Bloomberg

(Bloomberg) -- New York couldn’t have provided a better backdrop for Canada Goose Holdings Inc.’s initial public offering this week: A snowstorm and the below-freezing conditions for which the retailer’s luxe parkas are made.

Timing seems to be on the side of Canada Goose, founded 60 years ago in a Toronto warehouse and backed by Bain Capital. The maker of coyote fur-lined parkas has become a recognized brand in fashion and celebrity circles, peer Moncler SpA is trading at record highs, and investors haven’t had a chance to buy into a luxury-goods company in almost three years.

That may be enough to justify a valuation richer than most of its peers. Canada Goose is seeking to raise as much as C$320 million ($237 million) in its IPO, scheduled to price Wednesday after markets close. At the upper end of the proposed range, the retailer is seeking a market value of as much as C$1.71 billion.

Even if shares price at the bottom of the range while 12-month trailing earnings per share grow at a below-sector rate, Canada Goose would still rank third among its luxury-goods selling peers on valuation, Bloomberg Intelligence analyst Maja Rakic wrote in a note this month. The company would have a price-to-earnings multiple of 36 times, behind Hermes International’s 39 times and Brunello Cucinelli SpA’s 37 times.

“It’s likely a bubble, but they’ve played out the bubble really nicely,” said Allen Adamson, the New-York based founder of consulting company BrandSimple and former North American chairman of branding firm Landor Associates.

Representatives for Bain and Canada Goose didn’t respond to requests for comment.

For more on luxury goods from Bloomberg Intelligence, click here.

Canada Goose’s revenue, which hit C$290.8 million for the fiscal year ended March 31, 2016, had a compound annual growth rate of 38 percent for the past three years. Its net income, which hit C$26.5 million last fiscal year, grew at a rate of 196 percent over the same period, according to the IPO prospectus.

The company has embarked on an expansion that’s still relatively young. It sold Bain a 70 percent stake in 2013 to help accelerate growth, adding four e-commerce stores and two brick-and-mortar locations. Bain will keep control of the company after the offering.

Canada Goose is pitching itself as a young retailer whose brand resonates with current trends and has room to grow in the near term. Investors buying in to the stock now will be banking on a successful push beyond North America.

Less than a third of Canada Goose’s revenue in the latest fiscal year came from outside the U.S. and Canada. Still, that amount doubled from two years earlier.

Brand Has ‘Legs’

“There’s plenty of room internationally because the Canadian brand has legs, and I’m sure they’ll be selling as many Canada Goose coats in Berlin as Manhattan,” Adamson said.

Canada Goose is eyeing Germany, Italy and Scandinavia for expansion in Europe, according to the IPO filing. It has only a “minimal presence” in China.

Which raises another challenge: expanding the company’s products beyond items needed only during frigid weather. Customers don’t really need to buy multiples of its flagship parka.

“It will go in the closet in April, and we’ll see if it comes out again in November,” Adamson said.

The company is developing new products for the time in between, from fleeces to footwear to raincoats and bedding. While that could help increase revenue, “it could potentially detract from the appeal stemming from the scarcity of our brand,” the company said in the filing.

Arctic Map

That also risks diluting the authenticity the company has worked hard to cultivate, Adamson said. The trademark logo, with a map of the Arctic, has resonated with current fashion trendsetters who value a unique product backed by a real story.

Canada Goose was founded in a small warehouse in Toronto in 1957 as Metro Sportswear Ltd., specializing in woolen vests, raincoats and snowmobile suits. In recent years it has shifted its focus to luxury consumers, targeting customers like rapper Drake or actress Emma Stone, rather than adventurers riding dogsleds.

“You have to be exclusive, and hard to get, and limited distribution,” said Bruce Winder, partner and co-founder of Toronto-based consultancy Retail Advisors Group. “What they’re trying to do is have their cake and eat it, too. They’re trying to keep that premium exclusivity but they’re trying to expand it quickly. When you do that, there’s a danger that the brand ends up diluted.”

Michael Kors Holdings Ltd. is an example of a brand whose expansion plans went awry, according to Winder. The company has been trying to diversify in menswear and accessories like smartwatches and perfume, while sales of its trademark handbags dwindled. In the process, the proliferation of its trademark MK emblem has meant diminished prestige because of increased availability, he said.

The company went public in December 2011, and the shares have plunged 62 percent from their February 2014 high, according to data compiled by Bloomberg.

Burberry Group Plc, the U.K. maker of expensive trench coats, and yoga-apparel maker Lululemon Athletica Inc. show what can go right. Both have been able to expand their product lines and sell outside of their home countries, according to Maureen Atkinson, a Toronto-based senior partner at J.C. Williams Group. In the long term, Canada Goose’s investors will have to believe its brand is exceptional enough to withstand expansion.

Lululemon’s shares have climbed sevenfold since the company’s 2007 IPO, while Burberry, which went public in 2002, has increased more than sevenfold.

For now, investors seem to have an appetite for fancy winter wear. Moncler, Canada Goose’s most comparable public peer, is up 92 percent from its 2013 IPO and closed at a record on Monday. Jimmy Choo Plc, based in London, was the most recent luxury retail IPO, according to data compiled by Bloomberg. The shares have climbed 18 percent since their October 2014 debut.

“It’s not impossible, but there are probably more failures than successes,” Atkinson said.

To contact the reporters on this story: Alex Barinka in New York at abarinka2@bloomberg.net, Scott Deveau in Toronto at sdeveau2@bloomberg.net, Lindsey Rupp in New York at lrupp2@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Nick Turner at nturner7@bloomberg.net, Elizabeth Wollman, Devin Banerjee

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