Aritzia Inc T.ATZ

Alternate Symbol(s): ATZAF

Consumer Cyclical

Aritzia Inc. is a Canada-based vertically integrated design house. The Company is the creator and purveyor of Everyday Luxury, home to a portfolio of brands for every function and individual aesthetic. The Company provides personal shopping experiences at aritzia.com and in its 115+ boutiques throughout North America. The Company’s product categories include activewear, blazers and suiting, bodysuits, denim, dresses, intimates and shapewear, jackets and coats, jumpsuits and rompers, leggings and bike shorts, pants and accessories. The Company offers its products under various brands, including Babaton, Denim Forum, Golden, Little Moon, Sunday Best, Ten, The Group by Babaton, Tna, Wilfred, Wilfred Free, Contour, Seamless, Sweatfleece, The Effortless Pant, The Super Puff and others. Its distribution network consists of three distribution centers, two in Canada and one in the United States, that are positioned to service its boutiques and e-commerce business.

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Aritzia Inc

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Post by retiredcfon Apr 11, 2023 9:37am

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Post# 35388155

TD

Aritzia Inc.

(ATZ-T) C$42.06

Q4/F23 Preview: Demand Environment Appears Resilient

Event

Aritzia (ATZ) is scheduled to report its Q4/F23 results on May 2.

Impact: NEUTRAL

Q4/F23 Summary: Our research indicates that Aritzia continues to benefit from a strong revenue/low promotion environment, despite macroeconomic headwinds broadly pressuring consumer discretionary spend/income. We anticipate ongoing demand strength to resolve current investor concerns. That stated, near- term inclusive of Q4/F23, we forecast notable EBITDA margin pressure from inflationary/inventory headwinds and its heightened investment in talent to facilitate future growth. In our view, the strong top-line outlook could enable Aritzia to meet/exceed consensus EPS of $0.36.
Inventory Focus: We forecast significant y/y inventory growth, albeit a decline from the 187% y/y increase in Q3/F23. We view the increase as manageable due to its composition and our view that consumer demand remains resilient. Recall its strategic decision to extend lead times during the pandemic, along with an improving supply chain, has resulted in some bottlenecks that may persist through H1/F24. We see this cautionary flag subsiding in H2/F24 as lead times start to normalize, and through the utilization of a “pack-and-hold” core product strategy.
Financial Outlook: We have made modest revisions to our financial forecasts. There is no change in our revenue outlook, that we believe remains strong to commence F2024. We have shifted our margin profile slightly, incorporating current margin headwinds to persist in H1/F24 before the realization of y/y operating leverage in H2/F24.
Investment Outlook: We see material upside for Aritzia's share price, as it successfully implements its U.S. expansion, where we see tremendous runway for growth. We highlight that although the revenue outlook remains positive, ongoing cost headwinds may mute H1/F24 EPS growth. We see these issues subsiding in H2/F24, that should generate operating leverage/attractive y/y growth. We view this as the key share-price catalyst, with an active NCIB supported by its strong balance sheet/FCF providing a degree of downside protection.

TD Investment Conclusion

We maintain our BUY recommendation and $62.00 target price.