What happened
With the broader market continuing its streak of recent gains, shares of Canada Goose Holdings (GOOS 1.60%) were down 18% as of 10:55 a.m. ET on Thursday. The company delivered satisfactory results for the holiday quarter, but management noted disruptions in mainland China due to COVID-19 and weakening sales trends in North America due to macroeconomic headwinds.
The stock was rallying to start the year, but investors are now having to readjust expectations given management's updated guidance.
So what
For the fiscal third quarter, revenue fell 1.6% year over year to $577 million. However, leaving off the extra week from last year's sales, adjusted revenue would have increased 2.5% year over year, which is not bad considering that total retail sector sales in the U.S. were down 1% in November and 1.1% in December.
Management believes its brand is still strong. Indeed, the company's gross profit margin ticked up 1.6 percentage points driven by strong results across all product categories.
Now what
The stock probably responded the most to management's full-year outlook. For fiscal 2023, revenue is expected in the range of approximately $1.18 billion to $1.2 billion, which is down from $1.2 billion to $1.3 billion issued in the previous quarter. This should translate to adjusted earnings of $0.92 to $1.03, which is a big cut from the $1.31 to $1.62 of earnings previously expected.
Canada Goose is still a sought-after brand. Once stores reopened in China in December, there was an immediate jump in traffic and transaction growth. In January, same-store traffic was up 30% year over year, with traffic tripling in Hong Kong over the year-ago period.
Still, the stock now trades at 20 times expected earnings for fiscal 2023, which isn't a bargain. In light of the weakness due to the broader economic headwinds, investors might want to be careful before buying on the dip.
