Kontoor Brands, a global lifestyle apparel company known for its iconic denim brands, and Canada Goose, a renowned luxury outerwear manufacturer, could face challenges due to the increased costs associated with tariffs. Investors and stakeholders are keenly watching the developments to assess the potential consequences on the financial performance of these well-known brands.
President Donald Trump's recent tariff decisions are expected to have a significant impact on Kontoor Brands and Canada Goose, as highlighted by Goldman Sachs. The firm pointed out that both companies have a high level of global sourcing exposure to Mexico and Canada, making them particularly vulnerable to the escalating trade tensions.
Kontoor Brands, known for its production of Wrangler jeans, is estimated to source around 25% of its expected 2025 U.S. production volume from Mexico. On the other hand, Canada Goose relies heavily on Canada for approximately 80% of its sourcing exposure. Following the implementation of 25% tariffs on goods from both countries by the U.S., retaliatory measures were announced by Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum.
Concerns for Kontoor Brands
According to Goldman Sachs, around 25% of Kontoor Brands' expected 2025 U.S. production volume for Wrangler jeans comes from Mexico.
The market reaction to these developments has been mixed, with Kontoor Brands experiencing a 1% decline in shares on Wednesday, continuing a downward trend. Meanwhile, Canada Goose saw a slight increase in share value, despite having fallen in eight of the previous nine trading days. Year-to-date, Kontoor Brands has dropped over 27% while Canada Goose has decreased by more than 2%.
Canada Goose's Sourcing Exposure
Goldman estimated that Canada Goose relies on Canada for approximately 80% of its sourcing, making it vulnerable to the recent tariff implementations.
Goldman Sachs estimated that Kontoor Brands could face a $50 million full-year EBIT impact with a 25% tariff on goods from Mexico. The company is reportedly exploring various measures to mitigate the effects, including adjusting its supply chain and potentially raising prices.
Recent Tariff Developments
The U.S. recently imposed 25% tariffs on goods from both Mexico and Canada, prompting retaliatory measures from Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum.
On the other hand, Canada Goose is expected to rely on pricing adjustments to offset the impact of tariffs on Canadian goods, without considering moving its manufacturing operations to the U.S.Analysts' opinions on the two companies differ, with Kontoor Brands receiving positive ratings with a strong buy or buy recommendation from four out of six analysts.
Market Reactions
Kontoor Brands' shares saw a 1% decline, marking a nine-day losing streak, while Canada Goose experienced a slight increase after falling in eight of the last nine trading days.
The consensus price target of approximately $88 suggests a potential upside of more than 41% from Tuesday's closing price. In contrast, Canada Goose is mostly hold-rated among analysts, with a consensus target of around $10 indicating a potential increase of over 7%.
Financial Impact on Kontoor Brands
Goldman estimated that Kontoor Brands could face a $50 million EBIT impact with a 25% tariff on Mexican goods, prompting the company to consider strategic actions such as production reallocation and price adjustments.
The ongoing trade tensions and tariff actions are expected to continue influencing the performance and strategies of these companies as they navigate the challenging global economic environment.
Goldman Sachs has warned that President Donald Trump's recent tariff decisions may put pressure on Kontoor Brands and Canada Goose due to their global sourcing exposure to Mexico and Canada.
Canada Goose's Strategy
Canada Goose is looking to offset potential losses from Canadian tariffs through pricing strategies rather than relocating manufacturing to the U.S., according to Goldman Sachs.
Analyst Ratings
While Kontoor Brands maintains a positive outlook with strong buy or buy ratings from four out of six analysts, Canada Goose is currently hold-rated, with analysts divided on its performance outlook.
