Canada Goose stock debut something to squawk about

Scott Deveau
Bloomberg News

Canada Goose Holdings Inc.’s shares surged in their debut Thursday after the high-end coat maker went public with the richest valuation among its global peers.

Shares climbed almost 27 percent to close at C$21.53 in Toronto, where the company is based, after the retailer priced its initial public offering at C$17 apiece. That gives Canada Goose, which is also listed on the New York Stock Exchange, a market value of about C$2.3 billion ($1.72 billion).

Known for its $900 parkas worn by celebrities from Toronto rapper Drake to Blue Jays slugger Jose Bautista, Canada Goose is trading at a richer multiple than it publicly listed luxury peers, Bloomberg Intelligence analyst Deborah Aitken wrote in a note Thursday.

If annual sales and earnings grow at a conservative estimate of 30 percent, the company would have a price-to-earnings multiple of about 39 times, beating out Hermes International’s 37.2 and Brunello Cucinelli SpA’s 33.5, Aitken wrote.

People for the Ethical Treatment of Animals members protested the company Thursday in both Toronto and New York.

PETA is buying stock in Canada Goose so it can have a voice at board meetings. It also plans to submit shareholder resolutions asking for the company to stop using coyote fur trim and down in its jackets.

Investors are betting that the retailer can grow international sales of its flagship coats, and that it can expand into new products, said Bruce Winder, partner and co-founder of Toronto-based consultancy Retail Advisors Group.

“Investors have to be careful because there’s always that first day of trading halo,” Winder said. “The jackets across the world will work. It’s more about the other things and how much they are banking on that.”

The company plans to expand into markets including knitwear, footwear, hats and gloves as well as travel gear and bedding in the coming years, according to the deal prospectus. Chief Executive Officer Dani Reiss says it will do so thoughtfully, to avoid the brand dilution seen at other retailers that expanded too quickly.

“Every product we make needs to be a best-in-class product,” he said. “We don’t just put logos on products,” Reiss said in a telephone interview.

It’s not uncommon for high-profile IPOs to experience big gains on their first few days of trading. That first flush of success doesn’t always last long.

Snap Inc., maker of the disappearing-photo app Snapchat, priced the biggest IPO in North America of 2017 on March 1, with a $3.4 billion offering. While shares are 17 percent above the IPO price, they dipped below $20 for the first time Friday, below the intraday high of $29.44 they hit on their second day of trading.

For Reiss, 43, increasing the number of people who are familiar with the brand will be one of the first steps toward more growth. He attributes much of the company’s past success on word-of-mouth and the company’s relationship with the film industry. The trademark upside-down-North Pole map logo can be spotted in the latest James Bond film, “Spectre.”

So far, that seems to have worked well: When Bain Capital acquired a 70 percent stake in Canada Goose in 2013, the company was valued at about $250 million, people familiar with the matter have said.

“We are investing in digital marketing to accelerate that brand awareness,” he said in a phone interview Thursday. That plays directly into the relatively new e-commerce strategy the company is employing and touted on its IPO road show. “The direct-to-consumer business is very important because we want to have more relationships with consumers,” he said.

For the fiscal year ended March 31, 2106, the company posted revenue of C$290.8 million. It had a compound annual growth rate of 38 percent for the past three years. Net income, which hit C$26.5 million last fiscal year, grew at a rate of 196 percent over the same period, according to the IPO prospectus.

Much of Canada Goose’s brand appeal can be attributed to the perceived authenticity of its brand. The company was founded in a small warehouse in Toronto in 1957 as Metro Sportswear Ltd., specializing in woolen vests, raincoats and snowmobile suits. In recent years it has shifted its focus to luxury consumers, targeting shoppers who drive Land Rovers rather than dogsleds.

There’s also an “emotional” aspect to investing in Canada Goose — a Canadian company with great visibility and an endearing brand, said David Soberman, a professor of marketing at the University of Toronto’s Rotman School of Management.

As past retailers have seen, chasing growth is easier said than done. Michael Kors Holdings Ltd. is an example of a brand whose expansion plans went awry, according to Winder of Retail Advisors Group. The company has been trying to diversify in menswear and accessories like smartwatches and perfume, while sales of its trademark handbags dwindled.

In the process, the proliferation of its trademark MK emblem has meant diminished prestige because of increased availability, Winder said.

Canada Goose’s IPO hit the market just days after Winter Storm Stella ploughed across the East Coast of the U.S. and Canada, bringing several inches of snow and below-freezing temperatures with it.

Some, like Soberman, will be closely watching the shares when the weather warms up.

“You have a company that is doing very well and is very visible at this time of year,” he said in a telephone interview. “If it were really sunny out, I’m not sure it would be doing as well.”

Canada Goose raised C$340 million ($255.3 million) in its IPO, pricing the shares above the marketed range of C$14 to C$16 a share, according to a statement Wednesday.

Reiss received C$65 million from the IPO, selling 3.85 million shares at C$17 each. He maintains a 24 percent stake in the company. Bain will continue to hold a 57 percent controlling interest in the company after the IPO, filings show.

Canadian Imperial Bank of Commerce, Credit Suisse Group AG, Goldman Sachs Group Inc. and RBC Capital Markets managed the offering.