Aritzia Inc.
(ATZ-T) C$26.46
Solid Q3/F24 and Outlook; Should Improve Investor Sentiment
Event
Yesterday after market close, Aritzia reported Q3/F24 EPS that exceeded
consensus, while maintaining its F2024 guidance and margin-improvement outlook
for F2025.
Impact: POSITIVE
Q3/F24 Summary: Q3/F24 EPS exceeded consensus due to revenue and the
operating margin. The top-line benefited from the positive reception for new
product styles and the Archive sale driving positive SSSG (0.5% vs. consensus
of -4.0%), in addition to new store openings. The operating margin outperformed
our forecast (~55bps) as initial progress on cost initiatives offset a promotional
environment. The result — adjusted EPS of $0.47 versus consensus of $0.41.
We highlight the solid results and material progress in optimizing its inventory,
resulted in strong FCF returning the balance sheet to net cash (pre-IFRS 16).
F2024 Guidance Unchanged: The F2024 revenue guidance has been narrowed
to the high end of its previous range, while maintaining its annual gross margin
(-300bps) and SG&A (+300bps) outlook. This implies Q4/F24 EPS in line with/
slightly below consensus, that appears attributable to SG&A. Management
clarified that there is no fundamental reason for this, aside from a degree of
conservatism. We see this as prudent, considering downward revisions to F2024
guidance in Q4/F23 and Q1/F24, and, in our view, positions the company to meet/
exceed its guidance.
F2025 Drivers In Place: Despite a promotional environment, management
maintained its 500bps forecast improvement in its F2025 pre-IFRS 16 EBITDA
margin. The Q3/F24 results illustrated the initial contribution of its enhancement
initiatives, with numerous additional drivers forthcoming in F2025, including an
optimal inventory position entering the year, and greater proportion of revenue to
be derived from its higher-margin U.S. operations. Consensus currently accounts
for improvement of ~350bps-400bps.
Overall Summary: Aritzia remains in the “show-me” category for the investment
community, in our view, but it is making meaningful progress on its top- and
bottom-line growth drivers. We believe this should enable Aritzia to meet/exceed
consensus expectations, and in turn lead to an improvement in investor sentiment
and, potentially in time, an expansion of its applied multiple.
TD Investment Conclusion
We are maintaining our BUY recommendation and $34.00 target price.