Canada Goose
(GOOS-T, GOOS-N) C$45.99 | US$37.80
F2022 Investments Overshadow Step Change in DTC Contribution Event
Yesterday, before the market opened, Canada Goose (GOOS) reported Q4/F21 results ahead of our forecast/consensus. The focal point of the quarter was F2022 guidance, which was below expectations.
Impact: NEGATIVE
Q4/F21 Summary: Top-line growth re-accelerated in Q4/F21, driven by strength in the DTC channel despite mandated store closures. Growth in eCommerce (+123% y/y) and Mainland China (+101% y/y) remained strong. A modest decline in gross margin was offset by positive operating leverage in SG&A. This resulted in a return to profitability y/y.
F2022 Guidance Resets DTC Contribution: In our view, GOOS' F2022 revenue guidance (>$1bln) reflects an element of conservatism as the re-opening of the global economy remains disjointed. The F2021 geographic performance underscores that upside potential in Canada/Europe remains to be recaptured. Most importantly, we highlight the step change in the contribution of the higher-margin DTC channel (~70% of total revenue vs. ~55% pre-pandemic) that enhances potential operating leverage. The pandemic has allowed management to reset the Wholesale revenue base, and direct inventory to productive partner doors and its own.
In F2022, investments in the brand, digital, and footwear are a headwind to margin improvement. These investments position GOOS to leverage its expanded store base, enhanced eCommerce platform, and product offering as a recovery takes hold. Given the strength of the balance sheet (net cash pre-IFRS 16 as of Q4/F21) GOOS has the financial flexibility to execute these initiatives, in our view.
Updated Financial Forecasts: We view the F2022 revenue guidance as conservative and are leaving our F2022/F2023 forecasts unchanged. Our EPS forecasts decline as we account for increased investments in SG&A.
TD Investment Conclusion
We remain positive on GOOS' mid-term growth outlook. As a recovery in global luxury takes hold, growth in DTC should drive magnified gross margin expansion. Supported by its strong balance sheet, we believe that GOOS is positioned to resume an attractive growth profile upon a recovery in global luxury. We are maintaining our BUY recommendation. Based on our revised F2023 EPS forecast, we are lowering our target price to $56.00 from $64.00.