Description

COMPANY DESCRIPTION:

GOOS is one of two major global luxury outerwear brands, the other being MONC IM. GOOS is positioned as an ultra-high performance brand at a premium price point. The brand is conceptually somewhere between LULU/YETI and Land Rover/Rolex in terms of performance, authenticity and premium pricing. 

• Sales by geography: Canada (19%), US (27%), APAC (31%, and >25% of that is China), EMEA/ROW (23%) 

• See exhibits below for a geographic sales comparison of GOOS vs. luxury peers. Compared to peers, GOOS materially over-indexes to North America and under-indexes to APAC and EU/ROW

• DTC sales (as opposed to wholesale sales) are 58% of total sales, up from 29% of sales 4yrs ago and expected to be 70% of sales this year 

• GOOS has 28 stores worldwide (vs. MONC with 200+ stores, KER with 1,400 stores, and LVMH with 5,000 stores)

• Contribution margins are ~50% for DTC vs. 35% for wholesale. Implies that selling the same unit through DTC ($1,000 aov * 50% = $500) generates ~3x more ebit $ than selling it wholesale ($500 aov * 35% = $175) 

• Sales breakdown by product category: parkas (45% of sales), lightweight jackets (35%), rest is knitwear/rainwear/accessories. For context, ~80% of sales for MONC is outerwear

SENTIMENT/SET-UP:

Sentiment is neutral, turning positive on GOOS 

• Only 56% of analysts have a buy rating, which is the lowest ratio in the last 2yrs. Short interest is down a lot from a peak of 40% of the float pre-covid, but still remains at 7%. There’s also a perception among the investment community that GOOS makes a single, highly-durable product that has saturated the market, particularly since buysiders saw it all over the subway 3yrs ago. 

Category tailwinds 

• Brands with performance, authenticity, or luxury characteristics have all seen significant tailwinds from covid – see YETI, LULU, MC FP, RMS FP, etc.

Consensus is low. See exhibits below.

• Revenue is only anticipated to be 22% above F20 (YE Mar 31, 2020). This represents a 10% cagr from pre-covid. However, 

• F20 itself was impacted by covid lockdowns in China, which started Jan 2020. This impacted both sales in China and sales to the Chinese tourist in EU/NA. 

• GOOS sales grew at a 35% cagr over the prior 5yrs. 

• GOOS has taken MSD% like-for-like pricing both this year and last year. 

• GOOS should have ~90% more stores this x-mas season than it did 2yrs ago. I estimate that GOOS’s stores accounted for 36% of sales pre-covid, so this is a material increase in a large sales channel for GOOS. 

• GOOS sales mix will be 70-30% DTC this year vs. 55-45% precovid. Even assuming flat units and price, shifting 15% of sales to DTC provides ~12% sales growth.

• Gross margins this year are anticipated to be >500bps above pre-covid levels, yet EBIT margins are expected to be 250bps below pre-covid levels. EBIT$ are expected to be about equal to pre-covid this year. 

• I believe this is management under-promising. I think they’ve accounted for the digital, China, and marketing investments that they’re making but have not accounted for much excess demand created by that investment. I also believe this could be a way for Bain, which controls the company and has owned the stock for 7.5yrs, to drive the stock price so they can exit in the next 24mo. Nearly every other brand, particularly high quality luxury or performance brands are achieving record EBIT margins

INVESTMENT THESIS:

1. GOOS brand is stronger than investors think

GOOS brand is never on sale and doesn’t discount. Only a small number of luxury brands maintain this discipline. GOOS NPS score is very strong, in the mid-80s, per a North Face and GOOS former. This is the best he’s ever seen in his 30yr career. GOOS takes healthy like-for-like price increases every year. Per formers, every new website GOOS opened in a new country outperformed expectations. Consumer engagement with GOOS brand on social is constructive (see exhibits below). Similarweb is constructive on GOOS (see exhibits below). GOOS has the highest average product rating among peers (MONC, BRBY, Gucci) across the websites of JWN, NMG, and SKS (n = thousands for each brand, see exhibits below). We also checked REAL, and GOOS products resale for higher % of the new product prices (61%) than MONC (48%) and BRBY (51%). 

