CIBCCurrently have a $60.00 target. GLTA
EQUITY RESEARCH
April 18, 2023 Flash Research
ARITZIA INC.
Q4 Preview: All Eyes On F2024 Outlook
Aritzia will report its Q4 results on Tuesday, May 2. Management will host a
conference call at 4:30 p.m. ET; dial-in number is 416-915-3239. The quarter
ran from November 28 to February 26.
Expectations for F2024: With F2023 in the books, we expect investors will
be focused on F24 guidance and commentary on the following topics:
1. Consumer Demand: In light of choppy consumer demand and
softening third-party data, we believe revenue guidance will be front-
and-center, particularly given much of Q1 will be in the books.
Overall, we expect ATZ to be conservative with its F24 revenue
guidance given the uncertain outlook for consumer spending. We
view guidance in line with its five-year revenue CAGR outlined last
October – mid-teens – as the most likely range.
2. Inventory Levels Exiting Q4: We expect management to provide an
update to its previous stated timeline (by Q2/F24) of when it expects to
see “clean” inventory levels and inventory growth equalling sales
growth. This guidance was based on revenue growth in line with five-
year CAGR, so it would need to slow through this level to push
inventory normalization further into F2024 and increase markdown risk.
3. Margins: We generally expect F24’s gross margin outlook to be noisy
given the multiple headwinds (FX, inflation, leases) and tailwinds
(pricing, mix, expedited freight/warehousing costs) but overall, we
believe any margin recapture will likely be H2-weighted.
Q4 Preview: We model Q4 adjusted EPS of $0.36 (in line with consensus)
based on revenues of $601MM (mgmt. guide $580MM-$600MM; consensus
$587MM); we expect balanced revenue growth between geographies and
channels. On margins, we expect 250bps of gross margin pressure due to
additional warehousing costs, ongoing inflationary pressures, and FX
headwinds. We believe markdowns were contained to originally planned
levels, though inventory will remain materially above last year. We forecast
an SG&A rate of 27.1%, flat Y/Y, as ongoing investments are largely offset
by fixed cost leverage. Aritzia has also repurchased 35,800 shares in Q1/F24
to date.