Canada Goose Holdings Inc. (NYSE:GOOS) has released more details about its upcoming IPO and revealed that it aims to raise up to $240 million ($320 million CAD). The trendy winter apparel company will be on the NYSE under the ticker GOOS and will sell 20 million shares at a price from $10.50 to $12.
Canada Goose has been around for 60 years, but it has emerged on the fashion scene in recent years with its trendy $900 parkas perfect for an urban audience. Thanks to a smart marketing campaign and celebrity endorsements, such as James Park, Canada Goose has grown rapidly and stayed profitable. At the same time, its limited presence in the United States, Europe, and China, means that it can point to those markets and claim that its growth rate will continue to remain high.
All of these factors, combined with Canada Goose's visibility and its plans to list on both the Toronto and New York stock exchanges, mean that this company will definitely storm out of the gate. But there are serious questions about its long-term viability. Can Canada Goose stay at the edge of the fashion industry? And does it really have the chops to compete in foreign markets?
Good Numbers, but underlying problems
Canada Goose wants to trump up its numbers to prove its long-term viability, and they appear to do that at first. As it notes in its SEC filing, it grew its revenue by a 38.3 percent CAGR, its net income at a 196 percent CAGR, and Adjusted EBITDA at an 85 percent CAGR from fiscal 2014 to fiscal 2016.
In addition to its current growth, Canada Goose claims that it has plenty of potential for further growth as it is Canada Goose is virtually unknown in the United States outside of the Northeast. It is also making inroads to have online or physical stores in Britain, France, and Scandinavia.
But while Canada Goose has grown, the underlying factors behind that growth are concerning. Canada Goose's popularity comes because it has become the parka of choice in the celebrity world, with individuals such as Daniel Craig, Jimmy Fallon and Kate Upton spotted or photographed wearing them. In addition, Canada Goose has launched a heavy endorsement campaign with "Goose People" to show how stylish their parkas are.
While that may be working for now, today's fashions will inevitably become tomorrow's travesties. Canada Goose is already dealing with the inevitable backlash that hits any fashion trend which becomes popular, as its wearers are slowly being stereotyped as rich people with more dollars than sense. If Canada Goose becomes unfashionable, and it will sooner or later, it is difficult to see how it will compete in the United States against more established winter clothing chains like Patagonia.
Canada Goose and Capital Bain
Investors also need to factor the fact that Bain Capital owns 70 percent of Canada Goose. Like many other companies these days, Canada Goose is selling stock with limited voting rights compared to the stock which Bain will retain. Bain has enough of a track record that investors should be able trust its management, but investors should still know that their voting rights will be limited.
The problem is that Canada Goose has $278 million in debt thanks to Bain, which limits its growth prospects as the company indicates that it intends to use the raised IPO funds to pay down the debt. While that is necessary, it is not a good start for a company which needs every advantage if it actually wants to expand. The Motley Fool also points that Bain will almost certainly make a profit out of this IPO regardless of Canada Goose's long-term prospects, which should raise concerns about whether Bain really trusts this company to expand as it claims it will.
Get in now or Not at all
Canada Goose should do very well in the initial IPO thanks to New York hype and its overall good financial numbers. If you can get it while it is still in that $10.50 to $12 price range, go for it.
But in the long term, someone is going to be left holding the bag on this stock. When, not if, Canada Goose no longer becomes fashionable, they will be selling a $900 parka which while very effective, is not something which most customers are willing to spend that much money for. It is going against established competition in new markets and does not have enough of a track record to inspire success.
So if you got in on the ground floor, do not get greedy. Get out when you have made enough, and let someone else watch when its value inevitably falls.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.