Canada Goose’s Recovery Plan: More Direct Sales, Less Wholesale

(Bloomberg) -- Before the coronavirus crisis, Canada Goose Holdings Inc. had been moving to selling more goods to consumers through its own stores and e-commerce sites. That's bound to accelerate as lockdown rules ease.

The Toronto-based company halted shipments to distributors and other retailers that sell its luxury parkas at the end of March, when countries shut down their economies to stem the Covid-19 outbreak. With many cities reopening, the company says it will take “an even more disciplined approach” to wholesale partners and how much inventory it sends them.

“It remains strategically important but we are increasing our emphasis on DTC,” or direct to consumer sales, Chief Financial Officer Jonathan Sinclair told analysts during an earnings call Wednesday. “This allows us to control the consumer experience directly, while earning double the revenue and triple the profit.”

While the company was hit by the pandemic early on because of China operations, it reported a smaller-than-expected revenue drop in the quarter ended March 29, helping shares climb as much as 16% Thursday in Toronto. They're still down 29% this year.

Most of the impact from store closures will be felt in the current quarter, historically its least important because the weather is warm and it's too early to ship to wholesalers. Like many companies that are dealing with a sudden rise in economic uncertainty, Canada Goose declined to give a forecast for this year.

The manufacturer switched to making personal protective equipment for Canadian workers at its eight factories across the country.

Large Inventory

Canada Goose says it built up a large enough inventory of its regular products before the pandemic to meet future demand and be nimble on when to resume production. Two-thirds to three-quarters of revenue in each collection comes from recurring styles, according to Sinclair, which makes hanging on to older goods less risky.

Holding inventory makes sense for luxury brands in the current climate of uncertainty, with peak season starting in October for Canada Goose, said Maxime Boucher, an analyst at Bloomberg Intelligence.

“That avoids undue and undesirable discounting and possible inventory buybacks and write-offs,” he said.

Canada Goose routinely says it's a full-price brand after investors' questions about discounts weighed on the stock last year, when it dropped 21%.

Wholesale accounted for 44% of revenue at the end of March, down from 57% two years earlier, as the company added stores from Milan to Shanghai. It said shipment to wholesalers this year will be “healthy” but lower, as some still have pre-pandemic inventory.

Before the crisis hit, the company had already been culling its group of sellers. It trimmed its wholesale points of distribution to 2,121 in the fall/winter 2019 season from 2,227 a year earlier, regulatory filings show.