Canada Goose has a lot of room for growth GOOS

Canada Goosewas one of this year’s most anticipated IPOs. The outerwear company has been around for decades, but has only recently been introduced to the global market.

In a report circulated to clients April 10, RBC equity research analystBrian Tunick says, “despite its 60 year history, we see Canada Goose as in the early stages of its growth trajectory.”Tunickis initiating coverage of Canada Goose with an “Outperform” rating and a 25 Canadian dollar (or US $19) price target.

On the same day, BMO retail analystJohnD.Morris released a similar report, also giving the stock an “Outperform” rating and settingan even more bullish price target of 28 Canadian dollars.

Canada Goosewas dual listed on the NYSE and TSX on March 16, 2017 at 17 Canadian dollars per share. After reaching a post IPO peak of 23.38 Canadian dollars, the coat maker’s stock fell to 20.40 Canadian dollars before recovering to its April 7 closing price of 22.48 Canadian dollars.

RBC is well aware that clothing retail and wholesale is a tough space to be in right now but thinks that if any company can “weather the retail storm,” it’sCanada Goose.

While RBC has five reasons for their positive outlook forCanada Goose, BMO has four. However, both banks’ arguments are highly similarso we have summarized them in five points below:

1) Growth toward 30 50 stores longer term, up from just two today.

Canada Goose currently only has two stores, one in New York City and one in Toronto. The companywants to have 13 18 more locations in the next three years, eventually rising to 50. The average store count for clothing manufacturers in the same category is 77, so RBC thinks that 30 50 is reasonable, especially when you consider heavy consumer demand for the brand.

2) Double digit ecommerce increases with the rollout of additional country specific sites.

Canada Goose currently has four country based websites: Canada, the United Kingdom, France, and the United States. Online sales are growing for the company, making up an estimated 20% of total sales in 2017, up from just 11% in 2016. RBC projects Canada Goose will have roughly 20 regional websites by 2021.

While revenue per physical store may come down, RBC says thatCanada Goose will make up for that in online volume, leading to 24% of total sales being online by 2021. The banks also say online sales are important because theywill giveCanada Goose insight into their customers’ wants and needs. That data can be leveraged to maximize sales.

3) Wholesale growth of 6 8%.

Some investors are worried about the impact of struggling department stores onCanada Goose’s wholesale operations. However, RBC says that while year over year wholesale growth may slow forCanada Goose, the company will be able to maintain healthy 6 8% wholesale gains because of the brand’s luxury positioning and expansion potential.

Canada Goose currently offers fewer types of individual products than other comparable wholesalers, offering another potential growth area:

4) Geographic expansion.

Currently, just 29% ofCanada Goose sales occur outside of the US and Canadaas opposed to an average of49% for similar companies. Luxury brands are in high demand outside the US, so global expansion should be a major tailwind for the outerwear maker.

Naturally, the company’s home country of Canada is itslargest market. However, RBC would like to seeCanada Goose penetrate further into the US, taking advantage of the much larger market and the strong US dollar’s positive effect on the company’s margins.

5) Category extensions.

Right now most ofCanada Goose’s sales occur in the second and third quarter in anticipation of cold weather, and the company is exploring the possibility of product expansion. Consumer surveys suggest that lightweight jackets and gloves would be a good starting point.

BMO thinks that Canadian Goose has the potential to take over theluxurywinter outerwear market. BMO explains:

“If you want good pasta you ask an Italian, if you want to stay dry in the rain you ask an Englishman, and if you want to stay warm in the cold, you ask a Canadian.”

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