Canada Goose Comes In For A Landing Canada Goose (NYSE: GOOS) is an interesting story because of its unique positioning within the retail market. A premium brand and one out of reach for...

Premium Brand Canada Goose Goes On Sale

Canada Goose (NYSE: GOOS) is an interesting story because of its unique positioning within the retail market. A premium brand and one out of reach for many consumers, the company is heavily dependent on wholesales and brick-and-mortar but has been working diligently to expand its direct-to-consumer offerings including e-commerce. The company, like most others within the retail space, has been supported by pandemic tailwinds that appear to still be blowing but there is a catch. Mounting headwinds are cutting into profitability and that may be too much for the market to bear.

"Canada Goose is off to a great start in the first quarter," said Dani Reiss, President & CEO. "Our digital business continued at a rapid pace of growth globally, alongside improving retail trends. With strong momentum in a less disrupted operating environment, and an exciting product pipeline - including our growing apparel business and footwear launch later this fall - we are well positioned for fiscal 2022."

Canada Goose Laid A Golden Egg In The First Quarter

Canada Goose had a truly great first quarter for fiscal 2022 despite it being the slowest quarter of the calendar year. The company reported the typical seasonal downtick in business but still brought in more than C$56.25 million to beat the consensus by more than 1000 basis points. The gain is versus a very easy comp because last year's first quarter saw a significant reduction in the mid-season business. On a two-year basis, the company's revenue is up 5.4% and driven by the company's strategic move toward direct-to-consumer and e-commerce.

On a segment basis, both the DTC and the wholesale segment grew nearly 200% over last year. That strength was offset by a decline in one-time PPE sales related to last year's crisis otherwise YoY growth would have been stronger. In terms of e-commerce, e-commerce sales grew 80.8% over the past year with reported strength in all geographic segments. DTC sales in mainland China were particularly strong due to China's severe lockdowns last year. Sales in Mainland China grew 188.7% and there was strength in other areas as well. Canada, Canada Goose's home territory, saw its sales rise 126% despite lingering closures through many of its markets.

Moving down the report, the results are equally good. The company's gross margins widened significantly over last year due to sales leverage and came in at 54.5%. Direct-to-consumer and, in particular, e-commerce, provided much of the boost coming in at 72% while the wholesale segment margin came in at 35%. On an operating level, the company posted a seasonally expected loss but a narrower loss than expected because of sales leverage. The adjusted EPS of C-$0.45 beat the consensus by $0.11 and sets the company up for a solid second quarter and the second half of the year.

Execs are expecting to see the revenue strength continue through the end of the year and reiterated their previously stated guidance. The company is expecting to see wholesale revenue grow in the low double-digits in the second quarter with retail/direct-to-consumer at roughly 1.5X its 2020 levels. The analysts are expecting Canada Goose to produce system-wide revenue of $195 million or up 30% from last year.

The Technical Outlook: Headwinds Ground Canada Goose

Canada Goose had a great quarter to be sure, but there was one factor the market could not get past. While the gross margin widened on a YoY basis, it narrowed on a sequential basis due to headwinds within the economy at large. Six of the company's 28 retail stores are still closed and now, with the Delta variant on the loose, additional closures may be on the way. Shares of the stock responded by falling nearly 15% but it's not as bad as it sounds. Price action in Canada Goose has been trapped within a trading range over the past few months and this move is well within those limits. Assuming that support at the $38 level remains strong, we see this stock slowly regrouping over the next few weeks before beginning a move back up towards the top of the range. If the second-quarter results, and second-half results, are as strong as we think they may be this stock should break out of the range and resume the uptrend.