada was completed on March 21, 2017.
CORPORATE FINANCIALS
Corporate financials for Canada Goose show the following:
• Explosive rapid growth in revenue, net income, earnings and share price;
• Strong growth in all margins;
• Strong growth in ROIC;
• Strong FCF; and
Stable capital structure.
Please note that most of the GOOS financials are based on Canadian dollars. For exceptions, I’ve indicated USD - U.S. dollars.
Revenue, Net Income, EPS and Price Growth
**FY MARKET NET Diluted CLOSING**
**(Apr-Mar) CAP REVENUE Change INCOME Change EPS Change PRICE Change**
**QTR (USD $M) (CAD $ M) YoY (CAD $ M) YoY (CAD $) YoY (USD $) YoY**
**FY 2018 3.61 B 591.181 46.4% 96.055 343.9% 0.86 309.5% 33.42 109.4%**
Q4-03/18 3.61 B 124.821 144.3% 8.092 0.07 33.42 109.4%
Q3-12/17 3.39 B 265.825 27.2% 62.925 61.0% 0.57 50.0% 31.56
Q2-09/17 2.20 B 172.330 34.7% 37.122 85.4% 0.33 65.0% 20.55
Q1-06/17 2.11 B 28.205 79.7% (12.089) (0.11) 19.75
**FY 2017 1.70 B 403.777 38.8% 21.640 (18.3%) 0.21 (19.2%) 15.96**
Q4-03/17 1.70 B 51.096 21.9% (23.431) (0.23) 15.96
Q3-12/16 209.051 81.0% 39.088 82.3% 0.38 81.0%
Q2-09/16 127.935 16.6% 20.019 8.4% 0.20 11.1%
Q1-06/16 15.695 (33.8%) (14.036) (0.14)
**FY 2016 290.830 33.2% 26.485 83.6% 0.26 85.7%**
Q4-03/16 41.921 (9.202) (0.09)
Q3-12/15 115.504 21.446 0.21
Q2-09/15 109.694 18.475 0.18
Q1-06/15 23.711 (4.234) (0.04)
**FY 2015 218.414 14.425 0.14**
As shown in the above table, ever since going public on 3/16/2017, Canada Goose has accelerated explosive growth in market cap, revenue, net income, earnings and price per share.
Since 2013, they have expanded their operations rapidly and have been developing a Direct-to-Consumer (DTC) channel with the launch of our 12 e-commerce stores since August of 2014, and the opening of their first six retail stores in Boston, Calgary, Chicago, London, New York City and Toronto and a retail store operated by their distribution partner in Tokyo. Their revenue increased from $290.8 million for fiscal 2016 to $591.2 million for fiscal 2018 , a Compound Annual Growth Rate (CAGR) of 42.6%.
Segments
Canada Goose reports their results in two segments which are aligned with their sales channels: Wholesale and Direct-to-Consumer (DTC). They measure each reportable operating segment’s performance based on revenue and segment operating income. As of March 31, 2018 , they sell through their wholesale segment to retail partners and distributors in 38 countries. Their DTC segment includes online sales through their e-commerce sites to customers in Austria, Belgium, Canada, China, France, Germany, Ireland, Luxembourg, the Netherlands, Sweden, the U.K. and the U.S. and sales to customers from their Company-owned retail stores in Boston, Calgary, Chicago, London, New York City and Toronto.
Their wholesale segment and DTC segment represented 56.9% and 43.1% , respectively, of their total revenue, in fiscal 2018 . For fiscal 2017, their wholesale segment and DTC segment represented 71.5% and 28.5%, respectively, of their revenue, and for fiscal 2016 , their wholesale segment and DTC segment represented 88.6% and 11.4%, respectively. They expect to experience an increasing proportion of revenue from their DTC segment as they open more retail stores and expand e-commerce access in future years.
Seasonality
They experience seasonal fluctuations in their revenue and operating results and historically have realized a significant portion of their annual wholesale revenue during their second and third fiscal quarters and DTC revenue in the third and fourth fiscal quarters. They generated 74.2% , 83.5% , and 77.4% of their revenues in the second and third fiscal quarters of fiscal 2018 , fiscal 2017 and fiscal 2016, respectively. In their wholesale channel, they have visibility into expected future revenues, with a majority of orders received prior to the end of the prior fiscal year, enabling them to manufacture inventory to wholesale demand. That said, seasonal fluctuations in wholesale customer demand have shifted the delivery timing of customer orders between quarters in prior years, and can be expected to affect the quarterly pattern of wholesale revenue in future. Because of seasonal fluctuations in revenue and fixed costs associated with their business, particularly the headcount growth and premises costs associated with their expanding DTC channel, they typically experience reduced or negative net income and adjusted EBITDA in the first and fourth quarters. Working capital requirements typically increase throughout their first and second fiscal quarters as inventory builds to support their peak shipping and selling period from August to the end of the calendar year. Cash flows from operating activities are typically highest in the third and fourth quarters of the fiscal year due to the peak period for DTC and collection of receivables from revenue earlier in the year. As a result of their seasonality, changes that impact gross margin and adjusted EBITDA can have a disproportionate impact on the quarterly results when they are recorded in our off-peak periods.
