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Canada Goose Shares Take a Hit Over Q4 Concerns

It was a good third quarter for Canada Goose Holdings, even though investors decided to punish the stock.

For the three months ended Dec. 31, net income was 103.4 million Canadian dollars or $77.7 million, compared with $63 million Canadian dollars or $47.3 million a year ago. Diluted earnings per share for the quarter was 93 cents versus 56 cents a year ago. On an adjusted basis, diluted EPS was 96 cents. All conversions to U.S. dollars are at current exchange.

Revenue for the period was 399.3 million Canadian dollars, or $299.9 million from 265.9 million Canadian dollars, or $199.7 million.

Investors on Thursday sent shares of Canada Goose down 12.9 percent to close at $51.53, despite the positive report and the raise in fiscal 2019 guidance.

Cowen analyst Oliver Chen provided a reason why, noting that longer-term gross margin expansion is expected to be modest given labor and mix headwinds. He also noted that management’s full-year guidance raise wasn’t as high as the third-quarter earnings beat. That translates to near-term caution as Wall Street is now expecting estimates for the fourth quarter to be headed lower.

For Canada Goose, the third quarter is usually the company’s best quarter, representing its peak selling season. In other quarters, there’s a general shift to lower-margin knitwear and accessories, Chen noted.

Dani Reiss, president and chief executive officer, said, “Fiscal 2019 is shaping up to be another year of impressive results. In our peak selling season, we continued to deliver when and where it matters most, while also strengthening our foundation for future success on the global stage.” The company has entered new markets, introduced new product and increased capacity to meet growing demand, he noted. “We remain deeply confident in the long runway we have ahead,” Reiss said.

Canada Goose said direct-to-consumer revenue rose 78.7 percent to 235.3 million Canadian dollars, or $176.7 million, while wholesale revenue rose 22.2 percent to 164.0 million Canadian dollars, or $123.2 million. Gross margin for the period was 64.4 percent versus 63.6 percent a year ago.

The company raised fiscal 2019 guidance, projecting annual revenue growth in the mid-to-high thirties on a percentage basis, compared with prior estimates of at lease 30 percent when it posted second-quarter results on Nov. 14. Adjusted net income per diluted share was guided to mid-to-high forties on a percentage basis, versus prior forecast of at least 40 percent.

Chen still has an “Outperform” rating for shares of Canada Goose, but did lower his price target to $69.