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Canada Goose sees Hong Kong business 'significantly' impacted by protests

Canada Goose posted strong quarterly sales that blew past expectations on Wednesday, but its stock fell nearly 11 per cent as political upheaval in Hong Kong “significantly” affected performance in that region.

The Toronto-based company’s direct-to-consumer sales jumped 47.2 per cent to $74.2 million in the three month period ending Sept. 20, while wholesale revenue increased 22.2 per cent to $219 million. Overall sales in the quarter came in at $294 million, a 27.7 per cent increase from the same time last year, while net income jumped 21.4 per cent to $60.6 million.

Canada Goose’s stock fell 10.91 per cent and closed the day trading at $46.13 on the Toronto Stock Exchange.

Speaking on a conference call with analysts, Canada Goose chief executive Dani Reiss said the situation on the ground in Hong Kong has “intensified” and impacted store performance “significantly.” While the company said unrest in Hong Kong has led to weaker performance in the region, it pointed to strong sales in North America and “standout performances in Asia” as factors that were able to offset the slower traffic.

People queue outside the newly opened flagship store of Canadian luxury parka maker Canada Goose, in Sanlitun district of Beijing, China December 30, 2018. REUTERS/Stringer

Reiss reiterated long-term confidence in company’s aggressive international expansion plan, which has included a focus on Asia.

“The results [in Asia] are showing dividends, notwithstanding obviously what is going on in Hong Kong,” Reiss said on a conference call.

“We’re hoping that will resolve itself in a positive way for everybody. But in the meantime, China is great, demand is strong, and with Chinese consumers, our brand is really resonating with them.”

The company expects that its Hong Kong store will continue to experience slower traffic as unrest continues.

“Although we wish the situation was different today, we are developing markets and building stores for decades, not just for the next quarter,” Reiss said.

“We are watching the situation closely and evaluating actions to streamline our cost base on the ground, including negotiating accommodations from our landlords.”

Canada Goose also said it expects wholesale sales in the upcoming quarter to decrease as the company shipped most of its winter order book earlier than anticipated.

RBC Capital Markets analysts Kate Fitzsimons and Sabahat Khan maintained their outperform rating for Canada Goose, but adjusted their price target for the company from $75 to $62, citing Hong Kong weakness amid other factors.

“While there's likely some room with the (second half) outlook, we note timing and external factors at play,” the analysts wrote.

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