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Canada Goose Stock Fell 12.9% despite Strong Q3 Results

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Feb. 15 2019, Published 8:12 a.m. ET

Third-quarter results

On February 14, Canada Goose (GOOS) (GOOS.TO) stock fell 12.9% on the NYSE. The company reported impressive results for the third quarter of fiscal 2019[1. Fiscal Q3 2019 ended on December 31, 2018] and raised its outlook for fiscal 2019.

Canada Goose’s third-quarter revenues rose 50.2% to 399.3 million Canadian dollars and beat analysts’ expectation of 361.6 million Canadian dollars. The company’s top-line growth was driven by a 78.7% increase in its direct-to-consumer revenues, which include the revenues from retail stores and e-commerce. The company’s wholesale revenues rose 22.2%.

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On February 14, the steep decline in Canada Goose stock reflected investors’ concerns about the company’s valuation levels, uncertain macro conditions, and the potential impact of rising costs. The S&P 500 Index (SPY) fell 0.3% on February 14 after the Department of Commerce reported a 1.2% fall in US retail sales in December—compared to November.

So far, Canada Goose stock has risen 17.9% this year despite the decline on February 14. The S&P 500 has risen 9.5% on a year-to-date basis as of February 14.

Canada Goose’s third-quarter adjusted EPS rose 65.5% on a year-over-year basis to 0.96 Canadian dollars, which beat analysts’ estimate of 0.82 Canadian dollars. The company’s overall gross margin expanded by ~80 basis points to 64.4% in the third quarter. However, the gross margin for the direct-to-consumer and wholesale channels fell due to higher labor costs.

Revised outlook

Canada Goose raised its outlook for fiscal 2019 following the strong third-quarter performance. The company expects its fiscal 2019 revenues to grow in the mid-to-high thirties range compared to the previous forecast of at least 30% growth. Canada Goose expects its fiscal 2019 adjusted EPS to rise in the mid-to-high forties range. Previously, Canada Goose expected an adjusted EPS growth of at least 40% in the current fiscal year.

As of February 14, Canada Goose was trading at a forward PE ratio of ~42.5x compared to Columbia Sportswear (COLM) and Lululemon’s (LULU) 12-month forward PE ratios of 23.4x and 35.2x, respectively.

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