Canada Goose Reports Results for Third Quarter Fiscal Year 2018

Third Quarter Fiscal 2018 Highlights (in Canadian dollars):

  • Total revenue was $265.8 million, representing year-over-year growth of 27.2%
  • Gross margin expanded to 63.6% from 57.5% in the prior year
  • Net income was $62.9 million, or $0.56 per diluted share, and adjusted net income was $64.6 million, or $0.58 per diluted share
  • Adjusted EBITDA was $94.7 million, compared to $66.1 million in the prior year, representing year-over-year growth of 43.2%

TORONTO--()--Canada Goose Holdings Inc. (“Canada Goose” or the “Company”) (NYSE: GOOS, TSX: GOOS) today announced financial results for its third quarter ended December 31, 2017. The Company’s Management’s Discussion and Analysis and Unaudited Condensed Consolidated Interim Financial Statements for the three and nine month periods ended December 31, 2017 will be filed on SEDAR at www.sedar.com, the EDGAR section of the U.S. Securities and Exchange Commission website at www.sec.gov and posted on the Company’s website at investor.canadagoose.com.

“In our peak selling season, we delivered strong performance across geographies, channels and categories this quarter, reflecting the continued demand for the Canada Goose brand around the world. Year to date, we added e-commerce sites in seven new markets, opened five new stores across three continents, including our partner operated store in Tokyo, and we successfully added more than 700 employees. As we look ahead, we continue to build deeper relationships with our fans and bring new people into the world of Canada Goose,” stated Dani Reiss, President & Chief Executive Officer.

Fiscal 2018 Third Quarter Results (in Canadian dollars, compared to the same period in Fiscal 2017):

  • Total revenue increased by $56.8 million from $209.1 million to $265.8 million in the third quarter of fiscal 2017, representing year-over-year growth of 27.2%.
    • Wholesale revenue was $134.2 million as compared to $137.0 million in the third quarter of fiscal 2017. In the first half of fiscal 2018, we shipped approximately $18 million of customer orders that were originally planned for the third quarter based on the order book, which was enabled by efficiency in manufacturing and sales planning to allow us to accelerate our shipment timing in response to requests from retail partners approaching their peak selling season. This was partially offset by strong demand in the wholesale channel.
    • Direct-to-consumer revenue was $131.6 million as compared to $72.0 million in the third quarter of fiscal 2017. The increase was primarily driven by incremental revenue from four new company operated retail stores and additional seven new e-commerce sites which opened in fiscal 2018. We experienced continued strong performances of our existing e-commerce sites and retail stores.
  • Gross profit increased to $169.0 million from $120.3 million in the third quarter of fiscal 2017. As a percentage of total revenue, gross profit was 63.6% compared to 57.5% in the third quarter of fiscal 2017.
    • Wholesale gross profit was $68.5 million, a gross margin of 51.0%, as compared to $65.5 million, a gross margin of 47.8%, in the third quarter of fiscal 2017. The increase in wholesale gross profit and higher gross margin were due to a greater proportion of wholesale revenue from higher margin parkas within our fall and winter line and lower material costs.
    • Direct-to-consumer gross profit increased to $100.6 million, a gross margin of 76.4% from $54.8 million, a gross margin of 76.1%, in the third quarter of fiscal 2017. Lower material costs have a less significant impact on gross margin in our direct-to-consumer channel as a result of higher selling prices.
  • Selling, general and administrative expenses were $76.8 million as compared to $62.0 million in the third quarter of fiscal 2017, driven by employee headcount increases and operational and selling expenditures to support the growth of our direct-to-consumer channel.
  • Net income for the third quarter was $62.9 million, or $0.56 per diluted share, compared to net income of $39.1 million, or $0.38 per diluted share, in the third quarter of 2017.
  • Adjusted EBITDA was $94.7 million compared to $66.1 million in the prior year, representing year-over-year growth of 43.2%.
  • Adjusted net income per diluted share for the third quarter of fiscal 2018 was $0.58, based on 111.6 million diluted shares outstanding, compared to an adjusted net income per diluted share of $0.44, based on 101.8 million diluted shares outstanding in the third quarter of fiscal 2017. Adjusted pro forma net income per share for the third quarter of fiscal 2017, which includes the effect of the Initial Public Offering (“IPO”) in the calculation of the weighted average number of shares outstanding as if the IPO had occurred at the beginning of fiscal 2017, was $0.42 per share based on 106.3 million shares.

