Canada Goose(GOOS) - 2021 Q4 - Annual Report

PART I Key Information This section details significant business and share-related risks, including COVID-19 impacts, DTC channel expansion challenges, and concentrated voting power Risk Factors The company faces various business and share-related risks, including pandemic impacts, DTC expansion challenges, and concentrated voting power - The COVID-19 pandemic has materially impacted business operations, including shutdowns and decreased consumer spending, with future impacts remaining highly uncertain[31][32] - Growth strategy relies heavily on DTC channel expansion, requiring significant investment and presenting challenges in e-commerce scalability and regulatory compliance[34][35][36] - Business concentration in performance luxury outerwear makes it vulnerable to shifts in consumer preferences and economic downturns[44][46] - Total indebtedness of $377.3 million as of March 28, 2021, could limit financial flexibility and expose the company to interest rate risks[48] - The dual-class share structure concentrates approximately 89.6% of voting power with Bain Capital and the CEO, limiting subordinate shareholder influence[127][128] - As a 'controlled company' and 'foreign private issuer', Canada Goose is exempt from certain NYSE and SEC requirements, potentially offering fewer shareholder protections[133][135] Information on the Company Founded in 1957, Canada Goose is a performance luxury apparel brand focused on DTC growth, global expansion, and product diversification History and Overview Canada Goose, founded in 1957, is a leading performance luxury apparel brand with a 'Made in Canada' commitment - Canada Goose, founded in 1957, is a leading performance luxury apparel manufacturer known for its 'Made in Canada' commitment[146] - Bain Capital acquired a 70% equity interest in December 2013, followed by the company's IPO in March 2017[147][148] - The company acquired Baffin Inc., a Canadian footwear designer and manufacturer, in November 2018[149] Growth Strategies The company's growth strategy focuses on DTC expansion, global penetration, product diversification, and margin improvement - The company's long-term growth strategy is based on four key pillars: driving DTC mix higher (DTC revenue reached $528.2 million in fiscal 2021, representing 58.4% of total revenue), increasing global penetration, enhancing product offerings beyond outerwear, and expanding margins through brand strength and efficiencies[152][153][154] - The company is committed to sustainability, aiming for 100% Responsible Down Standard (RDS) certification in 2021 and planning to end new fur purchasing by 2022[157][158] Operating and Financial Review and Prospects This section analyzes fiscal 2021 financial performance, highlighting revenue decline due to COVID-19, DTC growth, and liquidity Fiscal Year Financial Performance Overview | Metric | Fiscal 2021 (in millions USD) | Fiscal 2020 (in millions USD) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $903.7 | $958.1 | (5.7)% | | Gross Profit | $554.0 | $593.3 | (6.6)% | | Operating Income | $116.9 | $192.1 | (39.1)% | | Net Income | $70.2 | $151.7 | (53.7)% | | Diluted EPS | $0.63 | $1.36 | (53.7)% | - The COVID-19 pandemic materially impacted results, causing store closures and supply chain disruptions, partially offset by $27.5 million in government wage subsidies[202][203] - DTC channel revenue grew slightly by 0.6% to $528.2 million, driven by a 54% increase in e-commerce, offsetting physical retail store declines[209][210] - Wholesale channel revenue decreased significantly by 24.2% to $321.3 million due to a reduced order book from pandemic-affected partners[209][211] - Geographically, revenue grew in Asia (up 31.1%) and Europe/Rest of World (up 6.3%), but declined in Canada (down 25.7%) and the United States (down 19.0%)[213] Results of Operations This section details the company's financial performance, including revenue, gross profit, and net income for fiscal year 2021 Q4 Fiscal Year Performance | Metric | Q4 FY2021 (in millions USD) | Q4 FY2020 (in millions USD) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $208.8 | $140.9 | 48.2% | | Gross Profit | $138.6 | $93.6 | 48.1% | | Operating Income (Loss) | $7.8 | $(17.2) | 145.3% | | Net Income | $2.9 | $2.5 | 16.0% | - Fourth quarter revenue increased 48.2% year-over-year, driven by 123.2% growth in e-commerce and strong Mainland China performance, offsetting North American and European retail declines[238][239] - Full fiscal year gross margin decreased slightly by 60 basis points to 61.3%, impacted by lower-margin sales from the 'Other' segment, including PPE[208][214] - Full-year SG&A expenses increased by 4.8% to $367.3 million, driven by e-commerce growth and compensation costs, partially offset by cost reductions and government subsidies[208][219] Financial Condition, Liquidity and Capital Resources This section analyzes the company's financial position, liquidity, and capital resources, including cash, working capital, and debt levels - Cash on hand increased significantly to $477.9 million as of March 28, 2021, from $31.7 million a year prior, driven by improved cash from operations[290] - Net working capital decreased by 38.2% to $202.1 million, primarily due to a $70.0 million reduction in inventory and a $33.4 million increase in accounts payable[288] - Net debt decreased to $154.2 million from $355.5 million in the prior year, driven by increased cash offsetting higher Term Loan Facility borrowings[302] - On October 7, 2020, the company amended its Term Loan Facility, increasing the principal amount to US$300.0 million from US$113.8 million and extending maturity to 2027[313] Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to credit, foreign exchange, and interest rate risks, and its strategies for managing them - The company faces credit risk from wholesale partners, managed through credit insurance and internal monitoring, though insurance availability was significantly reduced in fiscal 2021[324][325] - Significant