Aritzia Inc T.ATZ

More TD

[retiredcf]

December 21, 2022

Our High Conviction Buy Aritzia Inc.
ATZ-T: C$46.81; BUY 12-Month Target: C$62.00

In a challenging retail environment, we believe the financial outlook for Aritzia stands out near-term relative to all other names within our Consumer Discretionary coverage heading into 2023. While rising rates present a potential headwind to the purchasing power of the consumer, we believe Aritzia is positioned to capitalize upon a material U.S. growth opportunity, and to a lesser extent, a shift away from casualization. This should result in strong F2024 EPS growth/FCF generation, that along with a financial position of net cash, be supportive of an active NCIB.

Furthermore, we believe that Aritzia is positioned to achieve its recently introduced 5- year financial targets, inclusive of an EPS CAGR of 20%-to-25% through F2027. We attribute this outlook to its ongoing boutique expansion into the underpenetrated U.S. market, an accompanying eCommerce "halo" effect, a degree of operating leverage, and its active NCIB. This in our view should support a premium growth valuation multiple, especially as its U.S. revenue base eclipses that of Canada (currently 50%/50%), and its brand awareness continues to magnify with both U.S. consumers and investors alike.