Yahoo Finance Canada Goose shares fall sharply after analyst downgrade over China concerns
Canada Goose shares fell 4 per cent on Thursday after analysts downgraded the company and cut its price target due to macroeconomic concerns in China and unfavourable holiday conditions.
Wells Fargo retail analysts, led by equity analyst Ike Boruchow, downgraded the rating for the luxury parka maker from the equivalent of a buy (overweight) to a hold (equal weight) and slashed its price target from $25 per share to $20 per share on Thursday.
"With a tough macro backdrop developing in both the U.S. and China (as well as expected unfavourable weather conditions this holiday), we are moving to the sidelines," the analysts wrote.
Shares of Canada Goose (GOOS)(GOOS.TO) fell nearly 10 per cent in early trading on Thursday, hitting a 52-week low of $15.77 per share before paring losses to close at $16.68 per share. The company's stock is down nearly 31 per cent this year.
The analysts said in the report that China, a key market for Canada Goose's expansion plans, is moving from a tailwind to a headwind for the company.
"With a $39 billion addressable market and a predominantly (direct-to-consumer) network, China is seen as one of the core pillars of management's strategy for reaching their aggressive 2025 investor day targets," the analysts wrote, adding that 2023 was expected to be a recovery year for China following a disappointing 2022 that featured prolonged shutdowns.
"However, based on the latest macro indicators... the rebound in consumption appears to have stalled out and is looking more gradual than anticipated."
Consumer confidence remains below 2019 levels in China, the analysts noted, and travel has been slow to recover. The analysts said fewer luxury consumers plan to travel this year, and for those who will, more are looking at tropical domestic locations in China with warm weather.
At the same time, unfavourable weather conditions in North America could also weigh on sales at Canada Goose, which typically reports 50 per cent of its total sales in its third quarter between October and December.
"It's very important that the fall/winter conditions align the right way," the analysts wrote.
"This year calls for counter-cyclical conditions across [North America], with a warm/dry fall and cooler/wetter weather arriving much later in the cycle... Unfortunately, this now works against GOOS, as consumers who were looking to purchase an expensive down coat were more likely to buy one last year, when weather was cooler and disposable income was higher."
The analysts said there is growing concerns from investors about "the status of the Canada Goose brand and where it stands from a brand heat perspective." Canada Goose has underperformed peers when it comes to social media trends, which "does add yet another concern on our end when evaluating future performance."
Canada Goose will release its second quarter results on Nov. 1.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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