Canada Goose(GOOS) - 2023 Q2 - Quarterly Report

Financial Performance - Revenue for the second quarter ended October 2, 2022, was CAD $277.2 million, a 19.0% increase compared to CAD $232.9 million for the same period in 2021[17] - Gross profit for the second quarter was CAD $165.8 million, representing a 22.8% increase from CAD $135.0 million in the prior year[17] - Operating income for the second quarter was CAD $4.7 million, a decrease of 62.7% from CAD $12.6 million in the same quarter of 2021[17] - Net income attributable to shareholders for the second quarter was CAD $3.3 million, down 66.7% from CAD $9.9 million in the previous year[17] - Adjusted EBIT for the second quarter was CAD $29.6 million, a 70.1% increase from CAD $17.4 million in the same quarter of 2021[17] - Adjusted net income attributable to shareholders for the second quarter was CAD $23.0 million, a 63.1% increase from CAD $14.1 million in the prior year[17] - The gross margin for the second quarter was 59.8%, an increase of 180 basis points from 58.0% in the same quarter of 2021[17] - SG&A expenses rose to CAD $161.1 million, a 31.6% increase from CAD $122.4 million, primarily due to foreign exchange fluctuations and costs associated with new store openings[61] - Adjusted net income attributable to shareholders was CAD $23.0 million for the second quarter of 2022, compared to CAD $14.1 million in the same quarter of 2021[122] - Net income for Q2 2022 was CAD $5.0 million, down from CAD $9.9 million in Q2 2021[74] Revenue Segmentation - Direct-to-Consumer (DTC) segment included sales through 56 national e-Commerce markets and 45 retail stores across North America, Europe, and Asia Pacific as of October 2, 2022[19] - Direct-to-Consumer (DTC) revenue was CAD $94.8 million, a 15.6% increase from CAD $82.0 million in the prior year, despite a 4.0% decline in comparable sales due to COVID-19 restrictions in the Asia Pacific region[49][57] - Wholesale revenue increased by CAD $31.6 million or 21.2% to CAD $180.7 million, driven by earlier order fulfillment and increased order book value[50] - Revenue from Canada increased by CAD $11.8 million or 25.2% to CAD $58.7 million, while revenue from the United States rose by CAD $12.5 million or 20.3% to CAD $74.2 million[53] - Revenue for the two quarters ended October 2, 2022, was $347.1 million, an increase of $57.9 million or 20.0% from $289.2 million for the two quarters ended September 26, 2021[78] - DTC revenue increased by $18.5 million or 16.7% to $129.6 million, driven by retail expansion with 45 permanent stores compared to 38 in the prior period[78] - Wholesale revenue rose by $38.7 million or 22.1% to $213.9 million, attributed to earlier order book fulfillment and increased order book value[79] Operational Challenges - The company anticipates potential risks from ongoing geopolitical events and the COVID-19 pandemic affecting its operations and market conditions[6] - The company continues to face global supply chain disruptions due to COVID-19 and political events, but these have not significantly impacted demand fulfillment or inventory levels[21] - Inflationary pressures may persist, potentially affecting gross margin and SG&A expenses as a percentage of revenue, although these pressures have not yet materially impacted operations[25] - Seasonal fluctuations in revenue are significant, with 82.4% and 86.8% of annual wholesale revenue occurring in the second and third fiscal quarters of fiscal 2022 and fiscal 2021, respectively[26] Strategic Initiatives - The company plans to invest in new product development, including Canada Goose and Baffin branded footwear, through distinct sales channels[22] - The direct-to-consumer (DTC) segment is expected to expand, although the scale of this expansion may be delayed due to global conditions[23] - The company has suspended all wholesale and e-commerce sales to Russia, which accounted for less than 1% of total annual revenue in fiscal 2022[24] - The company entered a joint venture in Japan, acquiring 50% of Canada Goose Japan, K.K. for a total purchase consideration of $22.6 million, which includes cash and deferred contingent consideration[43] - The joint venture is expected to align revenue recognition with the company's operating segments, impacting the timing of revenue in Japan[44] Financial Position and Cash Flow - Free operating cash flow was $(66.0) million for the second quarter, compared to $(48.1) million in the prior year[109] - Net debt increased to $(734.1) million from $(582.0) million, while net working capital rose to $482.4 million from $356.7 million[109] - Cash flows used in operating activities for Q2 2022 were $37.8 million, an increase of $8.9 million compared to Q2 2021, driven by lower net income and higher income taxes paid[131] - For the two quarters ended October 2, 2022, cash flows used in operating activities totaled $234.7 million, up $50.4 million from $184.3 million in the same period of 2021, primarily due to a higher net loss and increased inventory spending[132] - Cash flows used in investing activities for Q2 2022 were $14.7 million, an increase of $5.2 million from Q2 2021, mainly due to higher capital investments for retail expansion[133] Tax and Interest Rates - The effective tax rate for the quarter was 338.1%, a significant increase from (110.6)% in the prior year, reflecting a change in tax recovery[49] - Interest rates on borrowings under various facilities are currently at 3.85%, 0.37%, 4.98%, and 7.14%[184] - A 1.00% increase in the average interest rate would increase interest expense on the Term Loan Facility by CAD $1.9 million[185] Foreign Exchange and Risk Management - The company generated 72.5% of its revenue in currencies other than Canadian dollars in fiscal 2022, exposing it to foreign exchange fluctuations[26] - The Company has entered into forward foreign exchange contracts to mitigate foreign exchange risk related to U.S. dollar, euro, and other currencies[175] - A $0.01 depreciation in the value of the Canadian dollar compared to the U.S. dollar would decrease pre-tax income by CAD $2.9 million based on outstanding balances of CAD $407.5 million under the Term Loan Facility[180]