Canada Goose shares plunge after parka maker cut outlook on Omicron disruption


On Thursday, Canada Goose Holdings Inc. cut its full-year forecast following weaker-than-expected retail growth in Asia and Europe after being hit by the unexpected severity of the Omicron wave.

Shares of the luxury parkas maker fell more than 15% to $36.70 in Toronto at 11 a.m.

Revenue for the Toronto-based company reached $586.1 million in the third quarter ending Jan. 2, 2022, a 26.5% increase over the prior year. Adjusted earnings before interest and taxes came in at just under $207 million, slightly below analysts’ expectations of $209 million.

Global e-commerce and direct-to-consumer sales helped drive revenue growth and purchases in the United States, and offset weaker growth in China and Europe. Per share, earnings were US$1.44.

But slowing sales in China, a key target for Canada Goose, and a stall in luxury tourism prompted the company to cut its forecast. The company had raised its revenue forecast in November to between $1.12 billion and $1.17 billion, before the Omicron variant rolled out globally.

He now expects revenue to be between $1.0 billion and $1.1 billion. Earnings on Thursday moved it $214.7 million away from the low of its last projection.

“We view these disruptions as temporary and in the case of (Asia) we have already seen sequential improvement over the past two weeks,” Chief Executive Dani Reiss told investors on an earnings call. He also said the apparel company, which manufactures its products in Canada, did not have “significant revenue or margin headwinds” related to supply or shipping constraints.

“We are confident in our inventory position heading into fiscal 2023 and we are confident in our ability to weather inflationary pressures,” Reiss said.

Canada Goose is facing a calendar year in which central banks have already raised or are about to raise interest rates, which has a general impact on consumer spending habits. Inflation has hit three- and four-decade highs in Canada and the United States, respectively, and central banks in both countries are bracing for rate hikes in March.

The company is well positioned to weather an overall decline in consumer spending, Chief Financial Officer Jonathan Sinclair said. It has pricing power for its expensive coats and clothes, and the population that can afford $1,000 parkas is unlikely to be affected by a downturn, he said.

Some luxury retailers will continue to see growth even as interest rates rise, Goldman Sachs Group Inc. analysts Brooke Roach and Julie Hoover wrote in a December report.

“We believe that wealth effects and higher-income consumer spending impulses will be more important in an environment of inflated costs of essential goods,” they said. “All other things being equal, we prefer brands with higher opening prices in a rising cost environment, as the opportunity to generate modest price increases per mix shift is likely to be less noticeable for the consumer in a higher range than a fixed low cost item.”

Direct-to-consumer sales is another area where Canada Goose is directing its efforts, looking to take advantage of higher margins over the less lucrative wholesale side of the business.

Its online and retail sales rose 49% to $445.4 million from $299.4 million year-over-year. In China, this growth increased by 35%. Wholesale trade fell to $160.6 million, compared to $136.7 million worldwide.


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