On Tuesday, I had the pleasure to join the great Stuart Varney on Fox Business’ “Varney & Co.” In this segment we discussed tariffs on Canada, Mexico and China as well as one of our holdings. Thanks to Christian Dagger, Preston Mizell and Stuart for having me on:
Here is the data I was referencing while speaking with Stuart:
When you burden yourself with the facts, you don’t have to be fooled by the erroneous narratives that are grounded in hearsay, opinion and bias. You can make rational decisions based on data.
I also want to thank Christian for allowing me to bring my daughters Mimi and Annabelle on set with me. Stuart was so welcoming to them and offered to take a picture. Preston organized a picture with Elon Musk’s mom – professional Model and Author Maye Musk. I enjoyed speaking with her in the greenroom and she even signed a copy of her new book. She was on right before my segment.
I’ll be a little informal today since it’s a Holiday and all, so here it goes:
While there is a sizable contingent of Family Offices, UHNW business people and Investment Professionals that listen to my podcast every week, there is also a very large group of young listeners who have helped push my podcast to the top of the charts in the “Hedge Fund” category. In my weekly podcast|videocast not only do we talk about companies and economic data, I try to share some career and life lessons I’ve learned along the way – to be helpful to this group.
Once thing I’ve learned is that you are going to come across two types of people in the path toward your goals. The first is the phony type who are waiting to see you make mistakes or slip up, and the second type of friends who are trying to help you and rooting for you every step of the way. I have aimed to not only be a part of the latter group, but recognize and befriend those who display similar characteristics.
Part of the “secret to success” is to avoid or disassociate from the former, and befriend and nurture relationships with the latter. The old cliche is 100% true – “you become who you hang around.” I am blessed to have great family, friends and (business) partners in my life. On this day “Thanksgiving” (my favorite Holiday of the year) I wanted to acknowledge one friend who embodies what I am describing above:
I “caught” my buddy Lou Basenese @LouBasenese on “Cavuto Coast to Coast” on Fox Business yesterday giving me a shoutout on Disney. It’s very rare for someone to point out the ones that work! Lou is a different kind of guy and everyone knows it. A+ in my book, doesn’t get any better than Lou:
Lou is President and Chief Market Strategist at MDB Capital.
Goose Cooked or $GOOS Loose?
The featured picture is another friend (and client) – Damian from Los Angeles – who built an amazing real estate business in California. He posted a picture and I thought it was the perfect header for this week’s note (given the fact he happened to have a Canada Goose jacket on!).
Unlike Lou, who likes to highlight my winners, for those of you who have been around the podcast|videocast for some time, you know I spend 80% or more of the time on the holdings that have yet to take off, and less than 20% of the time on the ones that are/were home runs!
Canada Goose falls in the former category. Our basis across all accounts is a little over $11/share. This was a growth story that turned into a value story (when we initiated), and has a chance to turn back into a growth story if they execute on their plan and catch a little tailwind in the Asia recovery.
While it is still a small position for us, I am looking for windows that will make sense to upsize it into a full sized holding as the data confirms the original outlook/thesis. We’ve been modestly topping up on weakness but have yet to lean in with a cannon, so far…
10 Key Points from Canada Goose Nov. 7 Earnings Results and Call:
- Revenue of $192.76M beat expectations by $7.86M, despite a 4.94% year-over-year decline.
- EPS of $0.04 beat estimates by $0.08, showing better-than-expected profitability.
- The company expanded its permanent store count to 72 locations, indicating continued retail growth.
- Inventory levels decreased by 9% to $473 million, demonstrating improved inventory management.
- Net debt was reduced to $826 million from $852 million, showing progress in debt reduction.
- The Spring Summer 2024 collection was well-received, indicating potential for a robust annual lineup.
- E-commerce traffic increased, suggesting growing online interest in the brand.
- The company is broadening its product range with plans to launch an eyewear line in collaboration with Marchon eyewear in 2025.
- Positive trends have been observed in the Chinese market, particularly during events like Golden Week and Singles Day.
- The company is focusing on expanding non-heavyweight down categories and diversifying into non-seasonal apparel, which could lead to year-round revenue opportunities.
The cornerstones of the turnaround plan are twofold:
1) Reduce wholesale.
2) Make up the difference with broader product offering and more DTC stores/high-margin opportunities.
The expected long-term benefits of the Direct-to-Consumer (DTC) model for Canada Goose include:
- Higher profit margins: By eliminating intermediaries, Canada Goose can capture a larger share of the retail price, leading to improved profitability over time.
- Enhanced brand control: The DTC model allows Canada Goose to take greater control of its brand narrative and product distribution.
- Improved customer engagement: Direct sales channels provide opportunities for better customer data access and more personalized shopping experiences.
- Stronger pricing control: Reduced wholesale presence allows for less dependency on markdowns often seen in wholesale partnerships.
- Better inventory management: The shift to DTC enables more efficient inventory control, as evidenced by the 9% decrease in inventory levels.
- Valuable customer insights: Direct interaction with customers provides data that can inform product development and marketing strategies.
- Increased operational efficiency: As Canada Goose optimizes its DTC operations, it may benefit from economies of scale in retail and e-commerce channels.
- Global expansion opportunities: The DTC model facilitates easier entry into new markets, particularly through e-commerce.
- Enhanced customer lifetime value: A strong DTC presence can potentially increase brand loyalty and customer retention.
- Agility in product offerings: Direct sales allow for quicker adaptation to market trends and consumer preferences.
At the end of the day, that’s just a bunch of words. The NUMBERS TELL THE WHOLE STORY. Price is what you pay, value is what you get. While FREE CASH FLOW HAS MATERIALLY RECOVERED, price has remained subdued. I built my career on capturing divergences like this:
This is the Farrah Fawcett of financial pictures in my view. Under 40 and don’t get the reference? Google it:
Anytime you find yourself in a situation where financials continue to recover/improve and price continues to decline – count your lucky blessings. Mr. Market is serving up one of his manic bouts to deliver you an opportunity to benefit from a rare divergence and dislocation.
In the case of Canada Goose, North American money managers think it’s over because Drake lost his jacket, while they miss the fact that sales are doubling in parts of Asia and the amount of cash the business generates per share has never been higher (or cheaper to purchase an interest in).
As we know, GOOS generates the lion’s share of its revenues and profits in the 4th calendar quarter of the year (due to the Holidays). They have also held back normal marketing spend this year to focus on this quarter’s launch of the first seasonal capsule collection from new Creative Director, Haider Ackermann – designed under the brand’s heritage label, Snow Goose:
Haider Ackermann Releases His First ‘Snow Goose by Canada Goose’ Capsule Collection (BusinessWire)
We’re going to know a lot more in 60 days if this was the hit they needed to re-ignite the heavy-weight down part of the business. I wouldn’t bet against a 67 year old brand of this caliber trading at these levels. Canada Goose was big before Drake and will be big again before Drake is long forgotten. In the meantime, FREE CASH FLOW is recovering nicely:
General Market
The CNN “Fear and Greed” rose from 51 last week to 64 this week. You can learn how this indicator is calculated and how it works here: (Video Explanation)
The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) flat-lined at 91.33% this week from 91.60% equity exposure last week.
Our podcast|videocast will be out today or tomorrow – depending upon when our guests arrive today. We have a lot of great data to cover this week. Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here.
*Opinion, Not Advice. See Terms
