The bullish case for Canada Goose Holdings Inc GOOS can no longer be justified after the maker of apparel for cold weather showed a slowdown in its direct-to-consumer business in its fiscal fourth-quarter earnings report, according to Bank of America.
The Analyst
Bank of America's Robert Ohmes downgraded Canada Goose from Buy to Neutral with a price target lowered from $70 to $40.
The Thesis
Canada Goose reported an earnings beat driven mostly by outperformance in wholesale revenue, Ohmes wrote in the note. The DTC business showed a growth rate of 29.1 percent which was in line with expectations. In fact, the earnings report marks an end to a streak of "significant" DTC outperformance that dates back to March 2017.
Ohmes said Canada Goose was expected to show more momentum in the DTC business since its store count is 80 percent higher year-over-year. The disappointing performance also comes at a time when the company exited the third quarter with a strong inventory position and management started selling spring products in late February.
The company's EBIT margin could be impacted as DTC margins are notably higher versus the wholesale business at 54.4 percent versus 35.9 percent in fiscal 2019, according to Ohmes.
Price Action
After falling more than 30 percent in Wednesday's session, shares of Canada Goose traded around $33.89 Thursday morning.
Related Links:
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Canada Goose Falls 13% After Q1 Earnings Release
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