Shares of Canada Goose Holdings(NYSE: GOOS) were down 5% as of 12:57 p.m. ET on Thursday following bearish comments by TD Cowen.
The firm downgraded the stock to market perform with a $15 near-term price target. Analysts see the potential for the stock to be rangebound, given the uncertainty in the economy and soft consumer spending.
What's wrong with Canada Goose?
In early August, the luxury lifestyle brand reported a 21% year-over-year increase in revenue but higher operating expenses to support growth initiatives. Further, store openings led to a wider operating loss of $99 million, compared to $82 million in the year-ago quarter.
This has been the key theme of the last five years. Quarterly revenue has nearly doubled over that period, but inconsistent profitability has sent the stock down 79%.
TD Cowen analysts see the weak economy in China and Europe, specifically, potentially causing Canada Goose sales to miss estimates, which could lead to weaker margins.
Is the stock a buy?
The company is pursuing growth outside of its flagship winter jackets and parkas. It is launching a new sneaker line, where management reported "very good sales velocity out of the gate." This could become an important new sales category for the brand over the long term, especially during warmer fall seasons, which can hurt sales momentum.
Investors will be looking for the investments in technology and other initiatives to pay off. Management said these investments will lead to better operating efficiency and profitable growth over the long term.
The stock is a falling knife right now. However, recent revenue growth indicates this is still an in-demand brand. It could be a profitable contrarian investment on a recovery in apparel spending over the next few years.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
