March 4th, 2024

Canada Goose eyes price hikes as budgets tighten at home but business booms in China

By Christopher Reynolds, The Canadian Press on February 1, 2024.

A Canada Goose Clothing company logo is displayed on a storefront in Ottawa on Saturday Sept. 10, 2022. THE CANADIAN PRESS/Sean Kilpatrick

Canada Goose Holdings Inc. said further price increases are on the table even as buyers rethink their spending choices amid higher inflation and interest rates over the past two years.

Those financial pressures make for what chairman and CEO Dani Reiss called a “challenging consumer environment” globally. But the luxury apparel company still sees room for larger price tags on parkas that can already top $2,000.

“We actually think there’s quite a lot of headroom, whether it’s introducing new categories, new styles within a category, at much higher price points,” said Carrie Baker, president of brand and commercial at Canada Goose.

“With luxury products, … you’re creating desire.”

Baker also stressed that the company aims for a wide range of pricing to suit different income brackets. She made the point after Baird analyst Jonathan Komp noted that some parkas “have moved well beyond the levels they were priced at four or five years ago.”

The company’s third quarter furnished evidence of ongoing demand, particularly across the Pacific Ocean. It enjoyed skyrocketing sales in Asia after China lifted pandemic restrictions, even as revenue fell sharply in North America and Europe.

In-store purchases in Macao and Hong Kong led the way, spurred by tourism from mainland China – where store traffic also doubled. Sales in Asia jumped 62 per cent year-over-year in the quarter ended Dec. 31, fuelled by purchases of the Expedition parka, which sells for $1,725 in Canada.

“Strength in (Asia-Pacific) reflects both the colder weather in greater China in Q3 as well as (the end of) store closures last year relating to COVID-19 restrictions,” Reiss told analysts on a conference call Thursday.

The Pacific surge fuelled a total year-over-year revenue boost of six per cent last quarter.

Closer to home, however, the Toronto-based company saw sales drop off. Warmer weather through the fall and early winter alongside weaker consumer demand drove revenues down nearly 14 per cent in Canada and the U.S.

“Where we saw the pressure was just consumers feeling that pinch – a little less loose with their wallets,” Baker said.

“Weather didn’t help,” she said. “Winter just didn’t come for them. And so they didn’t have that same sort of spur to get their typical winter jackets.”

Many who did shell out on winter gear opted for less pricey apparel from other brands, she added.

For those who stuck with Canada Goose, the women’s Shelburne parka and men’s MacMillan parka – $1,500 and $1,225, respectively – were top sellers in the U.S. and Europe.

In Europe, the Middle East and Africa – comprising the smallest slice of Canada Goose earnings – revenue fell 26 per cent.

The “mixed consumer environment” prompted the company to scale back the top end of its earnings predictions, said chief financial officer Jonathan Sinclair.

For its 2024 financial year, Canada Goose forecast revenues of $1.28 billion to $1.31 billion, compared with its earlier guidance of between $1.2 billion and $1.4 billion. The previous fiscal year drew revenues of $1.22 billion.

It said adjusted net income per diluted share would likely land between 82 cents and 92 cents compared with earlier expectations of between 60 cents and $1.40 and a full-year result of $1.05 in the last fiscal year.

The outfit remains upbeat.

“The traction we saw in Asia Pacific in Q3 was very promising,” Sinclair said.

“In January, North America and Europe started to turn a corner, with (direct-to-consumer) performance moving back into positive growth territory once again, coinciding with the onset of colder weather in each region.”

While the company is opening three new permanent stores this quarter – boosting its total to 68 – it plans to put the brakes on its major brick-and-mortar expansion.

“We have opened a lot of stores in the last few years that have been in challenging environments. And so we haven’t seen the productivity that we know that they are capable of. That really is our near-term focus,” Baker said.

The company also expects wholesale revenue to decline substantially this year – after falling 29 per cent year-over-year last quarter – as retailers scale back their orders.

The company projected total revenue of between $310 million and $330 million for its fourth quarter and an adjusted profit between two cents and 13 cents per diluted share.

In its third quarter, net income attributable to shareholders fell three per cent to $130.6 million from $134.9 million a year earlier.

Revenue for the quarter ended Dec. 31 totalled $609.9 million, up from $576.7 million in the same period a year earlier.

On an adjusted basis, Canada Goose said it earned $1.37 per diluted share in its latest quarter, up from an adjusted profit of $1.27 per diluted share a year earlier and roughly in line with analyst expectations, according to financial markets data firm Refinitiv.

This report by The Canadian Press was first published Feb. 1, 2024.

Companies in this story: (TSX:GOOS)

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