Canada Goose cuts forecast as China's zero-COVID stance weighs on sales

A label is seen on a Canada Goose jacket in a store in Manhattan, New York City, U.S., February 7, 2022. REUTERS/Andrew Kelly
Canada Goose's stock fell as much as nearly 8 per cent on Wednesday. (REUTERS/Andrew Kelly)

Canada Goose's stock fell as much as nearly 8 per cent on Wednesday after the company cut its full-year fiscal outlook due to COVID-19 closures in China and global economic uncertainty.

The luxury parka maker said on Wednesday after reporting second-quarter results that it now expects total sales for the year to be in the range of $1.2 billion and $1.3 billion, down from its original forecast of between $1.3 billion and $1.4 billion. The company also cut its net income expectations to between $1.31 and $1.62 per diluted share. The previous range was between $1.60 and $1.90 per diluted share.

"Despite our strong performance in the quarter, we are not seeing the level of improvement we had assumed in mainland China," Canada Goose chief executive Dani Reiss said on a conference call with analysts on Wednesday.

"COVID-related disruptions, including mall closures, lockdowns and travel restrictions, continue to impact traffic. As we head into our most meaningful quarter, we're seeing these disruptions affect an increasing number of cities in which we operate. As a result, we've updated our outlook for the year."

This guidance revision comes in the midst of Canada Goose's third quarter, the most important one in terms of sales. Shares of Canada Goose were trading on the Toronto Stock Exchange at $20.95 as at 11:45 a.m. ET, a decline of 6 per cent compared to Tuesday's close. The stock is down approximately 56 per cent so far this year.

China's zero-COVID policy has impacted many luxury retailers, including Canada Goose, as frequent closures and lockdowns weigh on consumer demand in what is the world's top luxury market.

Canada Goose's chief financial officer Jonathan Sinclair says the company initially saw a positive shift in momentum during the Golden Week holiday period in China, but that "restrictions and other disruptions have worsened the trend."

"The reality of upholding a dynamic zero-COVID policy against a very transmissible current variant has meant fairly consistent, periodic disruptions persisted," he said.

Still, Sinclair says the challenges in China do not change Canada Goose's confidence in the country, which has emerged as a key growth market for the company, and that the company remains "excited" about future growth prospects in the region.

"We continue to sign leases with landlords in the most important malls and in the most important places, which just reaffirms their confidence in our brand and the extent to which our brand drives traffic to their malls," Reiss said.

"It's unfortunate these COVID headwinds and economic headwinds that are impacting the world and China today are doing so, but we all know that these macro conditions will pass and I'm extremely confident that once they do, our brand is very well-positioned... to continue on its growth trajectory."

Wells Fargo analyst Ike Boruchow wrote in a note to clients on Wednesday that the Chinese market remains a key headwind for the company.

"This is now the second straight year we have seen downward revisions around holiday due to China, and until we get a sense of stability in the region, it is hard to see a bull case on the story outside of valuation," Boruchow wrote, lowering the price target for the company from $38 per share to $30 per share.

The luxury parka maker saw sales surge in the second quarter ending Oct. 2, jumping 19 per cent year-over-year to $277.2 million, thanks to strength in the North American market. Sales in the United States rose from $61.7 million last year to $74.2 million in 2022, while sales in Canada jumped from $46.9 million to $58.7 million. Sales in Asia-Pacific were down, from $58.9 million last year to $56.4 million in 2022. Adjusted net income attributable to shareholders came in at $23 million in the quarter, up from $14.1 million last year.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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