Canada Goose Reverts to Near IPO Price, More Losses Ahead?
After making an excellent debut last week, the enthusiasm in Canada Goose Holdings Inc.’s GOOS shares seems to be dying down. Shares of this luxury parka maker shot up as much as 40% in the opening minutes of its first trading day and went on to close the day at $16.08 on Mar 16. Since then, the stock has been range bound trading between $15.85 and $17.23. This indicates the stock is moving toward its initial public offering (IPO) price of $12.78 per share (C$17 per share).
On Mar 23, 2017, the company’s stock slipped to its post-IPO low of $15.75 per share, but closed the day slightly higher at $15.96. What could possibly be the reason for the continued decline? Let’s find out.
While Canada Goose looks a chic investment, the possible reason for soft stock performance could be apprehension among investors. While the company is extremely popular for parkas, it is yet to prove its potential to investors. The company’s growth path will likely determine whether it is here to stay or go.
We believe Canada Goose is placed in a niche market, being a class apart and having little direct competition. Though the competition for V.F. Corp’s VFC North Face cannot be ignored, we believe the company has an edge from quality perspective. However, what may concern investors is brand dilution, as the company needs to catch up in popularity beyond its signature parkas. While the company’s idea of enhancing and expanding product portfolio is a heads up move, investors’ worries regarding the success of this idea still remains.
Another major hurdle in the company’s growth, as was stated in the prospectus, is protests. The company, which uses animal products like goose and duck feathers in its down-filled parkas and coyote fur on the hoods of some of the parkas, is always under the scanner attracting protests from animal welfare activists. Even as the company was listed on the NYSE and the TSX, protestors from People for the Ethical Treatment of Animals (PETA) gathered outside these stock exchanges to exhibit their discontent. The company revealed in the prospectus that such protests have been prevalent in the past and may continue in the future. This could be a potential hindrance in the company’s growth.
Growth Plans
The company currently deals in outerwear for three seasons – winter, spring and fall. To expand, its focus remains on three categories, enriching winter products, expanding spring and fall merchandise and extending beyond outerwear. The company’s plan for winter products is simple enough, continual updates in designs and fits along with keeping their heritage alive. Further, the expansion of spring and fall merchandise remains a key part of its evolution as a company. With this, the company targets geographic brand penetration as a parka or winter jacket will practically have no demand in warmer regions. However, there may be demand for some kind of jackets like lightweight and ultra-lightweight down, rainwear, windwear, and softshell jackets, which the company plans to sell.
Now coming to the third category of growth, the company plans to expand beyond outerwear products as research suggests there is a demand for functional products in categories other than outerwear. To this end, the company is looking to expand into products like knitwear, footwear, fleece, travel gear and bedding, which are consistent with its tradition.
While these plans look good, another reason of worry for the Canadian debutant is the chances of success in its expansion endeavors. One may cite the example of global luxury lifestyle retailer Michael Kors Holdings Inc. KORS here, and dread a failure. But we should not forget the competition for Michael Kors is fierce when compared with that for Canada Goose. Michael Kors competes with the likes of Coach Inc. COH, Kate Spade & Company KATE, Fossil Group Inc. FOSL, Louis Vuitton, Calvin Klein, and many more. However, as mentioned earlier Canada Goose has little fear when it comes to competition.
Bottom Line
Canada Goose may seem to face some take-off challenges due to the concerns in investor minds. But, will these challenges really impact performance or the company will come out with flying colors, is a wait and watch story.
Want to learn more about the Canada Goose IPO? Check out our recent podcast on the topic for more information!
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