Margins will be focus of investors when Aritzia Inc. reports its first-quarter 2024 financial results on July 11 after the bell, according to Canaccord Genuity analyst Derek Dley.
“For Q1/F24, we expect this top-line momentum to persist on both sides of the border, helped by (1) the company’s store opening and expansion pipeline, which includes the opening of another boutique in the U.S. and the expansion of another in Canada and (2) better availability of Aritzia’s best-selling products as a result of the inventory build-up seen last quarter,” he said. “However, we do expect modest headwinds driven by unfavourable weather conditions during the spring in Aritzia’s primary markets. Accordingly, we are forecasting same-store sales growth of 23.1 per cent, which drives our revenue estimate of $451 million, in-line with the lower range of the company’s guidance range of $450-$460 million.
“From a margin standpoint, we expect headwinds driven by DC pre-opening costs, inflationary pressures and inventory storage costs before moderating more substantially in the latter half of F2024. Accordingly, we are forecasting gross margins of 37.8 per cent, down 650 basis points year-over-year, in-line with management expectations. Looking further out, we anticipate inventory growth which was up 125% in the previous quarter, to show improvement in the latter half of this quarter, and normalize by the end of Q2/F24.”
Mr. Dley is forecasting revenue of $451-million for the quarter, which is at the low end of management’s guidance ($450-$460-million) and lower than the consensus projection of $462-million. His EBITDA expectation of $30-million is also lower than the Street ($31-million).
He maintained a “buy” recommendation and $50 target for Aritzia shares. The average target is $50.25.
“In our view, Aritzia has done a great job navigating a changing retail landscape by offering an aspirational customer experience within its brick-and-mortar locations and an improved e-commerce platform,” said Mr. Dley. “With a healthy track record of comparable sales growth and strong growth for the latest quarter, a robust pipeline of new store openings, a healthy balance sheet to support growth and margin enhancement initiatives, and a well-aligned management team, we believe Aritzia deserves a premium valuation.”