巴克莱-美股-零售行业-美国专业零售、纺织品与电子商务：GOOS、LULU个股研究-2019.11.25-35页 (2).pdf

Equity Research 25 November 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 27.Restricted-Internal U.S.Specialty Retail,Apparel&E-Commerce Initiating Coverage:GOOS,LULU Initiating GOOS and LULU at Overweight.We are adding to our coverage universe with two Canadian global luxury brands,GOOS and LULU.We use the same investment framework and methodology,both qualitative and quantitative,as we outlined in our recent initiation report,Initiating Coverage:Introducing PRISM 360,a Holistic Approach to Retail(Nov 12,2019).We note several similarities,notwithstanding valuation,of these two global growth brands,which we highlight below.Brands with pricing power.The GOOS and LULU brands are both rooted in authenticity,superior functionality,and high quality,with an elevated customer experience both in store and online.GOOS is in the very early stages of growth relative to LULU.With trailing twelve month sales of about US$700mn,we believe GOOS has significant market share opportunity.We look to the path that LULU has taken as a roadmap for both the growth potential and the challenges that come with the rapid expansion of a highly desirable brand.Both companies have vertically-integrated retail,with the opportunity to capture full margin potential as they can sell product,and in many cases often sell out of product,at full price.GOOS also generates roughly half its business through wholesale but is shifting its model towards higher-margin direct-to-consumer retail.Global growth opportunity.LULU generates the vast majority of its sales from the North American market,with the most significant growth opportunity from quadrupling its business in the China market.GOOS generates 35%of sales from Canada,30%from the U.S.,and 34%outside of North America.Both have long runways of global growth ahead of them,in our view.Two ends of the valuation spectrum.While LULU is trading at historically high valuation multiples,with investors expecting continued beat-and-raise quarters and peak fundamental performance,GOOS is trading at the lower end of its historical trading range.Our checks at LULU continue to show acceleration in store and e-commerce momentum;brand resonance with both existing and new,younger audiences;and multiple avenues of growth to drive double-digit top-line growth and high-teens EPS growth.For GOOS,shares are trading at historically low valuation levels,given:1)recent volatility in business execution,such as the shift in wholesale shipments negatively impacting FY3Q19,2)an inventory build in core products and segments to meet growing demand,and 3)exposure to global unrest in Hong Kong.We regard each of these issues as contained,known,and fixable over some period of time.While the timing of their resolution may be uncertain,the strength of the GOOS brand and growing global demand outweigh these risks,in our opinion.Multi-year growth stories.Few stories in retail are multi-year horizon investments.However,we believe companies with long-tailed growth,global brand demand,and pricing power are suitable for buy-and-hold strategies.GOOS and LULU fit the bill.INITIATING COVERAGE U.S.Specialty Retail,Apparel&E-Commerce NEUTRAL Unchanged For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.U.S.Specialty Retail,Apparel&E-Commerce Adrienne Yih+1 212 526 5257 BCI,US Cory McHattie+1 212 526 7166 BCI,US Barclays|U.S.Specialty Retail,Apparel&E-Commerce 25 November 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 22-Nov-19 Old New%Chg Old New%Chg Old New%Chg U.S.Specialty Retail,Apparel&E-Commerce Neu Neu Canada Goose Holdings,Inc.(GOOS)N/A OW 36.93 N/A 47.00-N/A 1.74-N/A 2.12-lululemon athletica inc.(LULU)N/A OW 219.90 N/A 257.00-N/A 4.77-N/A 5.66-Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Valuation Methodology and Risks U.S.Specialty Retail,Apparel&E-Commerce Canada Goose Holdings,Inc.(GOOS)Valuation Methodology:Our price target of US$47 is based on an NTM P/E multiple of 25x(based on a 25%three-year earnings growth rate)applied to our CY21 EPS estimate of US$1.90.Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target:Risks to our rating include:1)high valuation given expected growth prospects,2)inability to maintain high price points and full price selling,3)ethical sourcing and raw material risk,4)negative press from animal activist groups,5)addition of lower margin product categories,and 6)over distribution of brand.lululemon athletica inc.(LULU)Valuation Methodology:Our price target of$257 is based on an NTM P/E multiple of 38x(based on a 38%three-year earnings growth rate)applied to our CY21 EPS estimate of$6.76.Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target:Risks to our rating include:1)brick-and-mortar comps turn negative,2)high valuation and multiple contraction,3)threat of new competitive entrants,4)challenges in the new Chinese market could result in sales and margin plan misses,and 5)consumer spending declines.Source:Barclays Research.Barclays|U.S.Specialty Retail,Apparel&E-Commerce 25 November 2019 3 U.S.Specialty Retail,Apparel&E-Commerce Industry View:NEUTRAL Canada Goose Holdings,Inc.(GOOS)Stock Rating:OVERWEIGHT Income statement(CADmn)2019A 2020E 2021E 2022E CAGR Price(22-Nov-2019)USD 36.93 Price Target USD 47.00 Why Overweight?Our rating is based on:1)early-stage,multi-year growth as GOOS grows wholesale and direct-to-consumer retail,2)opportunity to significantly increased global brand awareness outside of its core Canadian market,3)premium luxury offering for which consumer are willing to pay full price.Upside case USD 59.00 Our upside case of US$59 is based on an NTM P/E multiple of 28x(based on a three-year earnings growth rate of 28%)applied to our CY21 earnings power of US$2.09 and margin expansion from upsized in-house manufacturing and economies of scale from eCommerce rollout.Downside case USD 31.00 Our downside case of US$31 is based on an NTM P/E multiple of 18x(based on a three-year earnings growth rate of 18%)applied to our CY21 earnings power of US$1.71 and assumes higher expenses resulting from slower consumer uptake and higher marketing needs to support brand growth.Upside/Downside scenarios Revenue 831 1,039 1,286 1,533 22.7%EBITDA(adj)230 317 367 452 25.4%EBIT(adj)207 261 321 402 24.8%Pre-tax income(adj)193 243 303 384 25.9%Net income(adj)151 193 239 302 25.9%EPS(adj)(CAD)1.35 1.74 2.12 2.67 25.3%Diluted shares(mn)112 111 112 113 0.5%DPS(CAD)0.00 0.00 0.00 0.00 N/A Margin and return data Average EBITDA(adj)margin(%)27.6 30.5 28.5 29.5 29.0 EBIT(adj)margin(%)24.9 25.1 25.0 26.3 25.3 Pre-tax(adj)margin(%)23.2 23.4 23.5 25.1 23.8 Net(adj)margin(%)18.2 18.5 18.6 19.7 18.8 ROIC(%)33.3 25.5 28.1 32.0 29.7 ROA(%)22.2 17.4 17.4 18.0 18.7 ROE(%)46.9 43.2 36.2 32.5 39.7 Balance sheet and cash flow(CADmn)CAGR Tangible fixed assets 84 342 377 412 69.7%Intangible fixed assets 209 211 211 211 0.3%Cash and equivalents 89 151 295 512 79.5%Total assets 725 1,151 1,442 1,791 35.2%Short and long-term debt 145 391 391 391 39.2%Other long-term liabilities 45 41 41 41-3.0%Total liabilities 326 606 659 705 29.3%Net debt/(funds)57 240 97-121 N/A Shareholders equity 399 545 784 1,086 39.6%Change in working capital-109-53-204-267 N/A Cash flow from operations 73 171 219 293 58.6%Capital expenditure-30-75-75-75 N/A Free cash flow 43 96 144 218 71.6%Valuation and leverage metrics Average P/E(adj)(x)36.2 28.3 23.1 18.4 26.5 EV/EBITDA(adj)(x)23.9 17.9 15.1 11.8 17.2 Equity FCF yield(%)N/A N/A N/A N/A N/A P/Sales(x)6.6 5.2 4.2 3.5 4.9 P/BV(x)13.7 10.0 7.0 5.1 9.0 Dividend yield(%)0.0 0.0 0.0 0.0 0.0 Total debt/capital(%)20.0 34.0 27.1 21.8 25.8 Net debt/EBITDA(adj)(x)0.2 0.8 0.3 N/A 0.4 Selected operating metrics Average DTC revenue growth(%)69.1 39.7 30.7 25.0 41.1 Wholesale revenue growth(%)18.7 9.2 14.3 10.0 13.1 Inventory growth(%)61.6 25.3 31.6 20.1 34.7 Source:Company data,Bloomberg,Barclays Research Note:FY End Mar Barclays|U.S.Specialty Retail,Apparel&E-Commerce 25 November 2019 4 CANADA GOOSE HOLDINGS,INC.(OW)Canada Goose Holdings,Inc.(GOOS):Quarterly and Annual EPS(CAD)2019 2020 2021 Change y/y FY Mar Actual Old New Cons Old New Cons 2020 2021 Q1-0.15A N/A-0.21A-0.21A N/A-0.25E-0.26E-40%-19%Q2 0.46A N/A 0.57E 0.57A N/A 0.62E 0.61E 24%9%Q3 0.96A N/A 1.11E 1.11E N/A 1.50E 1.43E 16%35%Q4 0.09A N/A 0.25E 0.24E N/A 0.25E 0.24E 178%0%Year 1.35A N/A 1.74E 1.67E N/A 2.12E 2.12E 29%22%P/E 34.5 26.9 22.0 Source:Barclays Research.Consensus numbers are from Bloomberg received on 22-Nov-2019;15:50 GMT Investment Thesis Initiating GOOS at Overweight Based on our qualitative BRICK analysis and quantitative PRISM 360 model,we initiate coverage of GOOS at Overweight given:1)early-stage,multi-year growth as GOOS grows both wholesale and direct-to-consumer retail,2)opportunity to significantly increase global brand awareness outside of North America,3)a premium luxury offering for which consumers are willing to pay full price,and 4)product extensions that can increase the share of wallet of each consumer.Like many early-stage global growth brands before them,GOOS relies on a combination of quality,value,and brand image as drivers of purchase.Todays consumer buying trends favor scarce goods,elevated brands,and reputation for quality construction in lieu of run-of-the-mill commodity goods.With a global sales footprint estimated to be just over$1bn