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'People are staying home': Canada Goose slashes outlook as coronavirus hits China business

Canada Goose has slashed its 2020 financial outlook due to the coronavirus outbreak, which has brought the company’s recently expanded business in China to a standstill.

The luxury parka maker said Friday that the health crisis in China has resulted in a sharp decline in sales and store traffic, and that the impact is spreading to shopping destinations in North America and Europe.

The company’s stock fell as much as 8 per cent on Friday morning shortly after the third quarter earnings came out. Canada Goose’s stock was trading at $31.98 on the Toronto Stock Exchange as of 11:20 a.m. ET.

BEIJING, CHINA - DECEMBER 30: People line up to enter a Canada Goose flagship store at Sanlitun on December 30, 2018 in Beijing, China. Canada Goose opened its first flagship store in Beijing on Sunday. (Photo by Visual China Group via Getty Images/Visual China Group via Getty Images)
BEIJING, CHINA - DECEMBER 30: People line up to enter a Canada Goose flagship store at Sanlitun on December 30, 2018 in Beijing, China. Canada Goose opened its first flagship store in Beijing on Sunday. (Photo by Visual China Group via Getty Images/Visual China Group via Getty Images)

“The health and safety of our team in China is our top priority and we’re closely watching the situation and adjusting our operations as needed,” chief executive Dani Reiss said on a conference call with analysts Friday.

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“This is obviously a major near term headwind. Understandably, people are staying home and avoiding shopping for their own health and safety in China and abroad.”

The company now expects sales growth for the 2020 fiscal year to be between $945 and $955 million, representing growth of between 13.8 per cent and 15 per cent. Canada Goose previously anticipated growth of 20 per cent. Adjusted net income per diluted share is expected to be between a loss of 2.2 per cent and a gain of 0.7 per cent, down from a previous expectation of 25 per cent.

Chief financial officer Jonathan Sinclair said revenue is “now at negligible levels across the entire store network” in Greater China, including in Hong Kong, which saw sales suffer last quarter as a result of political upheaval in the region.

“The impact is spreading globally to major shopping destinations in North America and Europe,” Sinclair said. That is largely because of the significant impact Chinese consumers have on such luxury sales.

“While local demand in North America and (Europe) continues to be strong, international traffic from Chinese consumers is essentially shut off due to travel cancellations and restrictions,” Sinclair said when asked by an analyst about the magnitude of the forecast adjustments. He said that the company expects material revenue declines in both North America and Europe.

“For us, and the sector generally, they are the largest buyers of luxury goods… In aggregate, (our store clientele) is a 50/50 mix between domestic demand and international demand. I think that’s what you’re seeing play out here.”

This is the latest headwind Canada Goose has been forced to grapple with in relation to what has been an aggressive international expansion that has been focused heavily on China.

While the company does not have any store locations in Wuhan, the city at the centre of the virus outbreak, about 14 per cent of Canada Goose’s sales are exposed to the Chinese market. The company has three stores in mainland China, and another two locations in Hong Kong.

In the previous quarter, investor concern over weak sales in Hong Kong, where political upheaval and protests have occurred, weighed on the company’s stock despite positive financial results.

Canada Goose saw total sales increase by 13.2 per cent in the third quarter, before the coronavirus outbreak began receiving international attention, from $399.3 million last year to $452.1 million. While the company said sales in Hong Kong were “severely impacted by disruptions to tourism and retail traffic”, revenues in Asia doubled from $46.4 million last year to $94.7 million.

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