What happened
Shares of Canada Goose (GOOS -3.13%), a maker and retailer of winter jackets, got off to a lousy start on Feb. 10, losing as much as 21% of their value in the first few minutes of trading. The big news was the company's premarket earnings release. It was a mix of positives and negatives, even though investors were clearly left with a downbeat view of the future. Before you make a final call here, there are some things to understand about the company and its results.
A one-trick pony
Like many hot retail companies Canada Goose rose to fame because of a single product. In this case it was its winter parkas. Since most people only buy winter coats when it is cold, the company has a highly seasonal business. The recently ended fiscal third quarter is the biggest selling period of the year for the company. It didn't actually have a bad quarter.
Image source: Getty Images.
The top line increased to 586 million Canadian dollars in the fiscal third quarter of 2021 from CA$474 million in the same period of fiscal 2020. Although an extra week added roughly CA$41 million to the most recent figure, the retailer still managed to grow its business nicely in the quarter. On the bottom line, adjusted earnings per share came in at CA$1.42 per share, up from CA$1.01 in the prior year. If you step back, that's kind of hard to complain about. Unless of course Wall Street analysts had been predicting even better results, which they were. When a company misses on the top and bottom lines investors often sell first and ask questions later, which is exactly what happened today. Exacerbating the negative mood, the company also lowered its full-year fiscal 2021 guidance (more on this below).
But there was an important number in the report that probably deserves more attention. Canada Goose's non-parka sales increased by nearly 75%. The company didn't break out how much that was in dollars and cents, as it was probably pretty small relative to its parka sales. But it means that consumers are starting to view the company as more than just a jacket brand. Basically, Canada Goose is trying to move past a single product, which sells well for a very short period of time each year, to become more of a lifestyle brand. And it seems to be having some success in the effort. Meanwhile, despite the revenue and earnings miss, the core of the business is still growing, so it's not like Canada Goose has suddenly fallen out of style.
The long-term view
Even the reduced guidance is hard to get too upset about, given that it was tied to the pandemic and related restrictions in Asia and Europe. That isn't something that Canada Goose can control, basically impacts the entire retail sector, and is, hopefully, going to be a transitory issue over the long term. In other words, investors seem to be focusing on the short term here, thinking in months and quarters when management is thinking in years as it looks to expand beyond its current parka niche. If it can do that, with the near 75% increase in non-parka sales suggesting it is seeing early success, Canada Goose could have a long runway for growth ahead of it.
