Canada Goose Holdings (NYSE:GOOS) continues its amazing run as a publicly traded company. As of this writing, shares of the luxury coat manufacturer have exploded nearly 375% from their IPO price. These would be great returns for any company that debuted in the last decade, but Canada Goose just went public in March 2017.
Naturally, it raises a question: As the company continues to be richly valued based on traditional metrics, are new investors too late to the party? Perhaps the stock may experience a short-term sell-off, but patient long-term investors should understand that the company has a long runway for growth.
The fourth quarter was better than expected
Recently, shares of the company took another step up in response to fourth-quarter earnings that exceeded expectations. Versus analyst expectations of 74.6 million Canadian dollars ($56.3 million) in revenue and CA$0.07 EPS loss, the company reported CA$125 million in sales and a profit of CA$0.07 per share in the quarter.
Looking deeper into the numbers, both the quarter and year are better than advertised. Versus the prior year, gross margin increased a whopping 630 basis points, growing from 52.5% to 58.8%. This shows the success of the company's ultimate strategy, as its reason for going public was to acquire the capital to convert from a lower-margin wholesale model to a higher-margin direct-to-consumer (DTC) model.
The revenue numbers bear this out: On a full-year basis, wholesale revenue increased by only 17%, while DTC revenue increased by 121%. The result is a shift from 29% of total revenue being DTC in 2017, to 43% now. Management expects the wholesale/DTC split to be 50/50 in fiscal 2019.
While the company did not give the figure for the fourth quarter, it stands to reason an even-higher percentage was DTC, as the company reported gross margin of 62.7%. Look for the mix shift to continue and for margins to continue to expand, even if revenue growth slows.
You're not too late
Still, the problems that define Canada Goose the product are affecting Canada Goose the stock: Although brand awareness is increasing, it is still rather low compared to other premium apparel brands. However, this is an opportunity for the company and for patient long-term investors.
On a corporate level, the company is looking to increase awareness by building out retail stores. In fiscal 2019, the company expects to have six retail stores in operation in off-peak periods, a threefold increase from the two this year. This is important because, according to CEO Dani Reiss, in the past two years, "we have seen an amazing impact our retail stores have on local market activation."
There certainly are risks. Shares of the company are now richly valued, and Canada Goose still isn't a full brand, but rather a singular product line. Additionally, there's only so much penetration a premium line of coats -- many styles priced more than $1,000 -- can attain. However, the company is nowhere near saturation and continues to have a long runway for growth through increased brand awareness.