"We view Canada Goose as a unique brand that has created a niche for itself in the highly competitive outerwear market by marrying both function and fashion," wrote Canaccord Genuity analysts Camilo Lyon and Pallav Saini in a note Monday. "Throughout its 60-year history, Canada Goose has been grounded in a function-first directive that has led to the brand attaining a distinctly authentic appeal with its core consumer. Under leadership from its third-generation CEO, Dani Reiss, Canada Goose has successfully navigated the evolving retail landscape to create and maintain an appetite for the brand by its consumers that has yet to reach satiation."
The analysts stressed Canada Goose's grasp of managing inventory tightly is key as it grows from a product company that creates trendy, yet practical, parkas with fur-trimmed hoods that go for $900 a pop to a lifestyle retailer. "This transition, backed by both elevated sales growth and gross margin expansion, is what we believe will sustain its [the stock's] premium multiple and be the driver of share price appreciation," wrote the Canaccord analysts.
Canaccord identified three growth areas that will propel Canada Goose into a worldwide lifestyle brand.
Geography is a major factor.
"We believe as brand awareness of Canada Goose in markets outside of Canada (mid-teens percentage) reaches similar levels as within Canada (mid-70's percentage), sales will naturally follow. Moreover, markets such as Russia and China present robust greenfield opportunities not in our estimates," they wrote.
Category and diversification weigh in big.
In the parka sector, Canada Goose is in the single digits percentage market share, meaning there's room for expansion. But by moving beyond selling cold weather gear, "the company is proactively diversifying its business across seasons (spring '17 launch of wind/rain line) as well as categories (knitwear launch fall '17)."
The sales channels complement each other.
"We believe Canada Goose' direct-to-consumer strategy, led by e-commerce and complemented by flagship store openings, will drive margin-accretive sales at an accelerated pace. Direct-to-consumer, the hidden gem, could drive ultimate earnings power of $1.50-$2.00 a share by fiscal year 2020," the Canaccord analysts wrote. They added that based on how well the company's e-commerce sites have performed in Canada, the U.S., the U.K. and France, and the expected addition of 14 more country-specific sites over the next three years, the analysts believe that the 2020 estimate of C$0.69 a share could rise as much as 60%.
Barclays analysts Jim Durran and James Allison wrote on Monday that the company has averted today's "retailer malaise" by limiting store expansion, while expanding its e-commerce and leapfrogging ahead of like vendors. "Canada Goose is tackling global growth with an e-commerce-first strategy, growing this business to 20% of total sales in the past 24 months (versus the vendor average of 8%.)"