This is an excellent write up. I had no idea GOOS was publicly traded.
Anecdotally, the brand appears to be growing here in the UK - I know at least 2 people who have bought jackets in the last 3 months.
For a company with a luxury brand/ strong gross margins / owner operator / considerable buybacks it's unbelievable the share price is down 75% in 5 years!
Have you made any further purchases?
Thanks for bringing this to my attention, I'm looking forward to investing further.
Thanks! Can you clarify? Is it that I'm saying 130-150 retail locations when it should be "130-150 permanent retail stores", but the travel "locations" would come in on top of that?
My understanding is a single geo location can have multiple stores. Exhibit L shows retail stores count while the context above it is locations. The paragraph above Exhibit L use location, the paragraph below it use store.
Because of this confusion, it is not clear to me in later section what stores means, especially on China. "China has 155 cities with more than a million people. GOOS might not want to be in all those cities, but could they have a retail presence in 50? Sure. Could it be 70? " Do you mean 50/70 stores or locations? I am from China. Its income discrepancy is huge. Most people are really poor and the money are concentrated to the people in the cities, who are visible to western world and doing the travels. I do not think its possible 50 cities can afford GOOS by 2028. On the other hand, 50 stores on the top 10 cities, maybe. But NYC only has two DTC stores now.
Okay, now I get it - thanks for clarifying. I was using "stores" and "locations" interchangeably in that instant - in both cases I meant a physical retail store.
Re: the China stuff, it was a bit of a throw away comment, so without thinking I initially meant 1 store in 50-70 individual cities. But as you've pointed out, that's obviously silly. Maybe the largest cities have 4-5 stores each, and then it tails off after that, and GOOS only ends up in 10-15 cities. I don't know what the distribution looks like for other brands, but LVMH, Moncler, Tiffany & Co all seem to have 40-60 physical retail stores in China today, with plans to open more stores over the next few years - I'd imagine GOOS' distribution of stores would look similar to theirs.
Great question. I haven't given it a ton of thought.... No doubt some portion of Canadian sales were coming from Chinese "tourists" that were reselling parkas back in China. I recall some Tegus experts (ex-employees) mentioned this dynamic in some older transcripts. That could help explain why such a high % of Canadian revenue came from Chinese tourists and why Canadian revenue fell so much through COVID (which seems to have coincided with the crackdown on daigou?). I really have no idea what % of revenue was/is coming from those buyers, but my gut feel would be that it was/is relatively small.
But let's say it wasn't/isn't small... On the one hand, I suppose you could argue that a crack down on daigou would be bad for GOOS' Western revenue (maybe it has been already). On the other hand, wouldn't that be a signal that appetite for the brand is high, which in turn would bode well for GOOS' (or other brands) plans to expand their physical Mainland China retail footprint?
Any thoughts on the matter that you'd like to share would be appreciated!
I dont have a lot of great thoughts - thus the question. I think a few things
- sales in canada unlikely to rise above 2019 numbers if there is saturation in the local market and crackdown will dampen sales from chinese tourists
- the issue for the chinese with daigou is them escaping taxes/duties, which implies canada goose sold in china is more expensive than in canada (if not the case then why bother buying it in canada and bringing it back) - thus 'brand' only takes you so far, china has its own alternatives which could dampen GOOS sales in china (there is some benefit if they set up in Hainan island etc but thats inconvenient for the shopper). you can produce onshore but totally destroys the 'made in canada' part of the brand
- totally more macro - but i do feel that we have not seen the end of the trade wars with the western brand reliant on china for sales may struggle (ie i dont think you can value those earnings the same)
Again these are off the top of my head. Your post was the first time I properly dug into Canada Goose. So take it all with a pinch of salt. That said it seems your model is much more conservative than the street so perhaps you've already baked a lot of this in.
On your first point, I agree. I don't think we see Canada rev exceed the 2019 high water mark any time soon.
On the second point, I think what was happening pre-COVID is that the Canada Goose brand wasn't available in China. I can't recall the exact dates, but of their ~25 retail locations in China today I think 22 were opened during COVID and the other 3 were opened in the year leading up to COVID - and they didn't really have an e-commerce channel sorted out before that. So if a local Chinese consumer wanted a Canada Goose product, they'd have to get it from somewhere else (hence the purchases in Toronto or Vancouver that ended up getting resold in China). So, I think that explains why some of that reselling was happening aside from the taxes/duties evasion that might otherwise be the primary motivating factor behind daigou. Maybe I'm thinking about that incorrectly, and now that GOOS is available domestically in China the tax/duty evasion is a bigger deal.
On the third point, I also agree. That would be one of the few risks that really scares me as an investor, and I wouldn't want to pay for a lot of domestic Chinese growth. What I find compelling about the current share price is it doesn't look like it reflects aggressive assumptions on that front. If you were willing to underwrite some ex-China international expansion (Japan, South Korea, the U.S.) and give them some credit for the all-season brand push, I think you could hold Canada HWD sales flat and zero China - and still earn a reasonable return from here.
Very entertaining read. Thank you.
This is an excellent write up. I had no idea GOOS was publicly traded.