Margins
This company is performing spectacularly with huge growth in all margins.
**MARGINS GROSS OPERATING PROFIT**
FY 2018-3/18 57.2% 23.4% 16.3%
FY 2017-3/17 50.9% 10.0% 5.4%
FY 2016-3/16 48.5% 14.1% 9.1%
FY 2015-3/15 40.6% 12.2% 6.6%
On the latest company’s earnings call, CFO John Black related that the overall gross margin increase of 6 percentage points versus the prior-year quarter was due to a higher proportion of DTC revenue versus wholesale revenue in the overall revenue mix. However, DTC gross margin compared to the prior-year quarter actually declined by roughly one percentage point, to 74.4%. This was attributed to seasonal product mix as the company sold more lighter-weight, lower-margin jackets during the last three months. Black pointed out that Canada Goose benefited from "incremental gross margin dollars”, i.e., although it sold a less profitable assortment of clothes, these were still in high demand even during the off-peak spring season, so, the company achieved extremely high volumes. While gross profit margin declined, the absolute amount of gross profit in dollar terms of $78.2 million well exceeded last year’s comparable number of $27.8 million.
For now, Canada Goose is enjoying the most amenable of environments thanks to their sought-after products. The company is posting double-digit revenue gains on high-margin products during fall and winter and following this up with commensurately active sales on lighter outerwear during the off months. The company’s guidance that projects revenue growth of at least 20% in fiscal 2019 seems far too conservative.
**GOOS ROIC WACC EVA**
7/3/2018 39.8% NA NA
FY 2018-3/18 38.0% NA NA
FY 2017-3/17 10.2% NA NA
FY 2016-3/16 13.0% NA NA
FY 2015-3/15 9.1% NA NA
Free Cash Flow
**GOOS FCF**
**($ M)**
FY 2018-3/18 71.47
FY 2017-3/17 9.76
FY 2016-3/16 (21.39)
FY 2015-3/15 (0.83)
Capital Structure
Canada Goose has maintained a stable capital structure. My only comment is that I prefer debt/equity less than 40%. For now, current debt/equity ratios are acceptable.
**CAPITAL STRUCTURE GOOS**
**FY '18 ending 3/31/2018 (CAD $ M)**
Cash & cash equivalents 95.290 M
Working Capital 167.373 M
Current Ratio 2.25
LT Debt (mrq) 137.074 M
Total Debt 137.074 M
Total Stockholders’ Equity 243.610 M
LT Debt/Stockholders’ Equity 56.3%
Total Debt/Stockholders’ Equity 56.3%
LT Debt/Capitalization 36.0%
===========================================
CURRENT FINANCIAL STATUS
**GOOS**
MARKET CAP $ 6.55 B
Employees 2,700
52-WK HIGH 68.75
PRICE 7/3/2018 59.31
52-WK LOW 16.96
52-Wk Price Change 202.0%
Y-T-D Price Change 87.9%
EV/EBITDA (mrq) 58.04
P/E 91.66
EV/Sales (ttm) 14.42
P/S (ttm) 14.71
In anticipation of spectacular Q4 and FY 2018 results to be released on 6/15/2018, the closing price on 6/14/18 spiked up sharply 33% to $61.02/share from the previous day’s closing price at $45.85/share. Thereafter, the spike topped off on 6/20/18 at a 52-week high of $68.75/share, realizing at that time a spectacular 235% gain over the recent 52-week period. As of 7/2/2018, the gain for the recent 52-week price change is at 202% and the Y-T-D price gain is at 88%. This recent explosive growth in stock price, in turn, has caused soaring increases in EV/EBITDA to 58 and EV/S to 14, the metrics that I prefer to watch and weigh among other key financial and growth indicators in the big picture.
