Post by
retiredcf on Dec 15, 2022 9:32am
CIBC
EQUITY RESEARCH
December 14, 2022 Earnings Update
ARITZIA INC.
Q3 Preview: Raising Forecasts On Strong Underlying Trends
Our Conclusion
Aritzia continues to exhibit excellent momentum, particularly in the U.S.
market. As a result, we are raising our Q3 revenue estimate to $609MM from $588MM, ahead of consensus of $583MM and management guidance of $565MM – $590MM. Our EPS estimate rises to $0.66, from $0.63. Our price target remains $60 (based on F2024) and Aritzia remains Outperformer rated.
Key Points
What Gives Us The Confidence To Raise Our Q3 Revenue Forecasts?
We provide more detail on page 3 of this note, but we are comfortable raising our Q3 revenue estimate ahead of guidance due to: 1) broad-based macro strength for apparel; 2) strong Google trends and web traffic data, which accelerated on a sequential basis in both Canada and the U.S.; and 3) an expectation of continued strength in store traffic. Net, our revised Q3 revenue estimate implies 31.6% on a three-year CAGR basis, a 190bps acceleration from Q2 with improvement both in-store and online. On a geographic basis, this implies relatively modest acceleration in the U.S. and stability in Canada.
Netting Out The Puts And Takes On Margins And Profitability In Q3: We
expect 220bps of gross margin compression due to higher freight and
distribution centre costs and a return to more normalized markdowns,
partially offset by fixed cost leverage. This is modestly better than
management’s commentary noting GM% “pressure similar to what we saw in Q2”, which was 270bps of compression Y/Y. We forecast SG&A dollars to increase 44% and the SG&A rate to rise due to continued investments in people and technology, resulting in EPS of $0.66 (from $0.63).
What We Will Be Listening For On The Call: Aritzia will report its Q3
results (August 29 to November 27) after market close on January 5. In
particular, we will be listening for commentary on: 1) composition of inventory (mix between proven sellers, winter/spring seasonal merchandise); 2) updates on supply chain (air/ocean freight rates and transit times); 3) promotions across the industry; and 4) revisions to guidance and an update on sales trends in Q4 to date.