Canada Goose margins miss on higher sales of less profitable, lighter clothes

Canada Goose Holdings' quarterly gross margins missed estimates on Wednesday, as the luxury apparel maker sold more of its light-weight spring season clothes, which are not as profitable as its $1,000 parkas.

Toronto-listed shares of the company fell as much as 5.4% as investors dismissed its smaller-than-expected loss.

Canada Goose, known for its cold-weather, fur-trimmed parkas, ventured into raincoats, light-weight jackets and knitwear a few years ago to cater to its customers’ seasonal needs and to move away from fur, which has increasingly become distasteful and is even banned in California.

“The affinity and desire we have seen for our seasonally relevant lightweight offerings tells us our product expansion is working,” Canada Goose said in its statement.

The company said online and retail sales of its light-weight, non-parka products rose to about a third of its total revenue in the quarter for the first time and that it expects to sell more parkas in the third and fourth quarter as the weather gets colder.

The cheaper products are, however, not as profitable as the company’s parkas. Gross profit margins plummeted 57.5% in the first quarter from 64% in the year ago period, and missed analysts’ estimate of a 61.6% drop, also hit by a higher proportion of sales going to department stores.

Still, the company’s loss of 21 Canadian cents per share was better than the 24 Canadian cent loss that analysts had anticipated.

Canada Goose has been spending on its direct-to-consumer business, including its e-commerce and company-owned retail outlets, as it looks to rely less on struggling department stores for sales.

Revenue rose 59.1% and was ahead of estimates, as the company benefited from sales of costlier jackets and parkas to department stores and as it opened new retail outlets and launched products online on Chinese e-commerce company Alibaba’s Tmall marketplace.

It was also driven by international customers’ request for earlier order shipments compared to last year and its acquisition of footwear maker Baffin last November.

Net loss widened to C$29.4 million, or 27 Canadian cents per share, in the quarter ended June 30, from a loss of C$18.7 million, or 17 Canadian cents per share, a year earlier.

Canada Goose’s shares, which have fallen a little over 4% so far this year, were down 3.5% in morning trading.