Dive Brief:
- Canada Goose was hit with two downgrades on Thursday: Cowen downgraded the luxury brand to Market Perform from Outperform, while Wells Fargo downgraded the company from overweight to equal weight.
- Analysts with Cowen and Wells Fargo cited pressure in China’s market. "[E]xpectations for a compelling recovery in the region are now very much in question” partly due to softening macro conditions and following a weak 2022 performance in the region, Wells Fargo analysts led by Ike Boruchow said in an emailed note.
- The upcoming winter is expected to be one of the warmest and driest in several decades, which could negatively impact sales of heavy winter apparel for Canada Goose’s holiday quarter, per Wells Fargo analysts. Heavyweight down is the brand’s highest profitability category and represents an estimated 65% of revenue, per Cowen.
Dive Insight:
Lowered consumer confidence in China and its impact on the retail sector in the region could be bad news for Canada Goose.
“This could put pressure on GOOS at a time when they need to ramp up productivity in their DTC base,” Wells Fargo analysts said, adding that with Canada Goose's reliance on DTC combined with the market opportunity in the region, “China is seen as one of the core pillars of management's strategy for reaching their aggressive 2025 investor day targets.”
LVMH Moët Hennessy Louis Vuitton earnings from earlier this month seemed to corroborate a slower rebound in the region, according to both firms. China represents an estimated 25% of sales for Canada Goose, per Cowen.
A warmer winter, which would follow one of the coldest on record in 2022, presents a dilemma for the brand as it is working to expand its offerings beyond winter apparel.
“We have lack of visibility into the timeline as it relates to category expansion in terms of timing for when non-heavyweight down can reach a critical mass as part of the assortment and GOOS is able to reduce seasonality,” Cowen analysts led by Oliver Chen said. “We believe expansion into other categories, including women's and accessories, will drive greater awareness and relevance.”
Canada Goose debuted its first sneaker in July priced at $450 for the Glacier Trail and $550 for the Glacier Trail High. The company has been working to progress on certain strategic growth pillars, which include creating new and expanded product categories that position it as a “year-round” brand, per its fourth-quarter earnings in May.
“We expect continued growth in all categories including in heavyweight and lightweight down and accelerated growth of newer categories such as rainwear, apparel and footwear as well as the addition of further categories including eyewear, luggage and home,” the company said at the time.
Canada Goose in August reported first-quarter total revenue jumped 21% year over year to 84.8 million Canadian dollars (about $63.5 million at the time) and its net loss increased from CA$63.6 million to CA$85 million. The brand’s direct-to-consumer revenue increased 60% to CA$55.8 million while wholesale revenue dropped 18%.