Conference Call Information

A conference call to discuss third quarter fiscal 2018 results is scheduled for today, February 8, 2018, at 9:00 a.m. Eastern Time. Dani Reiss, President and Chief Executive Officer and John Black, Chief Financial Officer, will host the conference call. Those interested in participating in the call are invited to dial (866) 393-4306 or (763) 488-9145 if calling internationally. Please dial in approximately 10 minutes prior to the start of the call and reference Conference ID 5693535 when prompted. A live audio webcast of the conference call will be available online at http://investor.canadagoose.com.

About Canada Goose

Founded in a small warehouse in Toronto, Canada in 1957, Canada Goose has grown into one of the world’s leading makers of performance luxury apparel. Every collection is informed by the rugged demands of the Arctic and inspired by relentless innovation and uncompromised craftsmanship. From Antarctic research facilities and the Canadian High Arctic, to the streets of New York, London, Milan, Paris, and Tokyo, people are proud to wear Canada Goose products. Employing more than 2,000 people worldwide, Canada Goose is a recognized leader for its Made in Canada commitment, and is a long-time partner of Polar Bears International. Visit canadagoose.com for more information.

Note Regarding Non-IFRS Financial Measures

This press release includes references to adjusted net income, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income per share and per diluted share, and adjusted pro forma net income per share and per diluted share. The Company presents these measures because its management uses these as supplemental measures in assessing its operating performance, and believes they are helpful to investors, securities analysts and other interested parties, in evaluating the Company’s performance. The measures referenced above are not measurements of financial performance under IFRS and they should not be considered as alternatives to measures of performance derived in accordance with IFRS. In addition, these measures should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. These measures have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing the Company’s results as reported under IFRS. The Company’s definitions and calculations of these measures are not necessarily comparable to other similarly titled measures used by other companies. These non-IFRS financial measures are defined and reconciled to the most comparable IFRS measures in the tables at the end of this press release.

Cautionary Note Regarding Forward-Looking Statements

The foregoing financial information as at and for the three and nine months ended December 31, 2017 are unaudited and subject to quarter-end and year-end adjustments in connection with the completion of our customary financial closing procedures. Such changes could be material.

This press release includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “plan,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” and other words of similar meaning. Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. Applicable risks and uncertainties include, among others, our expectations regarding industry trends, our business plan and growth strategies, our expectations regarding seasonal trends, our ability to implement our growth strategies, our ability to keep pace with changing consumer preferences, our ability to maintain the strength of our brand and protect our intellectual property, as well as the risks identified under the heading “Risk Factors” in our Annual Report on Form 20-F for the fiscal year ended March 31, 2017, and filed with the Securities and Exchange Commission (“SEC”), and the securities commissions or similar securities regulatory authorities in each of the provinces and territories of Canada (“Canadian securities regulatory authorities”), as well as the other information we file with the SEC and Canadian securities regulatory authorities. We caution investors not to rely on the forward-looking statements contained in this press release when making an investment decision in our securities. You are encouraged to read our filings with the SEC, available at www.sec.gov, and our filings with Canadian securities regulatory authorities available at www.sedar.com for a discussion of these and other risks and uncertainties. The forward-looking statements in this press release speak only as of the date of this release, and we undertake no obligation to update or revise any of these statements. Our business is subject to substantial risks and uncertainties, including those referenced above. Investors, potential investors, and others should give careful consideration to these risks and uncertainties.

 

Condensed Consolidated Interim Statements of Income and Comprehensive Income

(unaudited)

(in thousands of Canadian dollars, except share and per share amounts)

 
    Three months ended
December 31
  Nine months ended
December 31
2017   2016   2017   2016
Revenue 265,825   209,051 466,360   352,681
Cost of sales 96,805     88,767     197,005     168,403  
Gross profit 169,020 120,284 269,355 184,278
Gross margin 63.6 % 57.5 % 57.8 % 52.3 %
Selling, general and administrative expenses 76,791 62,005 139,168 110,270
SG&A expenses as % of revenue 28.9 % 29.7 % 29.8 % 31.3 %
Depreciation and amortization 2,404     1,965     6,886     4,901  
Operating income 89,825 56,314 123,301 69,107
Operating income as % revenue 33.8 % 26.9 % 26.4 % 19.6 %
Net interest and other finance costs 3,386     3,087     10,077     8,620  
Income before income taxes 86,439 53,227 113,224 60,487
Income tax expense 23,514     14,139     25,261     15,416  
Effective tax rate 27.2 % 26.6 % 22.3 % 25.5 %
Net income 62,925 39,088 87,963 45,071
Other comprehensive loss (1,663 )   (322 )   (362 )   (729 )
Total comprehensive income 61,262     38,766     87,601     44,342  
Earnings per share
Basic $ 0.59 $ 0.39 $ 0.82 $ 0.45
Diluted 0.56     0.38     0.79     0.44  
Weighted average number of shares outstanding
Basic 107,442,446 100,000,000 106,980,180 100,000,000
Diluted 111,612,786 101,811,155 111,058,977 101,751,470
Other data: (1)
Adjusted net income 64,577 44,918 84,224 59,167
Adjusted net income per diluted share $ 0.58 $ 0.44 $ 0.76 $ 0.58
EBITDA 93,086 58,853 132,572 75,578
Adjusted EBITDA 94,681 66,134 127,514 92,443
Adjusted EBITDA margin 35.6 % 31.6 % 27.3 % 26.2 %
 

