The Canada Goose IPO is now in the books and it appears to have been a successful one. 20 million shares were sold at the IPO price of $17 with the first trades just under the $24 level. Proceeds will be used to pay off existing debt obligations with remaining funds to be allocated to working capital. While subscribers to the IPO had the most to benefit, is there any further benefit for retail investors? In a prior post titled ‘Canada Goose IPO: A Trend Analysis’ we focused on internet search trends associated with Canada Goose to give us an idea of what the financial fortunes of the company currently look like and what we’d expect to see in the future. We noted the following trends:
Canada: Based on search interest for the terms ‘Canada Goose’, ‘Canada Goose Sale’ and ‘Canada Goose Store’ we noted that a peak had formed in 2013 with each subsequent seasonal spike in searches being lower than the year prior. While this raised concerns, we refer to corporate guidance that Canada would no longer be the main driver of corporate revenues.
United States: Corporate guidance held the U.S. as being the main driver of revenues. This corresponds to U.S. search interest for the terms ‘Canada Goose’, ‘Canada Goose Sale’ and ‘Canada Goose Store’ which saw a positive seasonal search trend.
We concluded that despite the negatively trending search trend in Canada, the market dynamics in the region will have less of an impact on the company’s financial fortunes as more emphasis is placed on the US markets and that the company may be in for much more growth to come.
Quarterly Revenue Activity
We note that on a worldwide basis there were more users searching for Canada Goose than the year prior and since 2004 the trend has clearly been positive. We expected that this positive search trend would positively correlate with revenues. We’ve tested this assumption by looking at the year over year quarterly revenue growth.
We note that growth has been in positive territory especially during Q3 and Q4 which management chalks up to retailers ramping up stock in time for the high sales season. We note that Q1-2017 saw a 37% decrease from the same period last year. While this is technically their slow quarter, a decrease could be seen as less than robust demand during the quarter. However, until a trend identifies itself, we’ll take this as a one off.
Breaking down revenue activity by region gives us a better picture of where growth is coming from:We note 2016 revenue growth rates in Canada and U.S. hit 26% and 81% respectively, this wasn’t the case for sales in the rest of the world where sales grew at a nominal 8%. While some may look at this as a sign of maturation in global markets, we’ll chalk this up as a one-off since just 12 months prior to this, growth was significantly more robust. We took to management comments regarding international market dynamics to see what we can expect from sales growth. Management cites:
“We currently generate sales in every major Western European market and, while this is where the brand first achieved commercial success, we believe there are significant opportunities to accelerate these markets to their full potential…Outside of Europe, our most established markets are Japan and Korea. Over the past decade, we have grown successfully in Japan, and in both Japan and Korea, we recently partnered with world-class distributors.”
Management comments would appear to spell out that they’ve reached a level of maturity in Japan and Korea hence why they’ve considered different distribution. With respect to European markets, the company does not get into specifics of how they can accelerate these markets to their full potential, however remarks such as these would suggest a certain level of market saturation. We thought it would be worth while to look at search trends for Canada Goose for regions mentioned above to see what the company is up against:
For simplicity, we took the four largest European countries by GDP and settled with France, Germany, Italy and the soon to be outside of the E.U., the U.K. We note that searches in all of these countries showed a positive trend. Italy search trend peaked in 2006 and slowly decreased, however since 2015, the trend has started to pick up again. Suffice to say, our expectation is that management’s attempts to accelerate revenue growth in the European markets should prove fruitful.
We note a different story in South Korea and Japan as each of these markets have observed a dwindling search trend since 2013 suggesting that consumer’s tastes are changing in these regions. Management’s attempt to reinvigorate revenues by partnering with different distributors in these respective regions may not prove to be fruitful.
We get additional confidence knowing that growing revenue is being translated into profits. In fact, the company took in $14.3m and $26.5m in 2015 and 2016 respectively, translating into an income growth rate of 85% which is quite significant. Canada Goose has also commented on introducing a new line of clothing outside of outerwear as a way to smooth out revenue and even out the seasonal peaks and troughs in revenues. Coupled with the company’s action plan for Europe in conjunction with the growing search trend, we suspect that the company has much more room to grow before reaching maturity and market saturation. Suffice to say, investors considering a retail play with growth prospects may want to keep their eye on Canada Goose.