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 Sep 22, 2023 9:00am

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Post# 35648883

TD

Aritzia Inc.

(ATZ-T) C$22.41

Q2/F24 Preview: Require Stability Despite Compelling Valuation

Event

Aritzia (ATZ) is scheduled to report its Q2/F24 results on September 28.

Impact: NEUTRAL

Remains Early In Our View: With the sharp share price decline post the Q1/ F24 results, we believe that at the current price, the shares could offer compelling value over the mid-term. That stated, we maintain that we would prefer to see operational stability/improvement take hold before becoming more constructive with our recommendation. We believe it remains early to do so, as pressure on consumer discretionary income has grown in recent months, the required “refresh” of Aritzia's product offering is still in development, the Q2/F24 results are unlikely to notably outperform, and we believe investors may require improved visibility into its financial outlook following two guidance revisions, in what is a challenging economic/industry environment. As such, it is our view that the Q2/F24 results, and the likely maintaining of its F2024 outlook, are unlikely to act as a near-term catalyst.
Q2/F24 Summary: Our data suggests that a flattish y/y revenue environment that is in line with management's guidance appears appropriate for Q2/F24. Aside from the potential realization of a degree of early operating efficiencies, we believe that growth initiatives/transient costs (DC project costs, 3PL costs, pre-opening lease amortization), IMU headwinds, a more promotional y/y environment, and heightened labour costs will all be factors that are notable headwinds to the operating margin. As such, the ability to exceed consensus and provide investors with comfort that the margin profile is sustainably on the mend may take another quarter or two, in our opinion.

Investment Outlook: We believe that the strength of the Aritzia brand, and compelling runway for growth remain in place. With pressures on the consumer from the rising interest rate environment increasingly taking hold, we are inclined to wait for more tangible evidence that Aritzia is on track to achieve the forecast rebound built into its F2025/F2027 financial targets. Until that becomes clear, it is our view that in the current macro environment, Aritzia is likely to continue to trade toward the low end of its historical valuation range.

TD Investment Conclusion

We maintain our HOLD recommendation and $32.00 target price. We will review our financial forecast/target/recommendation post the Q2/F24 release.