Canada Goose Hit by Downgrades Citing China and the Warm Winter Ahead

Evan Clark
·3 min read

Canada Goose Holdings is coming under the Wall Street microscope.

Analysts from both Wells Fargo and Cowen downgraded their recommendations for shares of the parka-maker to a more neutral stance on Thursday, citing concerns around Canada Goose’s business in China and forecasts for a warmer winter.

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The stock slipped 4.4 percent to $12.16, leaving the company with a market capitalization of $1.3 billion.

“With a tough macro backdrop developing in both the U.S. and China — as well as expected unfavorable weather conditions this holiday — we are moving to the sidelines,” said Ike Boruchow from Wells Fargo.

Boruchow took his rating to equal weight from overweight, specifically pointing to China headwinds, a forecast calling for “one of the warmest and driest winters in the last three decades” and “weakening brand heat.”

Canada Goose, led by chairman and chief executive officer Dani Reiss, has been a standout brand in fashion for years —  companding premium prices with looks that are known for their warmth and steady presence on streets in New York City, Europe and beyond.

But Boruchow said: “After years of material growth in brand recognition, investors have begun to question whether Canada Goose has reached a point of saturation. While hard to call, we note data via Social Standards which illustrates underperformance in social media mentions on both an absolute and relative basis — mentions down 40-plus percent as of last quarter.”

From a stock market perspective, worries about brand saturation matter even if they aren’t the case since they factor into investor’s general investment calculus.

Canada Goose has come under such scrutiny before and management has maintained that it has plenty more growth in its core business as well as newer categories, like knits.

Perhaps more tangible is weakness in China.

The brand planted its flag in China in 2018 and — like much of the rest of luxury fashion — counted on the country to be a big growth market and ran right into the disruptions of the pandemic.

Canada Goose’s business in China is still very much on its way up the growth curve and chief financial officer Jonathan Sinclair told analysts in August that the Asia Pacific region had “a stellar quarter with revenue increasing 52 percent year-over-year to $24.5 million.…We saw broad-based growth across each of our key markets, including mainland China, where lifting of COVID-19 restrictions has led to a strong rebound in domestic spending in stores as well as in e-commerce.”

Still, there are growing economic problems in the country and recently, ​​LVMH Moët Hennessy Louis Vuitton stoked agita in the luxe market in particular, reporting a gain of just 1 percent in third-quarter revenues.

Oliver Chen at Cowen said: “We are concerned China could get worse before it gets better following weaker results at LVMH and news flow on worsening real estate markets in the country, as well as higher savings rates and high youth unemployment. China, along with the U.S. West Coast, remain key growth markets for Canada Goose and moderation in both markets could result in a lack of near-term upside in the company’s EPS.”

Chen cut his rating on Canada Goose from outperform to market perform.

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