McGough: Still Short Canada Goose $GOOS

08/15/19 12:32PM EDT

Editor's Note: Our Retail Sector Head Brian McGough added Canada Goose (GOOS) as a Best Idea short on May 22. The stock is down over 21% since. The S&P 500 is flat during that time.

In his original note announcing his new research call he wrote:

"I’m absolutely convinced that there is a severe disconnect between the ultimate earnings power of this company and its current Enterprise Value – to the tune of 50%."

Below is an excerpt from a recent note. If you would like information on how you can access his institutional research email sales@hedgeye.com.

McGough: Still Short Canada Goose $GOOS - z hedgeye goos

GOOS | Terrible Earnings Quality

Our Best Idea Short thesis on GOOS hinges on our view that that there’s 1,000bp margin risk to this model as it transitions from a consumer durable model into a markdown driven non-durable model with increased fashion risk and chases less profitable distribution.

While I don’t want to make a huge deal out of a seasonally-weak quarter (that accounts for only 6% of annual sales), the reality is that this quarter was a thesis validator. Yes, it beat top line, but that was driven by early shipments to low margin international distributors as it works off its excess inventories --- which had been running 80% above last year on a 20% annual revenue guide.

Moreover, receivables were up 153% on the revenue beat – looks like the orders were pushed hard by the company.

In addition, GM% was down 650bp vs last year – its biggest decline since before it went public – just happens that it coincided with lower margin non-parka revenue hitting 1/3 of the mix – something that should only increase.

All in, the company put up 59% revenue growth (up C$26mm yy) and lost more money on both a GAAP and adjusted basis versus last year. The quality of earnings was terrible, and hardly worth a 5.5x revenue multiple and 30x p/e for a company that’s likely never to see $2 in EPS – over any duration.

***

If you're an institutional investor interested in accessing our research email sales@hedgeye.com

© 2019 Hedgeye Risk Management, LLC. The information contained herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.