Snow Goose Capsule Launch Will Attract New Customers And Increase Brand Heat

Key Takeaways

• Strategic shift to direct-to-consumer sales and inventory management efforts bolster profit margins and operational efficiency, supporting long-term revenue growth.
  
• Expansion into eyewear and lighter apparel increases market reach, enhancing brand relevance and attracting a broader customer base year-round.
  
• Anticipated wholesale revenue decline, macroeconomic challenges, and marketing spend delays may pressure Canada Goose's revenue growth, earnings, and profitability.

Catalysts

Designs, manufactures, and sells performance luxury apparel for men, women, youth, children, and babies in Canada, the United States, Greater China, rest of the Asia Pacific, Europe, the Middle East, and Africa.

• The launch of the Snow Goose capsule collection, which generated over 30 billion media impressions and drove significant improvements in brand heat metrics, is expected to bolster future revenue by attracting both new and returning customers.
  
• The strategic shift towards direct-to-consumer sales, with positive comp sales growth in North America and strong customer acquisition in key markets, supports an anticipated increase in net margins through higher profit retention compared to wholesale sales.
  
• Investments in best-in-class retail execution, including inventory management and sales training, are projected to improve conversion rates and operational efficiency, positively impacting earnings by reducing SG&A expenses as a percentage of revenue over time.
  
• The expansion into eyewear and the focus on lighter down-filled outerwear and apparel positions Canada Goose for year-round relevance, potentially driving revenue growth by tapping into new market segments and meeting consumer demand beyond cold-weather products.
  
• Simplifying operations and improving inventory management have resulted in a 15% year-over-year decrease in inventory levels, enhancing cash flow and setting the stage for improved financial health and future growth opportunities.

Canada Goose Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Canada Goose Holdings's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 8.7% in 3 years time.
• Analysts expect earnings to reach CA$139.1 million (and earnings per share of CA$1.46) by about March 2028, up from CA$72.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, down from 16.0x today. This future PE is lower than the current PE for the US Luxury industry at 16.8x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.76%, as per the Simply Wall St company report.

Canada Goose Holdings Future Earnings Per Share Growth

Risks

• Canada Goose reported a year-over-year decrease in revenue for the third quarter, primarily due to an anticipated decline in Wholesale revenue, which may affect total revenue and profitability.
  
• The company experienced a negative 6% comparable sales decline in its direct-to-consumer (DTC) channel, which, although improved from the previous year, still fell short of expectations, impacting revenue.
  
• Despite a high-profile marketing campaign for its Snow Goose collection, the delayed activation of marketing spend until late November resulted in a quiet October and November, which could lead to short-term pressure on earnings.
  
• Macroeconomic factors, particularly in Greater China and the U.K., are influencing consumer behavior and leading to weaker foot traffic and challenging conditions, which could negatively impact revenue growth and profitability.
  
• The company's ongoing need for investment in marketing and retail optimization may result in increased SG&A expenses, pressuring net margins and limiting earnings growth.

Valuation

• The analysts have a consensus price target of CA$14.358 for Canada Goose Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$25.0, and the most bearish reporting a price target of just CA$11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.6 billion, earnings will come to CA$139.1 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 8.8%.
• Given the current share price of CA$12.01, the analyst price target of CA$14.36 is 16.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.