Canada Goose Analysts React To Q3 Print: Should Investors Buy The Dip?

Canadian apparel maker Canada Goose Holdings Inc GOOS reported Thursday morning with fiscal third-quarter results that prompted a sell-off in the stock despite a beat-and-raise print. Here's how the Street reacted.

The Analysts

TD Securities' Meaghen Annett maintains a Buy rating on Canada Goose with a CA $84 price ($63.28) target on the Toronto-listed equity.
D.A. Davidson's John Morris maintains at Buy, unchanged $74 price target.
Wells Fargo's Ike Boruchow maintains at Market Perform, unchanged CA $68 ($51.22) price target.

TD: Continued Momentum

Canada Goose's earnings report made it clear the brand continues to see momentum, while the ongoing global expansion is showing signs of success, Annett said in a Friday note.

The company may be a victim of its own success, as management's outlook fell short of expectations despite calling for mid-to-high 40-percent earnings growth for 2019, the analyst said.

Exiting Canada Goose's report, it's evident the company's global growth profile is unchanged and the apparel maker can likely offset cost pressures through production efficiencies and scale, Annett said. The company's 2019 growth outlook could prove to be conservative, and it's is well-positioned to deliver "attractive growth" in 2020, she said.

DA Davidson: Inventory Issue

Canada Goose's stock moved notably lower Thursday despite a strong earnings report that showed strength across all regions and channels, Morris said in a Friday note.

Despite an attractive report, investors were likely concerned with inventory-related data, the analyst said.

Inventories rose 75 percent year-over-year in the December-ending quarter, which was notably ahead of the 50-percent revenue growth, Morris said. This may imply the potential for markdowns after the peak selling season, although it's also likely this was a preplanned ramp in production to satisfy growing demand, and management has earned the benefit of the doubt, he said.

Wells Fargo: 4 'Holes' In The Story

Canada Goose reported another "impressive" earnings report due to continued momentum, Boruchow said in a note.

For the first time since becoming a public company, there are multiple "holes investors are likely to poke at," the analyst said:

Gross margins missed expectations for the first time and by a large margin.
Management didn't lift its margin forecast for the full year despite strong upside in the report.
Canada Goose's fiscal Q4 guidance looks "squishy" due to slower direct-to-consumer growth, wholesale declines and margin erosion.
A 75-percent inventory growth figure "looks slightly concerning" despite management claims otherwise.

Due to the multiple concerns evident in the print, investors may want to consider moving to the sidelines until there's more clarity on margins, according to Wells Fargo.