Canada Goose Earnings Preview: Can Asia Pacific's Sales Strength Continue to Offset the Weakness in EMEA and North America?

Based on 3 analysts offering 12-month price targets for Canada Goose in the last 3 months, the average price target is C$17.22 with a high forecast of C$21.66 and a low forecast of C$11.00, which suggests a potential upside of 10% from the current price of C$15.63.

● According to Bloomberg, analysts expect Canada Goose's Q4 FY2024 revenue to be C$315.58 million, which represents an increase of 7.63% from the year-ago period

● Earnings per share (EPS) is projected to be C$0.066, 52.93% lower than the C$0.14 reported during the same period last year.

Looking back, Canada Goose reported Q3 revenues of C$609.9 million and Adj. EPS of C$1.37, with Q3 gross margin rising by 150 bps to 73.7% due to higher selling prices. In regards to sales channels, Direct-to-consumer (DTC) grew 14% to $514.0 million, while Wholesale declined by 29%. Notably, as a star performer for GOOS, the Asia Pacific region saw impressive revenue growth of 62% YoY due to cooler weather in December and increased tourism in Macao and Hong Kong, partially mitigating the declines in sales of 26% and 14% in EMEA and North America, respectively.

Following the release of Q3 earnings, UBS highlighted in February that the sluggish trend in the growth of North American sales reflects the loss of relevance of the Canada Goose brand name among consumers. They anticipate that this trend of weak North American sales growth will persist: "Without a clear path to EPS beats or P/E expansion, we see no reason to change our Neutral rating."

At the same time, despite being fully re-opened, store volumes in APAC are still down over 35% since 2021, according to Wells Fargo estimates. Additionally, based on the Q1 2024 earnings reports released earlier by other luxury brands such as Kering, the parent company of Gucci, and LVMH, the parent company of Louis Vuitton, the sales performance of both companies was lackluster due to the adverse impact of the sluggish global market environment. The previously strong sales in the Asia-Pacific region also experienced varying degrees of decline, indicating that there are still concerns regarding Canada Goose's sales performance in the Asia-Pacific region.

This implies that investors should not only monitor the improvement of headwinds in North America and EMEA regions, but also the growth trajectory in the Asia-Pacific region. Whether the Asia-Pacific sales can once again offset the negative growth in other regions becomes a critical factor to watch.Based on analyst forecasts compiled by Bloomberg, upcoming earnings may see a slower revenue growth of 20.86% YoY in the Asia Pacific region, but a positive revenue growth of 0.82% YoY is expected in North America, while the declines in EMEA are expected to narrow to 6.33%.

In the company's assumptions, the DTC and wholesale gross margins were in the mid-70% and low 50%, respectively. According to Bloomberg Intelligence, Canada Goose's higher-gross-margin DTC sales are improving its product mix and could cross the C$1 billion milestone by fiscal 2025, with a greater DTC sales mix driving gross margin upside. However, the performance of DTC Stores in new locations and categories may be affected by factors such as ongoing consumer financial constraints and weaker-than-expected foot traffic, resulting in low densities and postponing margin gains from stores:

The Q3 selling, general and administrative (SG&A) expenses rose to $250.9m from $225.7m in the prior year period due to the expanded retail network and set-up costs related to the company's Transformation Program. The cost control situation in Q4 warrants ongoing attention. Furthermore, it's worth noting that Canada Goose announced significant layoffs at the end of March, which will result in a reduction of approximately 17% of its corporate workforce.

CEO Dani Reiss said,