Susquehanna Bullish On Canada Goose: 'We Foresee A Long Runway For Margin Expansion'

Canada Goose Holdings Inc GOOS is "the best-in-class luxury cold weather brand," according to Susquehanna. 

The Analyst

Analyst Sam Poser initiated coverage of Canada Goose with a Positive rating and $98 price target.

The Thesis

"Canada Goose continues to position itself as ‘THE’ luxury winter performance outdoor apparel brand by making great product, controlling distribution and staying true to its Canadian heritage," Poser said in the initiation note. (See his track record here.) 

Even after beating the second-quarter earnings consensus estimate by 77 percent and posting 37-percent earnings growth year-over-year, the analyst said Canada Goose's positive outlook will prove conservative.

“Given international expansion, favorable changes in distribution mix (increasing penetration of direct sales vs. wholesale), we expect a three-year revenue and net income CAGRs, respectively, of at least 30 percent and 40 percent.” 

Canada Goose is positioned to drive 30-percent-plus revenue CAGR through at least fiscal 2021 for the following reasons, Poser said: 

• "Controlled, yet aggressive" direct-to-consumer growth.
• Controlled international expansion.
• Strict distribution and allocation control. 
• Commitment to the brand’s ethos.
• Creative, targeted marketing.

The direct-to-consumer segment should grow to almost 70 percent of total sales by 2021, the analyst said — a promising sign considering that, in fiscal 2018, Canada Goose's DTC gross margin was 74.4 percent versus a wholesale gross margin of 46.9 percent.

“As the company continues to shift the business toward DTC, as well as improve and enhance its manufacturing capabilities, we foresee a long runway for margin expansion." 

The Price Action

Canada Goose shares were down nearly 4 percent at $56.16 at the time of publication Monday. 

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