Goldman Sachs downgrades Canada Goose to a ‘sell’

Goldman Sachs has downgraded to a “sell” Canada Goose, a Canadian luxury outerwear maker with a market capitalization of just over $1 billion. As reasons for the move the investment bank cited high competition, weak sales in the luxury market, and slowing revenue growth. The same day, Canada Goose stock hit a one-month low in the U.S.

Details

On Monday, October 21, Goldman Sachs downgraded Canada Goose stock from “neutral” (equivalent to a “hold” recommendation) to “sell,” as reported by Investing.com. It also reduced its target price from $11.50 to $9.00 per share, for downside of 20% versus the previous closing price.

Goldman Sachs highlighted a “less attractive risk/reward” compared to other companies in the apparel and retail sector. Canada Goose faces strong competition, weak consumer demand, and a broader slowdown in the global luxury market, exacerbated by a “choppy” economic backdrop in China.

Nonetheless, Goldman Sachs also acknowledged some positive aspects of Canada Goose’s strategy, such as product range expansion under new Creative Director Haider Ackermann and a focus on improving retail execution. Canada Goose is also one of the few brands expected to see a sharp increase in comparable growth for the second half of 2024. In terms of the stock, however, Goldman Sachs believes that this is already priced in, noting that there is limited scope for an outperformance, even considering favorable weather conditions in November-December and new product launches.

Stock performance

On Monday, Canada Goose stock dropped as much as 7.7% to $10.37 per share, its lowest level since September 23. The stock is now down about 8.6% since the beginning of the year. In comparison, the broad S&P 500 index has gained 22% over the same period.

Other views

A week ago, Wells Fargo downgraded Canada Goose from “equal-weight” to “underweight” while cutting its target price by 25% to CAD12 per share (about $8.70). The decision was attributed to weakening interest in the brand, as reflected in global search trends, particularly in the third quarter, which could signal trouble for the upcoming holiday season. Wells Fargo also pointed out that the company is significantly exposed on the Chinese market, where economic challenges could affect sales.

According to MarketScreener, 12 analysts cover Canada Goose. Only one of them recommends buying the stock, while six rate it a “hold” and five have it as a “sell.”