Aritzia Inc ATZAF

TD

[retiredcf]

Aritzia Inc.

(ATZ-T) C$22.41

Q2/F24 Preview: Require Stability Despite Compelling Valuation

Event

Aritzia (ATZ) is scheduled to report its Q2/F24 results on September 28.

Impact: NEUTRAL

• Remains Early In Our View: With the sharp share price decline post the Q1/ F24 results, we believe that at the current price, the shares could offer compelling value over the mid-term. That stated, we maintain that we would prefer to see operational stability/improvement take hold before becoming more constructive with our recommendation. We believe it remains early to do so, as pressure on consumer discretionary income has grown in recent months, the required “refresh” of Aritzia's product offering is still in development, the Q2/F24 results are unlikely to notably outperform, and we believe investors may require improved visibility into its financial outlook following two guidance revisions, in what is a challenging economic/industry environment. As such, it is our view that the Q2/F24 results, and the likely maintaining of its F2024 outlook, are unlikely to act as a near-term catalyst.

• Q2/F24 Summary: Our data suggests that a flattish y/y revenue environment that is in line with management's guidance appears appropriate for Q2/F24. Aside from the potential realization of a degree of early operating efficiencies, we believe that growth initiatives/transient costs (DC project costs, 3PL costs, pre-opening lease amortization), IMU headwinds, a more promotional y/y environment, and heightened labour costs will all be factors that are notable headwinds to the operating margin. As such, the ability to exceed consensus and provide investors with comfort that the margin profile is sustainably on the mend may take another quarter or two, in our opinion.

   Investment Outlook: We believe that the strength of the Aritzia brand, and compelling runway for growth remain in place. With pressures on the consumer from the rising interest rate environment increasingly taking hold, we are inclined to wait for more tangible evidence that Aritzia is on track to achieve the forecast rebound built into its F2025/F2027 financial targets. Until that becomes clear, it is our view that in the current macro environment, Aritzia is likely to continue to trade toward the low end of its historical valuation range.

  TD Investment Conclusion

  We maintain our HOLD recommendation and $32.00 target price. We will review our financial forecast/target/recommendation post the Q2/F24 release.