Shares of Canada Goose (GOOS) -28% are getting hit hard after the company missed sales estimates for the first time since its IPO two years ago.
The purveyor of high-end outerwear is very pleased with its performance after its best year ever. Fiscal 2019 (March) adjusted EPS grew 62% to CAD$1.36/share and revenue grew 40.5% to CAD$830.5 mln.
Direct-to-consumer (DTC) sales grew 69% to a 52% mix as the company successfully launched in China.
However, slowing growth in the fourth quarter and conservative guidance are sending shares to a 52-week low this morning.
Revenue grew only 25% in the fourth quarter, missing estimates by nearly 2%. That company had exceeded estimates on the top-line by an average of an astonishing 34% since the IPO and 17% over the first three quarters of the year. So, the top-line miss has certainly spooked investors this session.
Fourth quarter revenue grew 144% in the fourth quarter of fiscal 2018, so the company did face tough comparisons. Management noted that purchases of winter products came earlier this year. Management also noted that growth rates are not really an apples-to-apples comparison given the addition of stores relative to its wholesale business.
Inventory grew 62%, but management said that is exactly where they want it in order to satisfy demand.
For fiscal 2020, the company guided for adjusted EPS to be up at least 25%, revenue growth of at least 20%, and at least 40 basis points of adjusted EBITDA margin expansion. Wall Street had expected EPS up 28% with revenue up 26%. The revenue and margin outlook were disappointing. EBITDA margins expanded 240 basis points last year. The company pointed to a waning benefit from the higher margin DTC segment, which now accounts for the bulk of sales.
It is important to keep in mind that management tends to guide conservatively. The company guided for the same exact top and bottom-line growth rates for fiscal 2019 one year ago, and management blew those numbers away.
On the call, management noted the guidance contained the phrase "at least" and referred to the outlook as "appropriate" and "responsible", implying that it was a low bar.
Canada Goose also guided for at least 25% EPS growth and at least 20% revenue growth annually over the next three years, with at least 100 basis points of EBITDA margin expansion.
Slowing growth tends to be a tough pill to swallow for high multiple stocks. Canada Goose was the most expensive retail stock in terms of an EV/EBITDA multiple coming into today so there was little margin for error.
Expectations were high and Canada Goose did not deliver a strong enough quarter, which impacted sentiment regarding its seemingly conservative outlook. More broadly, the retail sector continues to struggle with the shift to ecommerce. Niche player, Canada Goose is better positioned than most.
The valuation has become much more reasonable given today's shellacking. The EV/EBITDA multiple is now under 20x, which makes it cheaper than Under Armor (UAA), NIKE (NKE), and lululemon (LULU). The average for a group of leading retail brands is 13.5x.
Canada Goose no longer has a perfect record, but the growth story does not appear to be over for this high-end retailer.