Two years ago, I would have told you straight up that Canada Goose (TSX:GOOS)(NYSE:GOOS) was the only choice, suggesting that Aritzia (TSX:ATZ) wasn’t in the same league, despite having many more stores than the outdoor wear company.
My tune has changed in a big way.
Canada Goose’s strengths
Early in 2019, I’d argued that Canada Goose’s trifecta of growth (wholesale, online, and brick and mortar) would continue to deliver double-digit revenue and net income growth for many years to come.
It’s not easy mastering all three of these areas, but CEO Dani Reiss and his team have done a fantastic balancing act to keep all three balls in the air. While it hasn’t translated into huge gains for GOOS stock in 2019 — it’s up 15.2% year to date through May 8 — I believe shareholders will be rewarded in the second half of the year.
Fellow Fool David Jagielski said this about Canada Goose at the end of April: “With the company’s next earnings release being its year-end, it will be crucial in finishing the fiscal year on a high note. The challenge for Canada Goose, however, is being able to keep up the pace with what was a very strong Q3.”
How strong were its third-quarter results?
Canada Goose grew wholesale revenues by 22.2% in the third quarter, while its direct-to-consumer (DTC) revenues, which includes online and brick and mortar, saw sales climb by 78.7%. As of the nine months ended December 31, the company’s DTC revenue accounted for 45.8% of its overall sales, up from 34.3% a year earlier.
What’s even more impressive about its revenue is how geographically diverse it is.
Canada Goose finished the third quarter with 35% of its revenue from Canada, 30% from the U.S., and 35% from the rest of the world. You can’t get more balanced than that.
Canada Goose’s weaknesses
The only real weakness that I can see with Canada Goose’s business is the animal rights problem that continues to nag at its heels.
Morrissey, the latest artist or entertainer to criticize the company for using coyote fur and down feathers in its parkas, recently wrote an open letter to Reiss to persuade him to reconsider the company’s stance: “As I tour Canada this spring, I’m writing to urge Canada Goose to act more like its namesake (e.g., smart, brave, and willing to fly off in a new direction),” wrote the singer, “by making the bold ethical choice to remove coyote fur and down feathers from its parkas.”
It’s the reason I won’t own GOOS stock, but that’s never stopped me from recommending it to other people.
Artificial filler won’t kill the brand.
The most apparent strength at the women’s specialty retailer is its same-store sales growth.
On May 9, Aritzia reported its fourth-quarter results. Same-store sales grew 5.5%, the 18th consecutive quarter of positive growth. For the entire fiscal 2019, its same-store sales grew by 9.8% on the back of strong sales online and at its brick-and-mortar locations.
On the bottom line, its adjusted net income increased by 24.5% in 2019 to $94.5 million, or 10.8% of its $874.3 million in revenue.
Financially, it’s doing great.
It remains on track to meet or exceed its fiscal 2021 performance targets that it set in 2016.
On the top line, it targeted between $1.1 and $1.2 billion, with adjusted net income of between $115 million and $130 million. Equally crucial to the omnichannel experience, it targeted online sales equal to 25% of its overall revenue. Aritzia is well on its way to achieving that target.
The only troubling aspect of Aritizia’s fourth-quarter results is the 5.5% same-store sales growth. That’s down from 6% in Q4 2018 and 12.3% in Q4 2017. The fourth quarter is generally a retailer’s strongest quarter, so the fact that its same-store sales slowed from the two previous years is a real concern.
Is it enough to slow Aritzia stock?
If there’s one thing I’ve learned from being a past doubter of the company, it’s that it knows how to turn things around when sales aren’t meeting expectations. Furthermore, all the new stores it’s opening are performing better than expected, suggesting that Q4 2020 could return it to double-digit growth.
I wouldn’t lose any sleep over it.
Frankly, if you plan to invest $5,000 in one of these two, I’d buy $2,500 of each. The decision is that close.
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Fool contributor Will Ashworth has no position in any stocks mentioned.