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Canada Goose shows retail IPOs don’t have to be awful

A red Canada Goose Jacket is pictured in this file photo.

Tibor Kolley/The Globe and Mail

The most talked-about retail IPOs of 2017 haven't exactly been smashing successes.

Shares of Blue Apron Holdings Inc., the meal-kit company, have cratered since debuting on the public market last June. Stitch Fix Inc., the online personal-styling service, priced its shares lower than it hoped, though they have jumped significantly since launch.

But those two buzzy companies alone shouldn't define what's possible for a retailer on the public market these days. Consider the thoroughly impressive run of a brand from further north: Canada Goose Holdings Inc. is up more than 150 per cent since it debuted on public exchanges last March.

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It's easy to see why investors have warmed to this maker of $900 parkas and $500 down jackets. It has put its capital to work opening websites in more countries and adding a small number of brick-and-mortar stores -- and that is helping fuel explosive sales growth. In the latest quarter, the company reported a 34.7-per-cent increase in revenue from a year earlier. It also bumped its sales guidance up significantly for the full year, saying it now expects annual growth of at least 25 percent.

Those sound like the numbers of some wunderkind startup; but in fact, Canada Goose has been around for more than 60 years. And crucially, the company's strategy for keeping up its momentum very much reflects how retail has evolved in recent years.

For one, it is transforming its model to rely less on its wholesale business and more on its own stores and websites. When you look at the difference in its gross margin for wholesale versus direct-to-consumer sales, you can see how much this should help profitability:

The shift also means its fortunes will be less entangled with the likes of Nordstrom Inc., Neiman Marcus Group Inc., and Bloomingdale's. Given the widespread challenges facing the department-store industry, it is certainly a good thing for Canada Goose to need those outlets less.

Meanwhile, Canada Goose seems to have learned some lessons from the not-so-distant retail IPO past. I'm thinking, in particular, of Michael Kors Holdings Ltd., which went on an expansion tear after going public in 2011. We all know how that turned out: Kors lost its patina of luxury, sales cooled, and the company has been fighting for years to get its groove back.

Canada Goose, in contrast, is protecting its upscale brand as it grows. This is evident in its strategy for brick-and-mortar stores: Executives plan to open a maximum of 20 locations worldwide by 2020. That should help preserve shoppers' perception of the brand.

It's noteworthy that a relatively small share of people in a recent survey said they bought Canada Goose jackets for the brand name. That suggests the company is doing a good job of keeping style and technical performance at the core of its identity and isn't just letting itself become a status badge of the month in the Instagram influencer bubble. (Though that certainly could still happen.)

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There's always a risk of Canada Goose going south. It's in a highly seasonal business, notes Oliver Chen of Cowen and Co., with an estimated 80 per cent of its sales coming in the second and third quarters. The company is branching into new categories such as sweaters; but people may not pay Canada Goose-level prices for less-technical products.

And there have been other clumsy retail launches that didn't get as much attention as Blue Apron and Stitch Fix. Roots Corp., a Canadian apparel company, had a rocky public debut in October, though its share price has improved recently. Women's clothier J. Jill Inc., which had its IPO last March, plunged 51 per cent in a single day in October after it slashed its guidance due to worse-than-expected sales trends. The stock has recovered somewhat since then, but still is far below what it fetched in its trading debut.

At the same time, At Home Group Inc., a home furnishings chain, has enjoyed healthy sales growth and a soaring stock price since its 2016 IPO. All of this is to say that, as we evaluate any retail IPOs that might land in 2018 -- Farfetch, perhaps? -- we should be careful not to assume they are destined to the same fate as Blue Apron. Canada Goose is evidence investors will muster enthusiasm for retail IPOs when the strategic plan and the income statement justify it.

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Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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