Hong Kong unrest hits Canada Goose stock: ‘I wouldn’t touch it’
TORONTO Canada Goose Holdings Inc. shares fell more than 10 per cent on Wednesday after the company failed to soothe investor concerns over its exposure to Hong Kong, acknowledging that the political unrest there is damaging performance.
“The situation has intensified since our last call,” chief executive Dani Reiss said during a morning conference call with analysts and investors, noting that a decline in tourism and retail traffic was affecting the performance of its two locations in the city. “We’re watching the situation closely and evaluating actions to streamline our cost base on the ground including negotiating accommodations from landlords.”
Hong Kong has been in turmoil since June when protesters took to the streets in opposition of a proposed bill that would allow extradition to mainland China. Those protests have morphed into increasingly violent clashes with police officers.
While investors were concerned with the Hong Kong effect, the parka-maker’s second-quarter results were otherwise strong.
Earnings came in at $60.6 million for the third quarter, while adjusted earnings per share hit 58 cents, well ahead of the 43 cents analysts had projected.
Revenue for the Toronto-based company also rose 27.7 per cent from the same three months last year to $294 million.
Much of that growth, the company said, could be attributed to what it called “standout performances” in Asia, which saw revenues nearly double to $48.9 million from $26.6 million.
Despite the struggles in Hong Kong, Reiss defended the company’s expansion into China and said it’s showing dividends. “Although we wish the situation was different today, we’re developing markets and building stores for decades, not just the next quarter,” he said.
Canada Goose shares ended the day at $46.13, down 10.9 per cent in Toronto.
In a note to investors, RBC analyst Kate Fitzsimons slashed her price target on the stock to $62 from $75 due to near-term headwinds such as Hong Kong.
Wells Fargo analyst Ike Boruchow did the same, cutting his price target to $50 from $55, while explaining that the earnings report wasn’t as glowing as it initially may have appeared.
“Despite the strong beat, management only reiterated its fullyear guidance for the second time this year, a stark contrast relative to last year which saw a top-line raise each quarter,” Boruchow said.
While the first-half of Canada Goose’s fiscal year was strong, management has already hinted that that trend may not continue into the second half. Chief financial officer Jonathan Sinclair said he expected wholesale revenues to be down in the third quarter.
“Given the expectation for slower sales, combined with inventory levels that remain visibly elevated, we believe investors are concerned on the trajectory of the business,” Boruchow said. “Until we see signs of greater stability at wholesale, we will remain sidelined.”
Castlemoore Inc. chief investment officer Jeff Parent once spoke of Canada Goose as one of his top choices for investors, but following its less-than-smooth expansion into China and Hong Kong, that’s no longer the case.
The stock was an exciting one when it first announced its expansion into China, he said.
The stock was driven up in anticipation and hit a 52-week high of $95.58.
But as sales numbers come in, Parent said the hopes of meeting that anticipation are fading in a situation he compared to the performance of cannabis stocks.
“I wouldn’t touch it,” Parent said. “And if owned it, I would’ve sold it this morning.”