Anecdotally, the brand appears to be growing here in the UK - I know at least 2 people who have bought jackets in the last 3 months.
For a company with a luxury brand/ strong gross margins / owner operator / considerable buybacks it's unbelievable the share price is down 75% in 5 years!
Have you made any further purchases?
Thanks for bringing this to my attention, I'm looking forward to investing further.
Thanks for this detailed piece - have there been any changes to your conviction since the stock has continued to decline?
Thanks for the research. FYI, there are some mix up on data between store count and location count.
Thanks! Can you clarify? Is it that I'm saying 130-150 retail locations when it should be "130-150 permanent retail stores", but the travel "locations" would come in on top of that?
Cheers!
My understanding is a single geo location can have multiple stores. Exhibit L shows retail stores count while the context above it is locations. The paragraph above Exhibit L use location, the paragraph below it use store.
Because of this confusion, it is not clear to me in later section what stores means, especially on China. "China has 155 cities with more than a million people. GOOS might not want to be in all those cities, but could they have a retail presence in 50? Sure. Could it be 70? " Do you mean 50/70 stores or locations? I am from China. Its income discrepancy is huge. Most people are really poor and the money are concentrated to the people in the cities, who are visible to western world and doing the travels. I do not think its possible 50 cities can afford GOOS by 2028. On the other hand, 50 stores on the top 10 cities, maybe. But NYC only has two DTC stores now.
Okay, now I get it - thanks for clarifying. I was using "stores" and "locations" interchangeably in that instant - in both cases I meant a physical retail store.
Re: the China stuff, it was a bit of a throw away comment, so without thinking I initially meant 1 store in 50-70 individual cities. But as you've pointed out, that's obviously silly. Maybe the largest cities have 4-5 stores each, and then it tails off after that, and GOOS only ends up in 10-15 cities. I don't know what the distribution looks like for other brands, but LVMH, Moncler, Tiffany & Co all seem to have 40-60 physical retail stores in China today, with plans to open more stores over the next few years - I'd imagine GOOS' distribution of stores would look similar to theirs.
thanks for the writeup. how do you factor in China's crack down on 'daigou'?
Great question. I haven't given it a ton of thought.... No doubt some portion of Canadian sales were coming from Chinese "tourists" that were reselling parkas back in China. I recall some Tegus experts (ex-employees) mentioned this dynamic in some older transcripts. That could help explain why such a high % of Canadian revenue came from Chinese tourists and why Canadian revenue fell so much through COVID (which seems to have coincided with the crackdown on daigou?). I really have no idea what % of revenue was/is coming from those buyers, but my gut feel would be that it was/is relatively small.
But let's say it wasn't/isn't small... On the one hand, I suppose you could argue that a crack down on daigou would be bad for GOOS' Western revenue (maybe it has been already). On the other hand, wouldn't that be a signal that appetite for the brand is high, which in turn would bode well for GOOS' (or other brands) plans to expand their physical Mainland China retail footprint?
Any thoughts on the matter that you'd like to share would be appreciated!
I dont have a lot of great thoughts - thus the question. I think a few things
- sales in canada unlikely to rise above 2019 numbers if there is saturation in the local market and crackdown will dampen sales from chinese tourists
- the issue for the chinese with daigou is them escaping taxes/duties, which implies canada goose sold in china is more expensive than in canada (if not the case then why bother buying it in canada and bringing it back) - thus 'brand' only takes you so far, china has its own alternatives which could dampen GOOS sales in china (there is some benefit if they set up in Hainan island etc but thats inconvenient for the shopper). you can produce onshore but totally destroys the 'made in canada' part of the brand
- totally more macro - but i do feel that we have not seen the end of the trade wars with the western brand reliant on china for sales may struggle (ie i dont think you can value those earnings the same)
Again these are off the top of my head. Your post was the first time I properly dug into Canada Goose. So take it all with a pinch of salt. That said it seems your model is much more conservative than the street so perhaps you've already baked a lot of this in.
On your first point, I agree. I don't think we see Canada rev exceed the 2019 high water mark any time soon.
On the second point, I think what was happening pre-COVID is that the Canada Goose brand wasn't available in China. I can't recall the exact dates, but of their ~25 retail locations in China today I think 22 were opened during COVID and the other 3 were opened in the year leading up to COVID - and they didn't really have an e-commerce channel sorted out before that. So if a local Chinese consumer wanted a Canada Goose product, they'd have to get it from somewhere else (hence the purchases in Toronto or Vancouver that ended up getting resold in China). So, I think that explains why some of that reselling was happening aside from the taxes/duties evasion that might otherwise be the primary motivating factor behind daigou. Maybe I'm thinking about that incorrectly, and now that GOOS is available domestically in China the tax/duty evasion is a bigger deal.
On the third point, I also agree. That would be one of the few risks that really scares me as an investor, and I wouldn't want to pay for a lot of domestic Chinese growth. What I find compelling about the current share price is it doesn't look like it reflects aggressive assumptions on that front. If you were willing to underwrite some ex-China international expansion (Japan, South Korea, the U.S.) and give them some credit for the all-season brand push, I think you could hold Canada HWD sales flat and zero China - and still earn a reasonable return from here.