Our view: Full day of very well-attended investor meetings reinforces our view that H1/F24 GM% and SG&A headwinds should be highly transient and largely reflect the necessary investments and related disruptions to align infrastructure with recent and anticipated growth. Reiterating PT $60, SP reflects sector exposure/valuation/relative upside potential.
Key points:
Management confident in F25E 16%+ EBITDA% after cycling H1/F24 transient headwinds. Reiterated components of H1/F24 margin pressure, notably i) GM% down ~600bps with Q1 pressure ~100bps < Q2 reflecting cadence of normalizing airfreight Y/Y, and ii) 400bps SG&A deleverage reflecting H2/F23 labour investments and DC project costs. Good visibility on bridge to F25 16%+ EBITDA% (RBCCM: 16.1%) that includes: 150bps product margin improvement, 125bps cost efficiencies, and 125bps DC project costs. Our take: F24 reflects confluence of necessary distribution and labour investments after 31% 3-year CAGR top line growth, at a time of heightened inflation and normalizing markdown activity post-pandemic.
F24 ft2 growth 15%, >11% average pace, and highly predictable NTI revenue with payback <12 months, underpins return to 15-17% top line growth in F25. Moreover, F24 growth backend loaded with H2 +6/8 including +3 in the final month, implying revenue accretion skewed to F25. Our F25E +18.5% is broadly consistent, building on F24E +10.7% toward the low-end of guidance ~10-14%.
Highly selective on markdowns with promotional activity clearance- focused rather than sales-driven. Notwithstanding signs of near-term consumer pressure, ATZ is making constructive adjustments to this year’s promotional cadence that suggest healthy demand and clean inventory. Most notably, ATZ eliminated mid-season sales weekends, pushed this year’s US Memorial Day sale forward to match Canada early June timing, and changed the markdown strategy within the sale season.
With 46 stores in the US currently and a path to 125-150+ stores, focus for the foreseeable future is squarely on growing the US market, forming majority of 8-10 annual NTI. View to expanding the store base beyond North America is an attractive, albeit more distant opportunity, with international playing a more meaningful part of the growth in the next multi-year plan F28+, likely furthering ecommerce capabilities ahead of a brick-and-mortar presence.
Deep focus on improving sustainability profile with ~50% of styles including a sustainability component. We anticipate significant improvement in disclosures and targets over time as the Environmental and Social Board Committee moves the ESG agenda forward.