Investing.com -- Shares of Canada Goose Holdings (NYSE:GOOS)(TSX:GOOS) tumbled to 4.2% in pre-market trading on Monday after Wells Fargo downgraded the stock to "underweight" from "equal weight," citing several structural challenges facing the luxury outerwear brand.

The brokerage slashed its price target to C$12 from C$16, forecasting that the company will struggle to overcome mounting issues related to brand momentum, China’s economic outlook, and operational margins.

Wells Fargo analysts flagged waning “brand heat" as a primary factor behind the downgrade, pointing to declining consumer engagement with the brand across social media channels.

While the company attempted to refresh its image earlier this year with a new marketing strategy, including collaborations and seasonal product launches, these efforts failed to generate sustained momentum.

In the third quarter alone, social media mentions of Canada Goose fell by 24%, starkly contrasting with an 11% growth across other outerwear brands like Arc'teryx and Moncler?.

The note also underscored growing risks from Canada Goose’s exposure to China, a market that now accounts for over 30% of the company's revenue.

Although the brand initially saw a bounce following recent stimulus measures from Chinese authorities, the country’s volatile economic conditions and rising youth unemployment are likely to dampen consumer spending.

The timing is particularly troubling given that Canada Goose relies heavily on third-quarter earnings, which constitute nearly 80% of its annual EBITDA.

Compounding these challenges, operational inefficiencies are weighing on profitability. Wells Fargo pointed to several areas of concern, including underwhelming results from the company’s direct-to-consumer expansion.

Despite increasing its gross margins by reducing wholesale reliance, the brand has encountered rising SG&A costs, reflecting inefficient store operations and bloated inventories.

The need to offload excess stock through promotional events has further pressured margins, eroding Canada Goose’s premium image.

Questions around leadership have also introduced uncertainty. The appointment of Haider Ackermann as creative director has puzzled investors due to his background in luxury fashion, which contrasts with Canada Goose’s performance-oriented brand identity.

Adding to doubts about Ackermann's long-term involvement with Canada Goose is his concurrent commitment to Tom Ford (NYSE:F).

With these risks in mind, Wells Fargo adjusted its projections below market consensus, forecasting flat revenue growth for FY25.