Canada Goose Trims Guidance as Second-Quarter Revenue Drops Ahead of Peak Season

Canada Goose Trims Guidance as Second-Quarter Revenue Drops Ahead of Peak Season

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Luxury Clothing Company Faces Challenging Consumer Environment

In a move that reflects the current economic climate, Canada Goose Holdings Inc. has trimmed its financial guidance following a decline in second-quarter revenue compared to the same period last year. The company’s direct-to-consumer (DTC) business faced more pressure than anticipated, with DTC revenue decreasing by five percent during the quarter and comparable sales dropping by 13 percent.

The Company’s Performance

Canada Goose reported its second-quarter results, revealing a total revenue of $267.8 million for the quarter ended September 29, which is down from $281.1 million in the same period last year. This decline in revenue is attributed to several factors, including weaker consumer confidence and quieter marketing efforts during the quarter.

Direct-to-Consumer Business Under Pressure

The company’s direct-to-consumer (DTC) business has been a significant area of focus for Canada Goose. However, it appears that this segment has faced more pressure than anticipated, with DTC revenue decreasing by five percent during the quarter and comparable sales dropping by 13 percent.

"We face an increasingly challenging consumer environment," said Dani Reiss, chairman and chief executive officer (CEO) of Canada Goose. "While we have taken steps to adapt to changing market conditions, our results for the second quarter reflect the ongoing challenges in the luxury apparel market."

Marketing Strategy Shift

In response to the decline in revenue, Canada Goose has shifted its marketing spend toward the second half of its fiscal year ahead of the launch of the first capsule collection from its first-ever creative director, Haider Ackermann. This strategy aims to drive sales and increase brand visibility during a critical period for the company.

"While this shift impacted Q2 results, we expect to see benefits of this activity over the second half of the fiscal year," said Reiss. "About three-quarters of our annual revenue opportunity lies in the next two quarters as our peak selling season approaches."

Net Income and Outlook

Despite the decline in revenue, Canada Goose reported a net income attributable to shareholders of $5.4 million or six cents per diluted share for the quarter, up from $3.9 million or four cents per diluted share in the same period last year.

However, on an adjusted basis, the company earned five cents per diluted share in its latest quarter, down from 16 cents per diluted share in the prior year.

In its outlook, Canada Goose now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared to earlier guidance for a low-single-digit increase. The company also expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared to earlier guidance for a percentage increase in the mid-teens.

Inventory Levels and Cost Effectiveness

As part of Canada Goose’s efforts to simplify its business and improve cost effectiveness, the company has made significant progress on right-sizing its inventory levels. Inventory at the end of the quarter was down nine percent year over year, marking the company’s fourth consecutive quarter of decreasing its year-over-year inventory balance.

"We realized this by temporarily lowering production levels with both our third-party contract manufacturing partners and in our own facilities," said Beth Clymer, president of finance, strategy, and administration. "We also supplemented this effort with friends and family sales."

Third-Party Vendors

Canada Goose has also been aggressively reviewing its third-party vendors, resulting in the renegotiation or cancellation of numerous contracts during the first half of the year and yielding significant savings.

Since implementing workforce reductions at the end of the last fiscal year, the company has been judicious about hiring, added Clymer. "We’re hiring for only the most critical roles," she said.

Conclusion

In conclusion, Canada Goose’s decision to trim its financial guidance reflects the challenging consumer environment and the ongoing impact of COVID-19 on the luxury apparel market. However, with a focus on adapting to changing market conditions, shifting marketing strategies, and simplifying operations, Canada Goose remains committed to driving growth and increasing profitability in the long term.