Canada Goose Plunged Today – Is the Market Overreacting?

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What happened

Shares of Canada Goose ( GOOS 0.23% ), a manufacturer and retailer of winter jackets, got off to a bad start on Feb. 10, losing up to 21% of its value in the first few minutes of trading. The big news was the release of the company’s pre-market results. It was a mix of positives and negatives, although investors clearly ended up with a pessimistic view of the future. Before you make a final call here, there are a few things to understand about the company and its bottom line.

One trick pony

Like many popular retail companies, Canada Goose rose to fame through a single product. In this case, it was his winter parkas. Since most people only buy winter coats when it’s cold, the business has a very seasonal business. The fiscal third quarter that just ended is the most important sales period of the year for the company. There hasn’t really been a bad quarter.

Image source: Getty Images.

Revenue increased to C$586 million in the third quarter of fiscal 2021 from C$474 million in the same period of fiscal 2020. Although an additional week added approximately 41 million Canadian dollars at the most recent figure, the retailer has still managed to grow its enjoyable business in the neighborhood. Ultimately, adjusted earnings per share were CA$1.42 per share, compared to CA$1.01 a year earlier. If you take a step back, it’s kind of hard to complain. Unless, of course, Wall Street analysts predicted even better results, which they did. When a company lacks results, investors often sell first and ask questions later, which is exactly what happened today. Adding to the negative mood, the company also lowered its guidance for fiscal year 2021 (more on that below).

But there was one important number in the report that probably deserves more attention. Canada Goose sales other than parkas increased nearly 75%. The company didn’t say how much that was in dollars and cents, as it was likely quite small compared to its parka sales. But it does mean consumers are starting to see the company as more than just a jacket brand. Basically, Canada Goose is trying to move beyond a single product, which sells well for a very short time each year, to become more of a lifestyle brand. And he seems to be having some success in the effort. Meanwhile, despite missed revenue and profits, the core of the business continues to grow, so it’s not like Canada Goose has suddenly fallen into disuse.

The long term vision

Even the reduced guidelines are hard to thwart, given that they were tied to the pandemic and related restrictions in Asia and Europe. This is not something Canada Goose can control, it basically impacts the entire retail industry and hopefully will be a long term transitional issue. In other words, investors seem to be focusing on the short term here, thinking in months and quarters as management thinks in years as it seeks to expand beyond its current parka niche. If it can do that, with the nearly 75% increase in non-parka sales suggesting it’s enjoying early success, Canada Goose could have a long streak of growth ahead of it.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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