Battle Of The Premium Brands: Goose Or Moncler?
(Reprinted from above link)
I will explore the differences between Canada Goose and Moncler.
Explain the importance of the influence of pop culture on these companies.
I will focus on the key technical aspects of each company.
Canada Goose (GOOS) and Moncler (OTCPK:MONRF) provide some of the most premium and coveted jackets on the market, but in this article, I will explore the differences between each company, the importance of the influence of pop culture, and focus on the technical aspect of both premium powerhouses. Through this, I will determine which company is better - even if there is one.
General Overview: Moncler
Moncler, an Italian company with French roots, commands an eye-watering $1,300 for a jacket, but they seem to be consistently sold out. They currently operate 193 retail stores with 12% of revenue coming from Italy, 29% from Europe and the Middle East, 43% from Asia, and only 16% from the Americas. Breaking their sales down, in FY 2018, they recorded 77% of sales from retail and 23% from wholesale compared to FY 2013 when 57% of sales came from retail and 43% from wholesale. The more retail-focused approach has allowed Moncler to grow EBIT from 172.2 million euros in 2013 to 414.1 million euros in 2018 focusing on the higher margin section.
Planning towards the future, Moncler sees a clear opportunity to expand its presence not only in the United States but also more globally by strategically entering two new countries per year and at least 10 new locations. Paired with the higher margin retail section, they are committed to opening a new website by 2020 and hope to double their online revenue by rolling out an advertising campaign that consists of social media, SEO, and online media.
Although Moncler is primarily an outerwear company, they are committed to developing product lines that extend to all seasons including a knitwear section, footwear, and soft accessory section. Per their investor relation page, on these lines, they want to focus on creativity, innovation, and design while growing the division at a double-digit increment.
General Overview: Canada Goose
Canada Goose is currently seen walking down the streets of every major city and it too has quite a large price tag selling for around $700 per jacket. Although the prices may be wildly different compared to Moncler, they share a very similar business strategy. In Q2 2019, Canada Goose had 78.12% of revenue come from their wholesale division which is down from 88.27% of revenues in Q2 2018. This is a positive sign as their direct to consumer, or retail, unit had an incredible gross margin of 76.1% in that quarter.
Canada Goose plans to expand its direct to consumer division by opening five new retail stores which would double their retail exposure. On top of that, Canada Goose is committed to increasing their e-commerce presence with a focused plan to target the Asian continent. They have recently acquired a luxury footwear company, Baffin, and plan to leverage this acquisition to become more than just an outerwear company and get into the luxury footwear space.
If interested, a much more detailed nuances of Canada Goose can be found here.
Are These Companies a Fad?
Can Canada Goose and Moncler survive long term or will they suffer a slow demise as another, better product, overshadows them? Although these companies have significant pop culture influence, their ability to expand their brand globally and their products internally will be key to long-term success. To add emphasis to their staying power, both companies show consistent growth and plan on continuing for the foreseeable future.
In 2015, Moncler was brought to the spotlight for many as Drake wore their jacket in his hit song, Hotline Bling. Ever since then, a massive influx of new customers and other notable celebrities have paraded around in the $1,300 jackets allowing Moncler to be seen as a social brand.
Canada Goose gained its popularity becoming the "unofficial parka" for film crews working in cold weather with celebrities like Kate Upton and David Beckham boasting these jackets as far back as 2013. Just like Moncler, the social aspect of the product is present with every purchase, but it goes much farther than simply 'showing off'.
Both companies have a longstanding tradition of being able to withstand the worst mother nature has to offer. Canada Goose, before the popularity, had products developed for individuals exploring Antarctica. This same technology and design to lock in warmth is present in today's product and is a significant part of why it became popular, to begin with. People demanded a high-quality product that could survive the worst of winters, and Canada Goose provided that product. The pure functionality paired with the social aptness produces a price tag that is now much more manageable.
Moncler had a similar path to success, creating insanely warm down jackets that were used to summit mountains in France and even became the official supplier of certain Alaskan expeditions starting in 1964. Moncler does demand a significantly higher price of around twice as much as Canada Goose but consistently sells out of their products. Because of this, Moncler is targeting a different customer than Canada Goose.
Canada Goose jackets tend to sell from $700-1,300 while Moncler demands over $1,300 for their least expensive jackets all the way up to $2,000 for a heavy parka. These companies surely are taking some sales from each other but not in a drastic way because each company caters to different clientèle. Both jackets are a significant purchase, but Canada Goose jackets are still obtainable for many people in the middle-to-upper class while Moncler jackets are priced to be almost purely for the upper class.
The price point of these jackets from both companies could be affected by an economic downturn that could significantly hurt sales. Both are diversifying to become global companies, but a large slowdown in any sector whether that being China, the United States, Canada, or Europe, could force their consumer base to forgo purchasing such a luxury item. The market consensus is that we are in the late stage of the business cycle, so it should be expected that we have around two years of continued growth before a considerable slowdown. This should give both companies enough time to increase their presence in new markets and continue their rapid pace of growth.
Moncler and Canada Goose both have been able to sell their products while raking in a high-profit margin while consistently growing sales. In their most recent quarter, Canada Goose grew sales by over 50%, a huge number that will be tough to replicate in the coming quarter, but management believes that annual revenue can grow by at least 30%. Moncler, on the other hand, is not growing at that rapid of a rate, but they have grown at almost 20%/year for the last five years all the while growing their net profit. Both companies have also been able to dictate the market price and have incredible gross margins.
Moncler has a gross profit margin of 76.9% and Canada Goose with a lower, but still high, 60.43%.
I believe that each company could even increase these profit margins as they are shifting to a greater online presence and establishing themselves as retailers. These margins also prove that customers will pay almost any price for their products, especially Moncler. Even if the social attitude towards these jackets completely change, they could lower their price and still have large margins.
To value these companies, I will be using two measures to determine how expensive these stocks are relative to each other. Canada Goose is not yet as established as Moncler, but the business model, product, and industry are virtually all the same.
The EV/EBITDA ratio shows how expensive a company is priced; the higher the multiple, the more expensive the company. Investors in Canada Goose may see much more room to grow than Moncler, but at over a 50% premium, it is evident that Moncler is the more reasonably priced stock and also has a steadier valuation than Canada Goose.
Next, the P/E ratio shows that Moncler is again significantly cheaper than Canada Goose at 26.85x compared to 48.08x.
Again, Canada Goose is the less developed company and is more richly priced because of the perceived upside but both companies have a great opportunity to grow their presence. Canada Goose is expanding into the Asian market while they continue to increase profits by increasing its retail division. Similarly, Moncler plans to expand past Eurasia and grow their high margin division while consistently increasing profits through product expansion and development.
Both companies are running fantastically, but it depends on the risk tolerance of the investor on what company to choose. Moncler has impressed investors with steady ~20% increases annually on revenue, but Canada Goose is projected to grow at 30% this year and possibly more depending on the popularity in Asia and success of their website. There is still risk with Moncler, but less than Canada Goose and with a very similar marketing strategy to become a more global company. With that said, I think Moncler has a better risk/reward ratio, but I also wholeheartedly believe in the continuance and growth of Canada Goose.