(1) Adjusted net income, adjusted net income per diluted share, EBITDA, adjusted EBITDA, and adjusted EBITDA margin are non-IFRS financial measures. See — “Reconciliation of Non-IFRS Financial Measures” for a description of these measures and a reconciliation to the nearest IFRS measure.

 
 
Condensed Consolidated Interim Statements of Financial Position
(unaudited)
As at December 31, 2017 and March 31, 2017

(in thousands of Canadian dollars)

 
    December 31   March 31
2017   2017
Assets $ $
Current assets
Cash 62,127 9,678
Trade receivables 78,379 8,710
Inventories 124,826 125,464
Income taxes receivable 4,215
Other current assets 17,446   15,156
Total current assets 282,778 163,223
 
Deferred income taxes 6,804 3,998
Property, plant and equipment 57,136 36,467
Intangible assets 135,212 131,912
Other long-term assets 483
Goodwill 45,269   45,269
Total assets 527,682   380,869
 
Liabilities
Current liabilities
Accounts payable and accrued liabilities 96,121 58,223
Provisions 15,779 6,046
Income taxes payable 15,730  
Total current liabilities 127,630 64,269
 
Provisions 11,298 9,526
Deferred income taxes 13,861 10,888
Revolving facility 6,642
Term loan 132,619 139,447
Other long-term liabilities 6,548   3,929
Total liabilities 291,956 234,701
 
Shareholders' equity 235,726   146,168
Total liabilities and shareholders' equity 527,682   380,869
 
 
Condensed Consolidated Interim Statements of Cash Flows
(unaudited)
For the nine months ended December 31

(in thousands of Canadian dollars)

 
    2017   2016
$   $
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 87,963 45,071
Items not affecting cash
Depreciation and amortization 9,271 6,471
Income tax expense 25,261 15,416
Interest expense 9,867 7,543
Unrealized foreign exchange (gain) loss (8,520 ) 1,882
Write off of deferred financing charges on refinancing revolving facility 946
Share-based compensation 1,372     2,536  
125,214 79,865
Changes in non-cash operating items (24,347 ) (18,320 )
Income taxes paid (4,902 ) (17,017 )
Interest paid (7,739 )   (7,895 )
Net cash from operating activities 88,226     36,633  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (19,904 ) (15,209 )
Investment in intangible assets (6,590 ) (6,053 )
Business combination (570 )   (500 )
Net cash used in investing activities (27,064 )   (21,762 )
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment) borrowings on revolving facility (8,861 ) 57,554
Repayment of credit facility (55,203 )
Deferred financing fees on term loan syndication (437 )
Recapitalization transactions:

Borrowings on term loan, net of deferred financing charges of
$3,427 and original issue discount paid of $2,167

212,519
Repayment of subordinated debt (85,306 )
Redemption of Class A senior preferred shares (53,144 )
Redemption of Class A junior preferred shares (4,063 )
Return of capital on Class A common shares (698 )
Shareholder advance (63,576 )
Exercise of stock options 585      
Net cash (used in) from financing activities (8,713 )   8,083  
Increase in cash 52,449 22,954
Cash, beginning of period 9,678     7,226  
Cash, end of period 62,127     30,180  
 
 

Reconciliation of Non-IFRS Measures

The tables below reconcile net income to EBITDA, adjusted EBITDA, and adjusted net income for the periods presented:

 
CAD $000s

(unaudited)

    Three months ended
December 31
  Nine months ended
December 31
2017   2016   2017   2016
Net income 62,925   39,088 87,963   45,071
Add the impact of:
Income tax expense 23,514 14,139 25,261 15,416
Net interest and other finance costs 3,386 3,087 10,077 8,620
Depreciation and amortization 3,261     2,539     9,271     6,471  
EBITDA 93,086 58,853 132,572 75,578
Add (deduct) the impact of:
Bain Capital management fees (a) 1,348 1,560
Transaction costs (b) 2,890 1,546 5,624
Unrealized gain on derivatives (c) 4,422
Unrealized foreign exchange gain on Term Loan Facility (d) 1,160 1,561 (8,420 ) 1,561
International restructuring costs (e) 175
Share-based compensation (f) 294 1,037 684 2,536
Agent terminations and other (g) 116
Non-cash rent expense (h) 141     329     1,132     987  
Adjusted EBITDA 94,681     66,134     127,514     92,443  
 

