Aritzia Inc.
(ATZ-T) C$42.99
Strong Q4/F22 Results; F2023 Guidance in Line with Expectations Event
Yesterday after market close, Aritzia (ATZ) reported Q4/F22 financial results that exceeded our forecasts/consensus.
Impact: SLIGHTLY POSITIVE
Q4/F22 Summary: ATZ delivered net sales growth of ~66% y/y, ahead of management's guidance and our forecast. Growth was driven by strength across geographies and channels, despite ongoing industry headwinds. Lower markdowns and fixed cost leverage offset higher freight costs. This resulted in margin improvement y/y ahead of our forecast. Adjusted EPS of $0.34 exceeded our forecast/consensus of $0.23/$0.24.
F2023 Guidance Initiated: F2023 is off to a strong start, with continued momentum in the U.S. and a y/y recovery of net sales in Canada (store closures in Q1/F22). On an annual basis, top-line growth of ~20% y/y is ahead of expectations that is offset by investments in growth. We believe management has taken a conservative approach to top-line growth, which we view as prudent. Overall, we estimate that the outlook implies EPS in line with current consensus.
CEO Succession: On May 21, Jennifer Wong will assume the role of CEO. Ms. Wong is a company veteran with over 35 years of experience that in our view is well-positioned to lead ATZ. Ms. Wong will continue to lead business management functions and assume leadership of ATZ's sales channels (eCommerce/Retail). Brian Hill, currently CEO, will transition to Executive Chair. Mr. Hill will maintain an active role for the foreseeable future.
Conclusion: We characterize yesterday's release as slightly positive. ATZ delivered a strong financial performance in Q4/F22, with momentum continuing early in F2023. Potentially conservative F2023 net sales guidance should also be well-received. The caveat, in our view, is that investors may be deterred to a degree by ongoing investments in growth.
TD Investment Conclusion
We are maintaining our BUY recommendation. Following the release and initiation of guidance, our outlook for ATZ is changed. We continue to see runway for growth in the U.S., where ATZ is gaining scale and growing its customer base. As it enters untapped markets and expands its product offering, this should drive growth in eCommerce sales and operating leverage over time.