Canada Goose Holdings Inc., in the midst of a move away from third-party retailers, says its strategy is working and the payoff is coming soon. Wall Street, however, remains skeptical.

The luxury parka maker’s stock tumbled the most since the start of the Covid pandemic on Wednesday after it reported gross margin that was below expectations in the fiscal first quarter, even as revenue beat estimates. Canada Goose also kept its projections for the full year unchanged.

Management spent a big chunk of its call with analysts trying to explain a strategic shift that has disrupted its business patterns. The key issue is that Canada Goose is focusing on selling through its own stores and website, while moving away from third-party retailers. This will boost profitability, but at a different time of the year than what investors have seen in the past.

Canada Goose’s U.S. shares fell 12 percent at 2:06 p.m. in New York trading after an earlier drop of 15 percent, the biggest intraday decline since March 2020.

A greater proportion of sales are seen coming in the end of the year from consumers who splurge as temperatures drop. That’s unlike past years, when wholesale orders from partners like department stores came earlier in the year. Those clients are accounting for less of the business, however, as Canada Goose culls them and builds more of its own stores.

As the mix of sales channels shifts, investors are expecting Canada Goose’s fiscal second-quarter earnings to be lackluster. The company says the third and fourth quarters will be the uplifting ones.

Canada Goose’s Recovery Plan: More Direct Sales, Less Wholesale

Close to 70 percent of Canada Goose sales will come from direct sales in the current fiscal year, up from 52 percent in fiscal 2019. That “fundamentally changes the revenue pattern of the business,” with a “huge skew” to the second half, Chief Financial Officer Jonathan Sinclair said the call.

Luxury-goods makers are increasingly trying to move to owning their own retail, where they can sell at full price and form economies of scale on a higher volume of products sold, according to Bloomberg Intelligence analyst Deborah Aitken. This also helps companies to better manage their brands, she said.

For now, Wall Street may have missed the memo.

The transition “has created uncertainty and panic, which should be short lived,” Aitken wrote in a research note.

By Sandrine Rastello

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