There’s no arguing that Canada Goose has been a massive success. The company’s iconic parkas, with that distinctive red, white and blue logo, many priced at more than $1,000 and some with controversial coyote fur-lined hoods, have became status symbols around the world and fueled consistent sales expansion over the past two decades.
A compounded revenue growth rate of more than 42 per cent from fiscal 2016 through 2018 reflects the robust consumer demand for high-quality Canadian-made winter wear, while investor excitement helped shares in the Toronto-based company pop by more than 25 per cent on their first day of trading in March 2017.
But recently there have been signs that the torrid expansion can’t last forever. Fourth-quarter sales, announced in May, came in lower than expected, with the company saying it expected “materially larger losses” as a result of more stores operating during off-peak periods and the higher investments required to support growth.
So how can Canada Goose sustain momentum? The company’s CEO says thoughtfully selected new product lines, along with expansion in Europe, the U.S. — and especially Asia — will keep the success story going. And he doesn’t see the recent diplomatic tensions with China getting in the way.
“We’ll leave politics to the politicians,” said Dani Reiss, the grandson of the company’s founder. “We opened in China last year and are successful there and are real happy with all of our partnerships and how the business is growing.”
Reiss acknowledged that new stores require more spending, but he downplayed the impact of China-Canada tensions on the business. He said he has felt no need to caution the company’s roughly 100 employees in China about possible repercussions from a diplomatic spat in the wake of the arrest in December 2018 of Huawei CFO Meng Wanzhou by Canadian authorities at the request of U.S. officials.
The arrest spurred calls for a Chinese boycott of Canadian brands, including Canada Goose, but the large crowds that queued outside the Canada Goose store in Beijing’s upscale Sanlitun district when it opened in late December 2018 suggest the parkas remain popular with Chinese shoppers.
Despite the threatened boycott, Reiss said the country name in its brand still resonates well in China. He added that Canada Goose has a partnership with Alibaba’s online Tmall to sell coats to Chinese shoppers that has helped Canada Goose become a top-selling brand in its category on the platform.
Still, some analysts doubt that the company will continue to grow at the pace it has.
James Hodgins, a fund manager of Curvature Hedge Strategies, said the stock price factors in the presumption of high growth “and a lot of that is expected to come from China.” He said the ultimate fallout from political issues has yet to be seen, “but we don’t expect it to be positive.”
Moreover, with the company’s plans including new stores in Europe and China in 2020, Bloomberg analyst Maxime Boucher said Canada Goose will likely need higher near-term working capital investment to support manufacturing and logistics. Canada Goose also faces mounting competition in the fast-growing high-end outerwear market.
Reiss is unabashedly optimistic. He said the company’s sees geographic growth opportunity well beyond China.
“These days growth is coming from everywhere. Europe is a massive opportunity for us. We went to Europe before we went to China, or even the U.S., and Europe remains a very good opportunity,” he said. “We’ve opened two new stores this year in Paris and Milan. China remains a strong market, all of Asia in fact, and the States are really in the beginning stages of its growth and that’s just talking about the products we have today and we continue to expand our product line.”
The Milan expansion corresponded with the opening of an office of the Trade Commissioner Service, said Jim Carr, Minister of International Trade Diversification, who cited the importance of new markets for Canadian exporters. “There is no better example of that diversification than Canada Goose.”
Reiss added that the company can maintain strong growth with continued expansion of its bricks-and-mortar network in select markets while enhancing its original e-commerce focus and by carefully growing its product line.
“We’re very careful about product changes,” Reiss said. “We’ve recently rolled out knitwear — and it’s been successful — as well as lighter weight clothing, and our spring collection is strong, which includes rainwear and windwear. It’s important that we don’t get ahead of ourselves and always make a best-in-class product. All of our down-filled products are made in Canada and our reputation is always to make the best.”
To that end, the company has opened a third manufacturing facility in Winnipeg that it says will create more than 700 new jobs over the next three years to add to the more than 1,000 people already working for the company in the city. It has also expanded into footwear, announcing in 2018 that it would pay $32.5 million for Stoney Creek-based Baffin Inc., which focuses on outdoor and industrial boots.
Susquehanna’s analysts seem to share Reiss’s confidence about the future. In a recent note, they wrote that demand is still “significantly” higher than supply, and attributed the disppointing fourth-quarter growth and 2020 guidance to “Canada Goose’s decision to ensure controlled growth of the brand.”
Other analysts, too, are bullish about the company’s prospects in China, the world’s largest luxury market, where Canada Goose remains in early days with two stores — one in Beijing and another in Hong Kong — plus e-commerce operations and three additional store openings planned for fiscal 2020.
“We’ve exceeded all of our expectations in China,” Reiss said. “And we continue to do so.”
Michael Lewis is a Toronto-based reporter covering business. Follow him on Twitter: @MLewisStar