Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/cole-haan-inc" target="_blank" data-smartkarma-citation="entities:28872:1" rel="noopener">Cole Haan Inc (CLHN US)</a> was formerly a part of <a href="https://www.smartkarma.com/entities/nike-inc-cl-b" target="_blank" data-smartkarma-citation="entities:6658:1" rel="noopener">Nike Inc Cl B (NKE US)</a> and was then acquired by a private equity firm- Apax Partners in 2013 with the aim of disrupting the conventional dress footwear industry. Cole Haan is the first footwear company to go public after Crocs Inc. and Heelys Inc. in 2006. Cole Haan has not yet released its IPO pricing details, but according to the company, funds are expected to be given to the owners. In this note, we have analysed Cole Haan’s background and its business model. Based on our initial analysis, the fundamentals of the company are quite mixed, and we are quite sceptical on the reasons for the IPO. Our main points are:</p><ul>
<li><div class="content-highlight">Cole Haan is operating in a highly competitive market holding only an insignificant market share in the US footwear industry (NA footwear revenue is only c.0.7% of the total US footwear revenue). Although the brand was acquired to disrupt the traditional footwear market, the company does not seem to have really demonstrated a competitive edge in doing so. Cole Haan does not seem to have exceptional brand power when compared to leading brands like Nike, Adidas, Clarks, Crocs, and Timberland in the footwear market.</div></li>
<li><div class="content-highlight">In an attempt to improve sales growth and presence globally, the company is starting to rely on distributors instead of its direct-to-consumer channels (DTCs). It seems that, although Cole Haan intended to bring its innovative product to consumers directly, the process has not been very effective. DTCs contribute to a larger share of revenue (60% of total revenue) but its share of total revenue has been declining over the past two years. This has also affected the company’s GPM to an extent and could possibly affect future growth of its products if its partners do not give the brand the necessary promotional attention.</div></li>
<li><div class="content-highlight">The outlook for the footwear segment looks reasonable with the on-going trend of online sales. However, revenue growth is in the single digits. Cole Haan expects growth in e-commerce to aid sales via its online platform (website and mobile). However, online sales platforms seem to work better for apparel products than footwear. Thus, even though e-commerce growth prospects are evident, we do not think they are quite as attractive for footwear players like Cole Haan.</div></li>
<li><div class="content-highlight">Moreover, the increasing gearing level coupled with IPO proceeds being used to pay off existing shareholders, raises concerns about whether the IPO is being used to raise corporate value or provide existing investors with an exit from a business that is reaching its ceiling.</div></li>
</ul>

Cole Haan Inc (CLHN US) was formerly a part of Nike Inc Cl B (NKE US) and was then acquired by a private equity firm- Apax Partners in 2013 with the aim of disrupting the conventional dress footwear industry. Cole Haan is the first footwear company to go public after Crocs Inc. and Heelys Inc. in 2006. Cole Haan has not yet released its IPO pricing details, but according to the company, funds are expected to be given to the owners. In this note, we have analysed Cole Haan’s background and its business model. Based on our initial analysis, the fundamentals of the company are quite mixed, and we are quite sceptical on the reasons for the IPO. Our main points are:
Cole Haan is operating in a highly competitive market holding only an insignificant market share in the US footwear industry (NA footwear revenue is only c.0.7% of the total US footwear revenue). Although the brand was acquired to disrupt the traditional footwear market, the company does not seem to have really demonstrated a competitive edge in doing so. Cole Haan does not seem to have exceptional brand power when compared to leading brands like Nike, Adidas, Clarks, Crocs, and Timberland in the footwear market.
In an attempt to improve sales growth and presence globally, the company is starting to rely on distributors instead of its direct-to-consumer channels (DTCs). It seems that, although Cole Haan intended to bring its innovative product to consumers directly, the process has not been very effective. DTCs contribute to a larger share of revenue (60% of total revenue) but its share of total revenue has been declining over the past two years. This has also affected the company’s GPM to an extent and could possibly affect future growth of its products if its partners do not give the brand the necessary promotional attention.
The outlook for the footwear segment looks reasonable with the on-going trend of online sales. However, revenue growth is in the single digits. Cole Haan expects growth in e-commerce to aid sales via its online platform (website and mobile). However, online sales platforms seem to work better for apparel products than footwear. Thus, even though e-commerce growth prospects are evident, we do not think they are quite as attractive for footwear players like Cole Haan.
Moreover, the increasing gearing level coupled with IPO proceeds being used to pay off existing shareholders, raises concerns about whether the IPO is being used to raise corporate value or provide existing investors with an exit from a business that is reaching its ceiling.


Cole Haan IPO - A Failing Attempt to Disrupt the Footwear Market