Canada Goose Holdings Inc. (GOOS:US) is heading to the market. This time it won't be selling high-end outerwear, but shares in the company. Canada Goose intends to list on the New York and Toronto Stock exchanges in an attempt to raise around $240 million (C$ 320 million). The company is offering 20 million shares at a base price of between $10.45 (C$ 14) and $12 (C$16) per share.
The Company
Canada Goose is an exemplary tale of a garage-based start-up, gone multi-national. The company was founded in a small warehouse in Toronto in 1957, by Sam Tick, as Metro Sportswear Ltd., specializing in woolen vests, raincoats and snowmobile suits.
In the 1970's Sam Tick's son-in-law, David Reiss, launched a new era by inventing a down filling machine. The down filled Parka became a hit, and the company soon changed its name to Canada Goose.
The retailer remains committed to its mantra of 'made in Canada' and intends to expand into other markets including knitwear, footwear, hats, and gloves as well as travel gear and bedding in the coming year. According to its prospectus, the company will seek to build its market share in the U.S. and Europe, in particular in the U.K., France, and Scandinavia. China is also seen as a largely untapped market. The company aims to increase its e-commerce market, which already accounts for 11.4 percent of its consolidated revenue.
‘Goose People’ have been used to help market Canada Goose products. The company has in the past used celebrities such as baseballer, Jose Bautista, Toronto Raptor Cory Joseph and extreme adventure athlete Ray Zahab. Canada Goose has also forged partnerships with designers including Marc Jacobs and internationally renowned rapper Drake. It is expected that these celebrities will add to the hype to push up market prices on opening.
Bain Capital will retain controlling interest in the company holding 70 percent of the shares, under the planned share structure. Bloomberg Intelligence analyst Maja Rakic explains that Bain and DTR LLC, controlled by Canada Goose Chief Executive Officer Dani Reiss, will own all the multiple-voting shares in the company in a 70-30 split respectively.
That will give Bain and DTR a collective 98 percent of the voting rights with 81 percent of the equity, or 97 percent if banks leading the IPO exercise an over-allotment.
The Numbers
The company has recorded earnings of $33.62 million (C$45.071 million) for the nine months ending December, 2016, up from $26.62 million (C$35.687 million) a year ago. Revenue for the period climbed to $263.05 million (C$352.68 million) from $185.65 million (C$248.91 million) the previous year.
Share Price Prospects
The projected opening share price is reasonable and according to Rakic, even if shares priced at the bottom range grow by a below-sector 10 percent, Canada Goose would still rank third among its luxury-goods selling peers on valuation.
The company would have a price-to-earnings multiple of 36 times, behind Hermes International (PA:HRMS) 39 times and Brunello Cucinelli's (LON:0Q7S) 37 times.
Rakic says “Perhaps ambitious, the multiple implies the maker of winter outerwear has strong earnings potential, Canada Goose’s IPO appears well-timed given luxury-goods valuations point to a sector recovery.”
Canada Goose's expansion plans, into places like Colorado and Europe, could see the company growing in leaps and bounds, but with expansion comes risks, the cost of expansion especially into far-off territories will be expensive. The company will also need to deal with competition from already established brands.
The company has also been hit by a number of protests by People for the Ethical Treatment of Animals at its Toronto headquarters for its use of coyote fur and down. These protests could spread as the brand expands, tarnishing the brand's name.
The expansion of e-commerce infrastructure, though, could be a boon for the company. Digital storefronts are a relatively inexpensive way to create brand awareness and direct interaction with clients.
What investors should do
Share prices should head on an upwards trajectory when the company releases its IPO buoyed by celebrity involvement in the company and the expectant investor interest.
Earnings ratios are expected to fall in the medium term, especially if expansion plans into Europe and China become a reality, mainly because of the high cost of expansion and competition from brands like Moncler SpA (LON:0QII) which are already established in places like China.
Long term investors should see increased yields as the expansion plans pay off.
The sector seems to be in recovery and this is a good time as any to invest. Canada Goose provides that opportunity, if only for the short term, and those holding out for the long haul.