Snow Goose Collection Expansion And Digital Efforts Will Strengthen Future Market Position

Key Takeaways

• Product diversification and innovative marketing are likely to drive revenue growth by engaging new and existing customers.
  
• Streamlined operations and digital investments are expected to improve margins and diversify revenue streams through enhanced efficiency and e-commerce growth.
  
• Macroeconomic pressures and strategic challenges in key markets may hinder Canada Goose's revenue growth, with DTC sales and margins under potential threat from marketing and SG&A expenses.

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.

• Canada Goose's launch of new products, such as the Snow Goose capsule collection and the expansion into eyewear, indicates an evolution of the brand and diversification of product offerings, which is expected to drive future revenue growth.
  
• The new marketing strategy, exemplified by the Snow Goose campaign, has shown strong engagement and has driven new customer acquisition and retention of existing customers, which could lead to increased future revenue.
  
• The company's focus on optimizing retail operations and improving in-store execution is expected to enhance conversion rates and productivity, potentially boosting net margins as a result of operational efficiencies.
  
• The commitment to streamlining operations and reducing inventory levels is anticipated to lead to better inventory management and cost savings, which could improve overall earnings and profit margins.
  
• Investments in digital capabilities and enhanced e-commerce initiatives are likely to drive stronger online sales, diversifying revenue streams and improving earnings through digital 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 February 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 12.7x on those 2028 earnings, down from 20.5x today. This future PE is lower than the current PE for the US Luxury industry at 20.6x.
• 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 8.32%, as per the Simply Wall St company report.

Canada Goose Holdings Future Earnings Per Share Growth

Risks

• Canada Goose's revenue guidance indicates potential downside, with a revised expectation for DTC (Direct-to-Consumer) comparable sales ranging from flat growth to a mid-single-digit decrease, which could pressure overall revenue growth and affect financial performance.
  
• The company faces macroeconomic pressures, particularly in the U.K. and certain regions in Asia, which have led to slower foot traffic and could impact future sales growth and profitability in these key markets.
  
• While the Snow Goose launch showed some initial success, the high marketing spend associated with it and similar initiatives might pressure net margins if sales growth doesn't sufficiently offset these expenses.
  
• Despite improvements in inventory management, Wholesale revenue is expected to decline by approximately 20%, reflecting strategic decisions to limit order volumes but still posing a risk to total revenue generation.
  
• SG&A (Selling, General and Administrative) expenses deleveraged due to higher direct costs from expanding the store base, impacting efficiency and net earnings, particularly if DTC sales performance does not improve.

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 12.7x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of CA$15.43, the analyst price target of CA$14.36 is 7.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.