foreign exchange risk exists due to foreign currency denominated revenue, purchases, and expenses, partially hedged with forward contracts[332][334][335] - The company is exposed to interest rate risk on variable-rate borrowings; a 1.00% increase in average interest rate would increase Term Loan Facility annual interest expense by $2.6 million[346] Directors, Senior Management and Employees This section outlines the company's leadership, board structure, executive compensation, and employee base, including pandemic-related rehiring Compensation This section details executive and director compensation, including salary reductions due to COVID-19 and performance-based bonuses - In response to COVID-19, CEO Dani Reiss forewent a portion of his fiscal 2021 salary, with other named executive officers and independent directors taking voluntary pay reductions[404][413] Named Executive Officer Compensation (FY2021) | Name | Position | Total Compensation (FY2021, in USD) | | :--- | :--- | :--- | | Dani Reiss | President & CEO | $13,053,127 | | Jonathan Sinclair | EVP & CFO | $2,735,949 | | Michael (Woody) Blackford | EVP, Product | $1,648,471 | | Pat Sherlock | President, Int'l & EMEA | $1,439,653 | | Penny Brook | Chief Marketing Officer | $1,192,722 | - Fiscal 2021 bonuses were based on EBIT achievement, with the CEO earning 306% of target and other NEOs earning 203% of target[416][417] Employees This section provides employee numbers, highlighting the significant increase due to rehiring after COVID-19 related temporary layoffs Employee Count by Function | Function | 2021 Employees | 2020 Employees | | :--- | :--- | :--- | | Canadian manufacturing | 2,489 | 389 | | Selling and retail | 557 | 352 | | Corporate head office | 544 | 478 | | Total | 3,590 | 1,219 | - Employee count significantly increased from 1,219 in fiscal 2020 to 3,590 in fiscal 2021, primarily due to rehiring staff temporarily laid off during COVID-19 closures[450] Major Shareholders and Related Party Transactions This section details the company's ownership structure, concentrating voting control with Bain Capital and CEO Dani Reiss, and related party transactions Multiple Voting Share Ownership | Shareholder | Multiple Voting Shares | % of MVS Class | | :--- | :--- | :--- | | Bain Capital Entity | 30,873,742 | 60.5% | | Dani Reiss | 20,130,334 | 39.5% | - The company is a 'controlled company' as Bain Capital beneficially owns approximately 54.2% of the combined voting power[460] - An Investor Rights Agreement grants Bain Capital and DTR LLC demand and 'piggy-back' registration rights and the right to nominate directors[461][464][467] Financial Information This section addresses ongoing legal proceedings, including class action lawsuits, and the company's policy of retaining earnings for growth instead of paying dividends - The company is defending against multiple putative class action lawsuits, including allegations of false statements regarding inventory and product demand, and coyote fur sourcing[476][478] - The Board of Directors does not intend to pay dividends in the foreseeable future, planning to retain earnings for growth instead[479] Additional Information This section details the company's dual-class share structure, shareholder rights, and U.S. and Canadian federal income tax considerations - The company's articles establish a dual-class structure, with multiple voting shares having 10 votes per share and subordinate voting shares having 1 vote per share[790][791] - A 'Coattail Agreement' protects subordinate shareholders by ensuring equal participation with multiple-vote shareholders in a take-over bid[502] - The company does not believe it is currently a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, but this determination is annual and subject to change[541] - Dividends paid to non-Canadian residents are subject to Canadian withholding tax, generally at a 25% rate, potentially reduced by tax treaties (e.g., to 15% for eligible U.S. residents)[562] PART II Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 28, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of March 28, 2021[372] - Management determined that internal control over financial reporting was effective as of March 28, 2021, with no material changes during the fiscal year[374] Other Information This section covers audit committee expertise, code of ethics, auditor fees, and corporate governance practices as a foreign private and controlled company - The Board of Directors has determined that Mr. John Davison is an 'audit committee financial expert'[580] Fees Paid to Principal Accountant (in millions USD) | Fee Type | FY2021 | FY2020 | | :--- | :--- | :--- | | Audit fees | $3.9 | $4.2 | | Audit-related fees | $0.2 | $0.2 | | Tax fees | $2.0 | $1.2 | | Total | $6.1 | $5.6 | - As a foreign private issuer and controlled company, Canada Goose follows Canadian practices in lieu of certain NYSE rules regarding board and committee independence[590][592] PART III Financial Statements This section presents audited consolidated financial statements, including the unqualified auditor's report and critical audit matters like inventory obsolescence - The independent auditor, Deloitte LLP, issued an unqualified opinion on the fair presentation of the company's financial position and performance[605] - The auditor identified 'Inventory Obsolescence' as a critical audit matter due to the significant judgment in estimating net realizable value based on future selling prices and demand[609][610] Consolidated Statements of Financial Position | Metric (in millions CAD) | As of Mar 28, 2021 | As of Mar 29, 2020 | | :--- | :--- | :--- | | Total Assets | 1,507.2 | 1,120.3 | | Total Liabilities | 907.1 | 600.1 | | Shareholders' Equity | 600.1 | 520.2 | Consolidated Statements of Cash Flows | Metric (in millions CAD) | Year Ended Mar 28, 2021 | Year Ended Mar 29, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 293.7 | 62.5 | | Net Cash used in Investing Activities | (32.0) | (62.3) | | Net Cash from (used in) Financing Activities | 197.0 | (58.7) |