Aritzia Inc T.ATZ

TD

[retiredcf]

Have a $50.00 target. GLTA

Aritzia Inc.

(ATZ-T) C$34.34

Q1/F24 Preview: Demand Resiliency to be the Focus

Event

Aritzia (ATZ) is scheduled to report its Q1/F24 results on July 11.

Impact: NEUTRAL

 Q1/F24 Summary: We are positive on the investment outlook for Aritzia, but maintain that Q1/F24 results are unlikely to be a near-term catalyst for the share price. This is due to the material expense pressure that is anticipated to lead to negative y/y earnings in H1/F24. We do view this individual pressure as largely temporary, and as such, we forecast that operating margin leverage will return in H2/F24. We have highlighted this pressure in detail within our note that we believe will be generally understood by the investment community. As such, we believe investors should focus on the consumer demand/revenue outlook, as, in our view, this should be the lead indicator for Aritzia to potentially achieve its mid- term financial guidance.

 Revenue Outlook: It is imperative for Aritzia to sustain a resilient demand/ revenue outlook, especially with the current strain on its margin profile. We believe that ongoing revenue growth should lead to a normalization of its elevated inventory level, lead to margin expansion commencing in H2/F24, and improve investor confidence in its five-year guidance outlook. This should be aided by its store-expansion plans, including its current investment to open four new flagships in F2025. However, we highlight that the flagship openings are on average generally weighted toward the latter part of F2025.

 Investment Outlook: We believe management has a handle on its near-term cost-structure headwinds, that combined with ongoing strength in its revenue outlook, should lead to operating leverage and EPS growth re-commencing in H2/F24. This should be anchored by further successful expansion into the U.S. market, driving attractive earnings/FCF growth in F2025 and beyond. Improved visibility by the investment community in its five-year outlook should lead to an expansion of its applied valuation multiple. We view Aritzia as attractive at its current share price, but note that a sustained catalyst may be geared toward H2/ F24.