The following Big Chart shows GOOS superbly outperforming the S&P 500 over the recent 52-week period and framed and tracking between Nutanix (NTNX) and Shopify (SHOP), two popular companies currently followed and held here by many investors.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
Here’s the Y-T-D performance where GOOS is substantially and superbly outperforming the S&P 500, NTNX and SHOP:
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
FISCAL 2019 GUIDANCE & LONG-TERM OUTLOOK as of 6/15/2018
For fiscal 2019, the Company currently expects the following:
• Annual revenue growth of at least 20%
• Adjusted EBITDA margin expansion of at least 50 basis points
• Annual growth in adjusted net income per diluted share of at least 25%
Key assumptions underlying the fiscal 2019 outlook above are as follows:
• Wholesale revenue growth in the mid-single-digits on a percentage basis;
• Five new retail stores in operation by the onset of the peak winter selling season;
• Six retail stores in operation in off-peak periods in the first half of the year, compared to two in fiscal 2018;
• SG&A growth investments in infrastructure and people including IT and the establishment of a country office in China to lead market development efforts;
• SG&A fees to operating partners on DTC sales in China;
• Capital expenditures of $65 million including investments in new retail stores, IT and manufacturing capacity;
• Weighted average diluted shares outstanding of 112.1 million;
• Effective annual tax rate approximately in-line with fiscal 2018.
Over the next three fiscal years, the Company currently expects the following:
• Average annual revenue growth of at least 20%;
• Annual adjusted EBITDA margin of at least 26% in fiscal 2021
• Average annual growth in adjusted net income per diluted share of at least 25%
My only comment is that, given its YoY annual revenue growth of 33%. 39% and 46% for FY 2016. 2017 and 2018, respectively, the above revenue growth of at least 20% guidance is extremely too conservative.
FUTURE GROWTH & EXPANSION
On 5/31/2018, Canada Goose announced their Strategy for Long-Term Growth and expansion plans in Greater China, including establishing a regional head office in Shanghai and appointing Scott Cameron as President, Greater China. To meet growing consumer demand, Canada Goose will also launch its direct-to-consumer business including opening two retail stores – in Beijing and Hong Kong – with operating partner ImagineX Group, and e-commerce operations via Alibaba Group’s Tmall, China’s largest consumer platform for brands and retailers, in fall 2018.
“As the world’s largest luxury market, the opportunity for Canada Goose in China is massive. We have already seen exceptional demand from Chinese consumers – locally and internationally – for years, and we are excited to bring our authentic and immersive retail and e-commerce experience directly to our fans there,” said Dani Reiss, President & Chief Executive Officer. “We are making significant investments and putting the right people and partners in place now, to drive long-term brand affinity and a sustainable business for years to come.”
xCanada Goose will open a flagship store in Beijing in the prestigious Taikoo Li Sanlitun North Mall. The company will also open a store in ifc mall, a world-class business and leisure destination in Hong Kong. Both stores will open in fall 2018.
With premier locations, curated store assortments and high touch personal service, the stores will serve as gathering places for fans to explore the company’s rich heritage and discover the latest collections through the brand’s unique and unfiltered lens. Canada Goose has selected ImagineX, a retail brand management and distribution company that is part of The Lane Crawford Joyce Group – Asia’s pre-eminent luxury lifestyle group specializing in fashion retail, brand management and distribution, to support the operational buildout of its retail presence. ImagineX will be responsible for staffing world-class retail brand ambassadors and managing day-to-day retail operations.
Building on the successes and learnings of its cross-border e-commerce pilot project in China, Canada Goose will transition its online Chinese distribution to a flagship store in the luxury pavilion of Alibaba Group’s Tmall platform, in fall 2018.
A recent TMF article revealed that Canada Goose maintains a philosophy of maximizing in-house production, as value-added goods typically carry a higher margin than those that are outsourced. On June 15, Canada Goose announced plans to open their seventh production facility, its third location in Winnipeg, Canada. That will be built over the following three years in two phases, and once complete, will boast the capability of producing all their down-filled jackets onsite. The Winnipeg production site is part of a specific objective to increase in-house production from one-third of all goods to one-half within the coming years. Canada Goose has increased its manufacturing base by more than 50% in the last year, to 2,000 employees. Although this steady investment in manufacturing capability is somewhat atypical for a relatively small luxury goods company, it ensures that Canada Goose can control the quality of its product in the near term. The capacity expansion also means that the company will likely be able to meet rising demand as it builds out both the e-commerce and physical flagship components of its DTC segment.
SUMMARY
For me, Canada Goose is a buy and hold investment in my family’s portfolios as this company continues to fire and accelerate all cylinders on an explosive growth-oriented course.
For those interested, here’s how GOOS currently performs at Putnid’s “Tricks of the Trade” websites:
https://www.stockconsultant.com/consultnow/basicplus.cgi?sym…
https://swingtradebot.com/equities/GOOS
https://www.tradingview.com/symbols/NYSE-GOOS/
https://www.barchart.com/stocks/quotes/GOOS/opinion
https://www.barchart.com/stocks/quotes/GOOS/cheat-sheet
Putnid, in the old days at TMF (late 1990s and early 2000s), I was a lurker at Rat’s highly popular Bandwagon TA board and back then went through several TA primers. I truly like your “Tricks of the Trades” and now employ them in all my due diligence efforts.
As always, conduct your own due diligence and decision-making.
Regards,
Ray