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A Roots store at Limeridge Mall in Hamilton, Ont.Fred Lum/The Globe and Mail

Shares in Canadian clothing firm Roots Corp. dropped sharply in their stock market debut on Wednesday – a rare flame-out in what has been a banner year for initial public offerings in Canada.

At one point, Roots shares had lost as much as one-fifth of their value. They recovered somewhat to close at $10, down 16.7 per cent from the IPO price of $12, in one of the worst debut performances from a high-profile Canadian company in years.

Observers blamed the sell-off on a number of factors, including a difficult environment for retail stocks, tepid growth targets from the company, mistakes by the underwriters in pricing the stock and short-term investors bailing at the first hint of trouble.

"A failed IPO – just like nobody wants it," said Peter Hodson, founder and head of research at 5i Research. He took a look at the company's prospectus a few weeks back but decided against recommending it to clients, even after the company reportedly cut its target pricing range last week.

Roots sold $200-million in shares through a secondary offering that saw New York-based private equity firm Searchlight Capital Partners cut its stake to 47.7 per cent from roughly 80 per cent. Roots's founders, Michael Budman and Don Green, reduced their holdings to 12 per cent from around 20 per cent.

Mr. Hodson said the selling pressure on Roots was likely partly a result of short-term investors racing for the exits when they realized they weren't going to make a quick gain on the IPO.

"If an IPO is received well, you can get an opportunity to sell the stock quickly and you can make 5 or 6 per cent," he said. "When that trade doesn't work, these are not strong holders … so they're just getting out."

Meanwhile, traditional fund managers who bought shares, expecting to hold them for an extended period, also likely cashed out, as they wouldn't want to carry a money-losing investment into year end, Mr. Hodson said.

The disappointing debut from Roots stood in sharp contrast to fellow Canadian clothing firm Canada Goose Holdings Inc., which went public earlier in the year amid brisk demand that saw its stock pop 40 per cent on day one.

In an e-mailed statement to The Globe and Mail, Jim Gabel, chief executive officer of Roots, called the IPO "a significant milestone," in the company's history.

"This is just one more step forward along a much larger journey," he wrote. "We see a tremendous growth opportunity ahead for Roots." Through a spokesperson, Mr. Gabel declined further comment.

Unlike Canada Goose, there were signs early on that Roots was receiving a cool reception from institutional investors. According to Reuters, the company originally sought to price the stock between $14 to $16. Underwriters eventually settled on $12. Some would-be investors felt that the valuation of the company was still on the high side at that price.

The fact that Roots itself was not raising any fresh funds in the offering, to be put toward growth initiatives, was another red flag.

"The Street always views secondary offerings with more suspicion than it does with primary offerings" said David Baskin, president of Baskin Wealth Management, who did not invest in the stock.

A syndicate of nine investment banks made $11-million on a commission of 5.5 per cent for bringing Roots public. The IPO was led by TD Securities Inc., Credit Suisse Securities (Canada) Inc., and BMO Nesbitt Burns Inc. TD declined comment for the story.

After a moribund 2016, the Canadian IPO market has rocketed back to life in 2017, with $4.2-billion raised so far, according to data from Thomson Reuters. While the amount raised this year is on track to be the highest since 2010, many companies have not performed well in the aftermarket.

What is unknown is whether the Canadian IPO market, notorious for being hot one minute and cool the next, will be affected by the disappointing performance from Roots. Interested parties won't have too long to wait to find out. On Friday, Luxembourg-based zinc mining company Nexa Resources SA is set to go public in a dual listing in Toronto and New York, and is expected to raise as much as $750-million (U.S.), which would make it the biggest mining IPO in Canada in about a decade.

Canadian clothing retailer Roots announced on Wednesday its plans to launch an initial public offering. Here’s a look at some of the numbers behind the company known for its leather bags and past Team Canada Olympic uniforms.

The Canadian Press