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Canada Goose stock nosedives as it cuts outlook due to China disruptions

HANGZHOU, CHINA - DECEMBER 01, 2021: A man walks past a Canada Goose store in Hangzhou, east China's Zhejiang Province, on Wednesday December 01, 2021.  The Canadian brand has announced that its Chinese stores will offer customers a refund for returned goods afterwards, fine print of which was leaked by a customer and spread across the Chinese internet like wildfire.  (Photo credit should read LONG WEI/Future Publishing via Getty Images)

Canada Goose shares plunged nearly 19 percent on Thursday after the company cut its full-year sales expectations due to COVID-19 disruptions in China. (LONG WEI/future release via Getty Images)

Canada Goose (GOOS.TO)(GOOS) shares slumped nearly 21 percent on Thursday after the company cut its full-year sales guidance due to COVID-19 disruptions in China and slowing demand in North America.

The Toronto-based luxury parka maker lowered its outlook for the fiscal year, forecasting that sales, profit and margins will be lower than previously forecast due to weakness in a crucial quarter for the company.

“We faced challenges during a seasonally significant third quarter, the largest of which was in mainland China, where disruption was worse than we anticipated and significantly impacted our performance,” Canada Goose chief executive Dani Reiss said in a Conference call with analysts on Thursday following the release of third quarter results.

“It’s really important to note that we strongly believe these trends – disruption in China and softness in North America – are temporary and the strength of our brand remains incredibly healthy.”

Canada Goose shares were trading at $26.77 on the Toronto Stock Exchange as of 11:25 a.m. ET, down 18 percent from Wednesday’s close.

As China began lifting its COVID-19 lockdowns in the third quarter of the year, Reiss said the sudden lifting of restrictions has created a surge of infections “that have had a significant impact on our business in what is normally our most productive trading month. “

“Consumer traffic fell dramatically and staffing levels were impacted due to illness,” Reiss said. In some cases, Canada Goose has had to temporarily close stores altogether. The company estimates the impact resulted in a $60 million loss in revenue.

Total revenue for the third quarter ended January 1 was $576.7 million, a decrease of 2 percent from the same period last year. Sales in the Asia-Pacific market fell 9 percent, while sales in Canada fell 8 percent. Net income attributable to shareholders totaled $134.9 million, or $1.28 per diluted share, for the quarter, compared to $151.3 million, or $1.40 per diluted share, in the prior year.

At the same time, the company saw weaker demand in North America towards the end of the quarter, leading to further weakness in sales. While store traffic increased in Canada and the United States, the company reported a lower conversion rate, meaning fewer people entering its stores were buying products. The lower conversion rate resulted in a $25 million loss in revenue.

“When it comes to our current quarter performance in North America, there is definitely a macroeconomic impact. There’s no doubt about it,” Chief Financial Officer Jonathan Sinclair said on a conference call with analysts.

“We’re seeing a natural consumer reluctance right now that we’re seeing seems to be permeating the sector.”

As a result, the company is now struggling with higher inventory levels. Inventories totaled $482 million in the third quarter, up 31 percent from the same quarter last year.

Canada Goose now expects total sales to be between $1.175 billion and $1.195 billion, down from the previous guidance of $1.2 billion to $1.3 billion. The company also said it expects a profit margin of between 14.2 and 15.3 percent, up from a previous estimate of between 17.9 and 19.6 percent. Net income is expected to be between 92 cents and $1.03 per diluted share, compared to a previous guidance of between $1.31 and $1.62 per diluted share.

Alicja Siekierska is Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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