Our view: 4Q results impressed on top and bottom line, with GOOS shifting from recovery mode to growth beyond pre-pandemic levels. That said, the company's outlook for FY22 came in significantly below investor expectations (EBIT margins guided mid-high teens vs. Street 22.2%), driven by incremental investments in marketing, digital and footwear. While the pace of SG&A investment is prolonging the margin recovery, we note that key LT growth levers (e-commerce, China) continue to strengthen - and any resumption of tourism pre-YE22 (not baked into guidance) is likely a source of significant upside. Adjusting EPS estimates and PT to $53.
Key points:
• Margin recovery prolonged; outlook likely conservative given store closures, fluid environment - GOOS sees total sales for FY22 exceeding C$1bn, with DTC revenue mix approaching 70% and wholesale revenue in line with FY21 as the company continues to exit undifferentiated doors (went from 2,100 PODs to ~1,900 in FY21). With consensus at C $1.12bn headed into today and FY22 re-based lower, the stage is set for potentially positive revisions to come, given ongoing momentum in digital and international growth initiatives. Considering DTC gross margins in the mid-70s/wholesale margins in the mid-40s and SG&A growth in the low-30s (accounting for higher normalized marketing costs, investments behind footwear, improvements to digital and lapping LY's pullback), GOOS sees adj. EBIT margin shaking out in the mid- to high-teens. The Street was at 22.2% prior to this morning's print, with today's selloff likely reflecting a slower margin recovery than what investors wanted to see. The return of tourism, not contemplated in FY22 guidance, could carry major upside should trends inflect sooner than expected and is the key to GOOS's margin recovery story (that said, we view a rebound in international travel as more of a FY23 driver). For 1Q, GOOS looks for sales of less than double 1Q21's C$26.1mm, with DTC at ~2.5x LY's C$10.4mm, wholesale at ~2x LY's C$8.7mm and no meaningful revenue from the 'other' segment. This compares to Street at C$66.6mm and 1QFY20's C$71.1mm. Gross margin for DTC is expected to land in the mid-70s and low-40s for wholesale - both in line with pre-pandemic levels - while GOOS sees SG&A incl. D&A growing in the low-70s.
• Signs that LT growth levers strengthening - These include: 1) ongoing international momentum with 4Q China DTC +101% and 9 new international stores on deck for TY; 2) new categories supporting the transition to lifestyle, with footwear launching in fall; and 3) ongoing ecomm momentum (running +54% QTD), including strong performance in earlier stage markets. Remain buyers, especially on today's pullback.
• Adjusting EPS estimates, PT to $53 (from C$68). We model sales of C $53mm/$1.1bn in 1Q/FY22 and EPS of (C$0.50)/C$1.05. In FY23 we look for sales growth/EPS of ~18%/C$1.55. Our new price target of C$53 (or USD $43 assuming CADUSD 0.75) applies 34x (unchanged) to our FY23 EPS estimate of C$1.55.