Canada Goose has upgraded its guidance for the full financial year after reporting stronger-than-expected results for its third quarter ended Dec. 31. It now predicts that its total revenues will increase in the mid-to-high thirties on a percentage basis, instead of a previous forecast increase of at least 30 percent. The adjusted Ebitda margin is still expected to go up by at least 1.5 percentage points from last year's level.
Canada Goose has been particularly active on the direct-to-consumer (DTC) front in Greater China in the past few months, opening an online store on Tmall's Luxury Pavilion and a physical store in Hong Kong, followed by a new store in Beijing in December. The company is looking to establish a country office in Greater China in 2019 to lead local market development efforts. The company also opened a new store in Montreal during the quarter.
Continuing the strong momentum attained in the first half of its fiscal year, Canada Goose posted a sales increase of 50.2 percent to 399.3 million Canadian dollars (€265.9m-$300.1m) for the third quarter, with an increase of 22.2 percent to C$164.0 million (€109.2m-$123.3m) at wholesale, primarily due to higher order values from existing partners, along with earlier shipments as compared to the previous year.
However, the gross margin dropped by 3.3 percentage points to 47.7 percent, which the management attributed to changes in product mix relating to its acquisition of Baffin, plus increases in manufacturing labor costs.
In reporting its results, the management announced that it will open a new factory in Montreal, its second in the Quebec province and its eighth one in Canada. It already has three sites in Ontario and three in Winnipeg. Equipped with wireless manufacturing technology for higher real-time efficiency, the new facility is expected to employ more than 100 people by the end of March, and up to 650 by the end of 2020.
The management pointed out that its performance at the wholesale level was aided by the availability of in-house manufacturing to better meet retailers' demands. However, the rising labor costs spooked investors, sending the company's share price down by 16 percent in spite of the improved outlook.
Canada Goose's revenues from the direct-to-consumer (DTC) channel soared by 77.8 percent to C$235.3 million (€156.7m-$176.9m) during the quarter, driven by incremental sales from five new retail stores and one new e-commerce site, as well as the strong performance of existing retail stores and e-commerce sites. The gross margin in the DTC segment inched down by 0.4 percentage points to 76.1 percent, due to higher labor costs after an increase in the minimum wage in the state of Ontario at the start of the 2018 calendar year.
The stronger DTC component of the revenue mix contributed to a rise of 0.8 percentage points in the company's overall gross margin to 64.4 percent.
In spite of higher marketing costs and investments in new manufacturing capacities, the operating profit went up by 55.6 percent to C$139.9 million (€93.2m-$105.2m).
Across the group, adjusted Ebitda improved by 59.6 percent to C$151.1 million (€100.6m-$113.6m), and the adjusted net income jumped by 64.1 percent to C$103.4 million (€68.9m-$77.7m).