CAD $000s

(unaudited)

Three months ended
December 31

Nine months ended
December 31

2017

 

2016

 

2017

 

2016

Net income 62,925 39,088 87,963 45,071
Add (deduct) the impact of:
Bain Capital management fees (a) 1,348 1,560
Transaction costs (b) 2,890 1,546 5,624
Unrealized gain on derivatives (c) 4,422
Unrealized foreign exchange loss (gain) on Term Loan Facility (d) 1,160 1,561 (8,420 ) 1,561
International restructuring costs (e) 0 175
Share-based compensation (f) 294 1,037 684 2,536
Agent terminations and other (g) 116
Non-cash rent expense (h) 141 329 1,132 987
Amortization on intangible assets acquired by Bain Capital (i) 318     544     1,406     1,632  
Total adjustments 1,913 7,825 (3,652 ) 18,497
Tax effect of adjustments

(261

)

 

(1,995

)

  (87 )   (4,401 )
Adjusted net income 64,577     44,918     84,224     59,167  
 
(a)   In connection with Bain’s purchase of a 70% equity interest in our business on December 9, 2013 (the “Acquisition”), we entered into a management agreement with certain affiliates of Bain Capital for a term of five years (“Management Agreement”). This amount represents payments made pursuant to the Management Agreement for ongoing consulting and other services. In connection with the IPO on March 21, 2017, the Management Agreement was terminated in consideration for a termination fee of $9.6 million and Bain Capital no longer receives management fees from the Company.
(b) In connection with the IPO in March 2017 and Secondary Offering in July 2017, we incurred expenses related to professional fees, consulting, legal, and accounting that would otherwise not have been incurred. These fees are reflected in the table above, and do not reflect expected future operating expenses after completion of these activities.
(c) Represents non-cash unrealized gains on foreign exchange forward contracts recorded in fiscal 2016 that relate to fiscal 2017. We manage our exposure to foreign currency risk by entering into foreign exchange forward contracts. Management forecasts its net cash flows in foreign currency using expected revenue from orders it receives for future periods. The unrealized gains and losses on these contracts are recognized in net income from the date of inception of the contract, while the cash flows to which the derivatives related are not realized until the contract settles. Management believes that reflecting these adjustments in the period in which the net cash flows occur is more appropriate.
(d) Represents non-cash unrealized gains and losses on the translation of the Term Loan Facility from USD to CAD, net of the effect of derivative transactions entered into to hedge a portion of the exposure to foreign currency exchange risk.
(e) Represents expenses incurred to establish our international headquarters in Zug, Switzerland, including closing several smaller offices across Europe, relocating personnel, and incurring temporary office costs.
(f) Represents non-cash share-based compensation expense on stock options issued prior to the IPO under our pre-IPO plan.
(g) Represents accrued expenses related to termination payments to be made to our third-party sales agents. As part of a strategy to transition certain sales functions in-house, we terminated the majority of our third party sales agents and certain distributors, primarily during fiscal 2015 and 2016, which resulted in indemnities and other termination payments. As sales agents have now largely been eliminated from the sales structure, management does not expect these charges to recur in future fiscal periods.
(h) Represents non-cash lease amortization charges during pre-opening periods for new store leases.
(i) As a result of the Acquisition, we recognized an intangible asset for customer lists in the amount of $8.7 million, which had a useful life of four years and has been fully amortized in the third quarter of fiscal 2018.
 
 
Pro forma income per share and adjusted net income per share

(unaudited)

CAD $000s

(except per share data)

   

Three months
ended
December 31

 

Nine months
ended
December 31

2016 2016
Pro forma income per share
Net income $ 39,088 $ 45,071
 
Weighted average number of common shares 100,000,000 100,000,000
Pro forma for IPO as at April 1, 2016 6,308,154   6,308,154

Pro forma weighted average number of common shares outstanding
over the year

106,308,154 106,308,154
 
Pro forma income per share $ 0.37 $ 0.42
 
 
Pro forma adjusted net income per share
Adjusted net income $ 44,918 $ 59,167
 
Pro forma weighted average number of shares 106,308,154 106,308,154
 
Pro forma adjusted net income per share $ 0.42 $ 0.56
 

Contacts

ICR, Inc.
Investors:
Allison Malkin/Caitlin Morahan
203-682-8200
Allison.Malkin@ICRinc.com / Caitlin.Morahan@ICRinc.com
or
Media:
Julia Young
646-277-1280
Julia.Young@ICRinc.com

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