UBS Aritzia lifts price target to $39 UBS Lifts Aritzia Target to $39, Maintains Buy Rating -- "Improving Q3 Sales Momentum Reinforces Buy Rating Conviction"
MIDNIGHTTRADER - Updated 54 minutes ago
02:50 PM EST, 01/11/2024 (MT Newswires) -- UBS has kept its Buy rating on Aritzia and raised its one year target to $39 (from $38).
Aritzia delivered a $0.06 Q3 EPS beat and maintained its FY24 operating outlook. The company's +0.5% y/y Q3 comp sales growth beat consensus' -3.9% forecast. "We believe this solid print should boost sentiment from low levels, particularly in a market focused on "rate-of-change". UBS also expects ongoing EPS growth acceleration into FY25 given favorable sales, inventory, and margin trends. Forecasting a 14% 5-yr. EPS CAGR. Also expecting EPS beats over the NTM to catalyze the stock towards the $39 PT.
UBS FY25 EPSe is 9% above consensus.
Three key takeaways from Aritzia's Q3 report:
ATZ's comp sales inflected to positive. Aritzia's comp sales accelerated 480 bps q/q to +0.5% y/y. "We believe this reflects an improvement in the company's product assortment and consider this factor a key driver to FY25 sales recovery."
ATZ's Q4 sales guidance seems highly achievable. ATZ's mgmt. mentioned Q4TD sales are up in the mid-4%s range, above its flat to +LSD% y/y growth guidance (excl. a 53rd week) and supported by a solid performance over key Holiday events. "We believe this limit downside risk to ATZ's Q4 outlook."
Inventory growth significantly moderated. Inventory ended Q3 down 22% y/y vs. up +10% in Q2, as the company cleared merchandise earlier than planned. UBS thinks healthier inventories should support FY25 gross margin recovery.
UBS is maintaining its FY24 EPSe, reflecting a $0.04 Q3 EPS beat vs. UBSe, offset by a more conservative Q4 margin outlook.
"We anticipate a faster rebound in ATZ's comp sales given higher contribution from newness in Q4 and a fresher FY25 product assortment. We expect ATZ's savings initiatives, lower cost headwinds, and top-line acceleration should lead to 480 bps y/y FY25 operating margin recovery to 13.1%, in-line with our previous estimate."
UBS FY25 and FY26 EPSe are up 3% and 2% vs. prior, respectively, reflecting stronger topline expectations.
Price: 32.49, Change: +6.03, Percent Change: +22.79