What happened

There seems to be no stopping Canada Goose Holdings Inc. (NYSE:GOOS). The euphoria over the high-end fashion retailer has spilled over from 2017, with the stock nearly doubling in the first six months this year. Between January and June, Canada Goose zoomed a staggering 94.7%, according to data provided by S&P Global Market Intelligence.

Nearly all of those gains came in the last quarter, with June alone accounting for the bulk of it, thanks to one factor: exceptional operational performance.

So what

Both of Canada Goose's earnings reports released so far this year reveal a common story: The company's growing at a torrid pace. Numbers for its fiscal 2018 (ended March 31) that were released last month -- and which sent the stock soaring by double digits -- should give you a better idea. Note that all numbers are in the company's reporting currency, Canadian dollars:

Metric Fiscal 2018 Fiscal 2017 Change
Revenue $591.2 million $403.8 million 46.4%
Gross margin 58.8% 52.5% 6.3 pp
Operating margin 23.4% 10% 13.4 pp
Net income $96.1 million $21.6 million 345%
Adjusted earnings per share (EPS) $0.84 $0.43 95.3%

 Data source: Company financials. pp = percentage points. Dollar figures in Canadian dollars. Exchange rate as of July 16, 2018: CA$1=$0.76.

Breaking Canada Goose's revenues down further, direct-to-consumer (DTC) sales more than doubled to CA$255 million, while wholesale revenue clocked a relatively muted 16.5% growth. You could easily call DTC -- comprising flagship retail stores and its e-commerce platform -- Canada Goose's golden goose.

Winter coats on hangers in a store.

Image source: Getty Images.

Management's outlook for the next three years is equally compelling. It expects (emphasis mine):

  • Annual revenue growth: At least 20% on average.
  • Adjusted EBITDA margin: At least 26% in 2021.
  • Annual adjusted EPS growth: At least 25% on average.

Those growth projections, unsurprisingly, led to market frenzy and sent Canada Goose shares flying last month. Frankly, the market already had high expectations for the company, especially after it revealed plans to expand into China just a couple of weeks prior to its full-year earnings release. Plans include a regional head office in Shanghai, two retail stores, and e-commerce via Alibaba's Tmall in coming quarters. Investors cheered Canada Goose's plans given the huge appetite for luxury goods in China.

Now what

There's no denying Canada Goose's growth potential as it extends its brand power to high-potential markets like China. Presently, the company gets nearly 70% of its sales from the U.S. and Canada, so there's a huge market waiting to be tapped.

At the same time, I'd be happier to see Canada Goose reduce reliance on winters (which, I believe, is one of the biggest risks about investing in the stock) and look to expand its lightweight spring collection to spread sales out through the year. Where it is now, a warm winter could hit Canada Goose's sales really hard, more so for the high-end apparel that it deals in. Keep an eye on that, and watch the company's DTC sales closely, as that'll likely drive the 60-year-old luxury apparel maker's next growth phase.