Bullboard - Stock Discussion Forum Aritzia Inc T.ATZ

Alternate Symbol(s): ATZAF

Aritzia Inc. is a Canada-based vertically integrated design house. The Company is a creator and purveyor of Everyday Luxury, which is home to a portfolio of brands for every function and individual aesthetic. The Company provides personal shopping experiences at aritzia.com and in its 110+ boutiques throughout Canada and the United States. The Company’s products include jackets and coats... see more

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TSX:ATZ - Post Discussion

Aritzia Inc > TD

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Post by retiredcf on Jan 12, 2023 9:15am

TD

Aritzia Inc.

(ATZ-T) C$51.22

Q3/F23 Results: Demand Exceptional; Guidance Less Impressive Event

Yesterday after market close, Aritzia reported Q3/F23 results that modestly exceeded the consensus forecast. F2023 guidance was slightly lowered.

Impact: SLIGHTLY NEGATIVE

Q3/F23 Summary: Aritzia continued to demonstrate growing brand affinity across all channels, with Q3/F23 revenue growth of ~38% y/y, well ahead of expectations. This impressive consumer demand was partially offset by operating margin pressure. A pull-forward of inventory and easing supply-chain constraints are causing a degree of stress/heightened costs on Aritzia's distribution centers/ inventory management, while Retail demand necessitated an acceleration of investment in talent/labour. These items resulted in Adjusted EPS of $0.67 relative to our forecast/consensus of $0.67/$0.65.
Updated F2023 Guidance: Aritzia modestly lowered its F2023 financial outlook, implying lower Q4/F23 guidance than the current consensus. Despite annual revenue guidance increasing ~6%, this is being more than offset by an unfavourable outlook for its gross margin and SG&A. This, along with an elevated inventory position, in our view, will be the near-term focus of investors, and likely result in weakness in the share price this morning.
Financial Position: Solid Q3/F23 FCF further elevated Aritzia's net cash position (~$132mm pre-IFRS 16). We believe Aritzia's inventory position has peaked, and will normalize in H1/F24. This working-capital reversal, in combination with earnings growth, should support strong FCF in F2024 and support an active NCIB.
Investment Outlook: An elevated inventory position, modest lowering of F2023 guidance, and forthcoming lowering of consensus estimates are likely to have a negative impact on the near-term share price. We would view this as a buying opportunity. Although admittedly, there is an added risk component to the story, we believe the demand outlook/brand affinity is impressive, that near-term cost headwinds are manageable/transitory, and that its strong financial position/FCF outlook should support an active return of capital to shareholders going forward. Once digested, we believe investors will realize that the long runway for attractive earnings growth presented at its late-October investor day is unchanged.

TD Investment Conclusion

We are maintaining our BUY recommendation and $62.00 target price.