Canada Goose (GOOS) grew revenue and stock price like crazy until 2018. Then they decided to try direct to consumer and get into less warm ultra-luxury products. Because it worked well for their competitor Moncler and the ideas were popular generally, and why not cash in on the brand's popularity year-round instead of just selling winter coats. Also, lower priced brands like Moose Knuckles and Arc'teryx were on the rise. So it was easier for GOOS to move upward to ultra luxury. But the company still sells it's ultra functional heavy down parkas, so the risky move upward is countered by a solid recurring business.
But customers and investors didn't like the initial results of those changes. Customers complained about product quality (less goose down fill seen as low quality) and price increases. The fashion aspect wasn't creating enough appeal to offset those changes for customers either. Investors saw operational costs and inventory soar as the fashion and direct to consumer experiments increased marketing, leasing, and construction costs. Also inventory went up partially because of failed fashion experiments, but mostly because of the warm winters and work from home. So slower sales growth, tighter margins, and higher inventory made investors lose interest.
Direct to consumer doesn't work certain products (like mattresses – remember Casper?) but it does for Moncler and Apple. No one sees what brand mattress you sleep on, but they do see what coat or fashion you wear. So brands are stronger in fashion apparel, especially outdoor fashion apparel. Both Moncler and Apple retail locations showcase their products like jewelry showrooms. So that's the direct to consumer vision GOOS adopted for their retail stores. It takes a lot of upfront investment to build the stores, and a lot of operational expenses experimenting with marketing and products. Once the company gets it right and streamlines operations, the excess expenses are history.
That's exactly the inflection point Canada Goose is at now. Their sales were up 40% on Black Friday weekend and their stores saw record traffic (brand is strong). However, temperatures rose to the mid 40s and 50s in the Northern US/Canada by mid December due to El Nino. But the winds are a changin'! On Thursday, the National Weather Service predicted (https://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/ensodisc.shtml) that the next winter is likely to be a cold one. The line to get in at my local Canada Goose store used to be 2 hours long during cold winters!
Moreover, work from home is slowly reversing. Everyone I talk to from programmers to business roles and lawyers, reports having to go into work more often this year vs last year. It's clear that most companies don't like work from home. Going into work means everyone has to wear their coats more often. With the extra wear and tear, they need to buy new ones for the colder winter next year. Also lots of people haven't needed to buy a heavy winter coat since before COVID. GOOS will sell a fuck ton more coats next year. But we don't have to wait until then.
Their rain wear, sweaters, shirts, and accessories are selling better this year than last year already. I talked to one of their store employee today about a range of topics, and this was the most surprising part. Despite the push into non-winter wear since way back in 2018, they are now beating their sales targets on these items. Dude was super cool and genuinely enthusiastic about the brand. My guess is it took them a while to understand what customers what in these categories and how to market to them. This will make the business less seasonal and increase revenue, margins, and income.
Furthermore, there is legitimate speculation (https://x.com/NonGaap/status/1757928725608530307?s=20) that the company is about to be acquired. The largest shareholder of GOOS is Bain Capital and they own almost 40% of the company. Recently Bain Capital started moving their shares into a shell company that looks like it was used to take out a margin loan against their shares. As the shares have dropped in value, they had to post more and more shares as collateral for that debt. They are getting close to running out of shares to post.
At the same time, Bain Capital have changed their appointed director on the board and "appointed an experienced operating partner [Beth Clymer – formerly at Bain Capital] to run point on finance & strategy." (quote from the tweet above) GOOS acquired their European supplier shortly after the new board member and Beth were appointed. Now the company has full vertical integration internationally. These are not coincidences. Bain needs an exit and the company is cheap and ripe (in terms of inflection point) for acquisition.
But forget the probability of an acquisition and let's say I'm too optimistic about its future. The company hasn't taken on any additional long term debt since way before COVID. They will grow their revenue 10% in a year that most luxury brands will struggle to not shrink. Not to mention that it was a really warm winter. They are cashflow positive almost every year since IPO (including this year). They have bought back more than 10% of the company since going public. They grew revenue every year by double digits since IPO except for 2020 (COVID) despite all the challenging factors I listed above. Revenue, income, and cashflow are all up more than 3x since IPO. The CEO is a grandson of the founder and owns almost 25% of the company. And somehow their market cap is below what it was when they IPO'd? Wtf? I rest my case.