2. GOOS is making the right channel decisions

GOOS started its DTC business by launching ecomm first in 2014, and then started launching stores in 2018. GOOS has been culling wholesale doors and shifting towards DTC since 2016. GOOS only has 28 stores, many of which are in China, and all of which are in AAA locations

3. GOOS brand is very strong in China

See below for a survey from Vogue highlighting the brand positioning and popularity metrics in China. GOOS is under-represented in APAC vs. luxury peers. APAC is 41-50% of sales for MONC, MC FP, and KER FP, yet APAC is only 29% of sales for GOOS. 

4. GOOS China and DTC shift will enable GOOS to beat numbers  

GOOS doesn’t miss numbers. On a quarterly basis, GOOS has beaten revenue, EBITDA and EPS 85%, 89%, and 90% of the time since it’s been public. I believe that GOOS management has learned their lesson about under-promising and over-delivering since their stock price corrected over 2018-2020. Apparently, they are really trying to keep a lid on expectations now. Bain owns 30% of the company and controls the board. Bain has been a shareholder for 7.5 years. In order to maximize proceeds on exit, Bain needs GOOS to perform as a stock over the next 2yrs. Also, GOOS should get sold to MC FP or KER FP. The CEO is the founder’s grandson. His passion is managing the brand, and he dislikes running a public company. The GOOS brand would be better positioned for the long-term as either a private company or part of a luxury conglomerate.

CATALYSTS / PATH TO PROFITS:

• Earnings beats and credit card data as it becomes clearer to the street that GOOS should outperform over this coming holiday season 

KEY RISKS:

1. China risk, particularly as China represents a significant part of the bull case here

China macro is weakening and there is/could be a crackdown on luxury consumption in China. This has derated luxury names in the past. However, GOOS is half the price point of MONC, so it’s more insulated from a crackdown on the uber-wealthy than some of its luxury peers. GOOS is also seeing a lot of knock-offs in China. This could impact sales. However, this issue isn’t new and management has been addressing it for a while

2. Risk of slowdown in North America

Management is more concerned with the GOOS brand health than with the Company’s financial results. The CEO doesn’t care about the street, and they’re not forthcoming with details about their business. As such, management may overspend and intentionally pull back on sales in order to drive brand heat. This could offset growth in other geographies or product categories and GOOS would underperform. There’s also a real risk that the core parka business is saturated in North America. Google trends are weak, lending some credence to this risk. See exhibits below. Worldwide google trends on a L52W basis are uninspiring, driven by weakness in Canada and US, which is the markets that get picked up the most in google trends. Trends, however, are more benign on a L13W basis and in China. China barely gets picked up in the worldwide trends bc of the low google usage in the region. Also, other performance/luxury brands have seen similar weakness after exceptional periods of strength and come out of those periods to be monster stocks (e.g. YETI, LULU, RH). This is because the brand was not impaired. In this case with GOOS, there’s very little chance that the GOOS brand was impaired. Management is laser-focused on this issue, and it was never discounted, never attached to a trend, never in the wrong channel, and never at the wrong price point. 

VALUATION:

In my base case, I put a 30x NTM multiple on my F25 (FYE 3/31/25) EPS to arrive at a 22% long-term IRR. This implies a 5.7x ev/sales multiple, which is in-line with the current valuation and below where it traded in 2017-18. 

GOOS geographic exposur

Consensus numbers on the screen seem low

Social engagement measure

Similarweb – L3M website visits globally yoy and yo2y

Average user review from Norstrom.com, Neimans.com, and Saks.com

Vogue Business article from May 2021 on the Chinese luxury outerwear market

Google trends on a L52W basis and L13W basis

Catalyst

·         Earnings beats and credit card data as it becomes clearer to the street that GOOS should outperform over this coming holiday season