The Canada Goose Story Isn't Broken, But There Is Elevated Risk

Canada Goose Holdings Inc (NYSE: GOOS) reported Friday fiscal third-quarter results, which prompted one analyst to turn bullish while another felt it prudent to move to the sidelines.

The (NYSE: GOOS) Analyst

Baird Equity analyst Jonathan Komp upgraded Canada Goose from Neutral to Outperform with an unchanged CA$53 price target.

Goldman Sachs analyst Alexandra Walvis downgraded the stock from Buy to Neutral at Neutral, with a price target lowered from $44 to $34.

Baird: Canada Goose's 'Story Not Broken'

Baird's upgrade marks a return to a bullish stance on Canada Goose's stock since July 2018, Komp wrote in the upgrade note. The company's Friday earnings report marks a "reset" in expectations and removes near-term estimate risk.

Specifically, the company reported multiple encouraging metrics in its Friday report, including strong direct-to-consumer performance in the U.S. and China, the analyst wrote. As soon as the impact from the coronavirus eases, the DTC business could bounce back to growth as the brand takes advantage of its expansion strategy.

The company did report a 76% increase in finished goods in the quarter but management offered some commentary for the first time, the analyst wrote. Management explained that 80% of its products are made for next year ahead of plans to cut two-thirds of its external manufacturers to achieve a goal of 70% in-house manufacturing.

Finally, Canadian sales lagged in the quarter but this could be a function of wholesale timing shifts and warmer weather, Komp wrote. In fact, the company is showing strength in growing sales in non-park categories.

Goldman Sachs: 'Elevated Risk' In Canada Goose

Canada reported fiscal third quarter results which were consistent with "muted expectations" and management lowered its outlook amid the coronavirus disruption, Walvis wrote in a note. While the coronavirus should prove to be a temporary headwind, there are several concerning takeaways elsewhere in the business.

Sales in the core Canadian market fell 12% in the quarter and the country accounts for 35% of total sales. Investors may want to hold a cautious stance on the key market as weaker trends could have contributed to heavy inventory at the end of the quarter and result in lower wholesale orders into fiscal 2021.

Also, new store openings have proven to be "progressively smaller" contributors to sales and DTC revenue growth of 28% year-over-year missed expectation of 31%.

"On balance, we come away incrementally more cautious on the underlying growth story for the brand and downgrade the stock to Neutral from Buy," Walvis wrote.

GOOS Price Action

Shares of NYSE-listed Canada Goose closed lower by 4.24% at $30.49.

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