In a move that has sent ripples through the apparel sector, Goldman Sachs analyst Brooke Roach has revised ratings on both Warby Parker Inc. (WRBY) and Canada Goose Holdings Inc. (GOOS) ahead of their upcoming third-quarter earnings reports. Roach’s analysis highlights the fluctuating trends in the apparel market, particularly as consumers transition from summer styles to early fall fashion.
While Roach acknowledges that consumers remain resilient in their spending, they are increasingly drawn to brands that offer innovative and fresh products. She expects volatility to continue in the apparel sector throughout the rest of 2024, but sees potential for a more positive outlook in 2025. Key factors contributing to this optimism include falling gas prices, increased consumer discretionary cash flow in the U.S. and Europe, and easing post-COVID pressures. Furthermore, balanced inventory levels across the industry are creating better opportunities for both brands and vendors.
However, Roach also pinpoints key factors that could impact the apparel market in the coming months, including the upcoming U.S. elections, the potential for new tariffs, geopolitical risks, a shortened holiday season, and the challenges posed by early fall weather conditions like hurricanes and unseasonably warm temperatures.
Warby Parker: A Promising Outlook
Roach has upgraded Warby Parker’s stock rating to ‘Buy’ from ‘Neutral,’ raising the price target to $18 from $15. She sees several positive factors driving the company’s growth. These include the expansion of insurance partnerships into next year, early signs of growth in the vision care market, and an increasing number of active customers. Additionally, improved gross profit rates from stronger glasses sales and cost-efficiency efforts in stores are creating a clearer path for enhancing Warby Parker’s fundamentals.
Canada Goose: A Cautious Approach
In contrast, Roach has downgraded Canada Goose’s stock rating to ‘Sell’ from ‘Neutral,’ lowering the price target to $9 from $11.5. She cites a less appealing risk/reward profile for the company compared to other brands and apparel businesses. Roach’s bearish outlook reflects heightened competition, signs of normalizing brand momentum and engagement, a slowing global luxury market, and a volatile macroeconomic environment in China.
Despite these challenges, Roach acknowledges the potential of Canada Goose’s strategic initiatives, such as product capsules from the new creative director and management’s focus on improving retail execution.
Market Reaction
Following the analyst’s report, Warby Parker shares surged 5.92% to $17.53, while Canada Goose shares fell 6.6% to $10.50.
As the apparel sector continues to navigate a complex and dynamic landscape, investors are closely watching how these key brands perform in the coming months. The outcomes of the upcoming U.S. elections, global economic trends, and consumer spending patterns will all play a significant role in shaping the future of the industry.