in FY20(ending March 2020),we see a long runway of top-and bottom-line growth.With room for significant growth in global brand awareness,we believe GOOS is poised for multiple years of market share gains upon which it can gain material leverage as the sales base grows.Surely,there will be operational,executional,and macro challenges along the way,but we see those as opportunities rather than issues that would affect brand image,equity and consumers desire for the companys product offering.GOOS shares are trading at historical low valuation levels given:1)recent volatility in business execution,such as earlier-than-expected wholesale shipments resulting in a forecast decline in FY3Q19,2)an inventory build in core products and service to meet growing wholesale demand,and 3)exposure to global unrest in Hong Kong.Each of these issues we see as contained,known,and fixable over some period of time.While the timing of the resolution of these issues may be uncertain,the strength of the brand and growing global demand,in our opinion,is not.PRISM Curve Analysis We believe GOOS is solidly in the“HUNT”phase,where the company is proactively pursuing its long-term strategy and growing market share globally.The company has a premium brand with limited distribution.Canada Goose already has a reputation as extremely high quality,functional,yet fashionable among both women and men.Often a brand begins as a single gender brand,but in the case of Canada Goose we see an equally strong following among female and male consumers.GOOS is building its footprint in the direct-to-consumer channel through both retail store presence and a fast-growing e-commerce GOOS Stock Rating OVERWEIGHT Industry View NEUTRAL Price Target USD 47.00 Price(21-Nov-2019)USD 35.18 Potential Upside/Downside+33.6%Barclays|U.S.Specialty Retail,Apparel&E-Commerce 25 November 2019 5 offering affording it the ability to capture margins of over 70%due to its ability to sell at full price.We see many similarities between the early stage of GOOS and fellow Canadian retailer LULU,and we believe GOOS can follow a similar growth trajectory over the next five-year horizon.Inventory Analysis Based on our proprietary inventory analysis,GOOS has posted one quarter of negative sales-to-inventory growth.In FY2Q20 the Inventory Management Spread was(2937)basis points and worsened from the prior quarter.GOOSs GMROI has declined for three consecutive quarters,and its OMROI has declined for three consecutive quarters.Inventory has inflected negatively(inventory growth faster than sales growth)this past quarter but the shift of in-house manufacturing,earlier wholesale shipments and a build in core inventory to meet wholesale demand.We point out that typically retailers building stores,wholesale,and expanding into new geographies and channels must prep their markets,be it for wholesale or store demand,before they generate the sales velocity.Therefore,even with our inventory metrics negatively biased in the near-term,we believe it can be excused given the stage of rapid growth the company is in.On the other hand,if we were to see a sustained level of markedly higher inventory growth versus sales,we would shift our opinion on the amount of potential inventory risk.China Tariff Impact GOOS does not source from China and generates 30.2%of its total revenue from the U.S.GOOS manufactures its product in Canada.Therefore,GOOS is insulated from the China tariff issue.Investment Conclusion Stock Performance Since the last quarterly results on 11/13/19 through 11/21/19,GOOS shares are+1%vs.the S&P 500+0%and the XRT-2%.YTD through 11/21/19,GOOS shares are-20%vs.the S&P 500+24%and the XRT+7%.In 2018,GOOS shares were+39%vs.the S&P 500-6%and the XRT-8%.Estimates vs.Consensus Our FY3Q20 EPS and Sales estimates in Canadian dollars are 0.2%above and 0.9%above consensus,respectively.Our FY20 and FY21 EPS estimates in Canadian dollars are 4.1%above and 0.5%above consensus,respectively.Our FY20 and FY21 Sales estimates in Canadian dollars are 0.4%above and 2.2%above consensus,respectively.Valuation GOOS is currently trading at an NTM P/E multiple of 28.9x versus its three-and five-year median forward P/E multiples of 50.9x and 50.9x,respectively.We value GOOS on an NTM PE multiple basis.Our price target of US$47 is based on an NTM P/E multiple of 25x(based on a 25%three-year earnings growth rate)applied to our CY21 EPS estimate of US$1.90.Risks/Where We Could Be Wrong Risks to our Overweight rating include:1)high valuation given expected growth prospects,2)inability to maintain high price points and full price selling,3)ethical sourcing and raw material risk,4)negative press from animal rights activist