Aritzia Inc.
Polished look: Fine-tuning F24 cadence ahead of Q1 results, PT to $57
Our view: Fine-tuning the cadence of F24 financial forecasts ahead of Q1 results, but overall view broadly unchanged and consistent with management guidance during/since the Q4 release: near-term results won't be pretty as transient headwinds moderate EBITDA margin by approximately 1,000 bps in H1, ~400 bps overall for F24E before normalizing in F25E. Transient margin pressure, diminished visibility, and investor concerns around sustainability of demand against the backdrop of consumer disposable income headwinds are likely to weigh on near-term sentiment. Reiterating SP rating, price target to $57 (-$3).
Key points:
Forecasting EPS $0.11, consensus range $0.07-$0.11 (average: $0.09) when ATZ reports Q1 July 11. Fine-tuning Q1E SSS to reflect cool weather late into spring trims 3% from our revenue forecast to $462.5 MM (+13.4% Y/Y), guidance range $450-460 MM underpinned by accelerating US penetration/FX tailwind to revenues estimated at 3.5%, growth of omnichannel and expansion into new categories. Also fine-tuning the cadence of GM% pressure in H1, still 600 bps headwind overall but skewed to Q2 as ATZ cycles incremental airfreight, more of a headwind to Q1 Y/Y.
Balance of our assumptions broadly unchanged, save for timing and magnitude of the NCIB, which we eliminated for F24E and moderated for F25E and beyond. Against the backdrop of accelerating investments and uncertainty over discretionary consumer spending, share repurchases likely de minimis and used primarily for anti-dilutive purposes for the foreseeable future. According to regulatory filings, ATZ repurchased 85k shares in Q1 for $3 MM.
F24E reflects transient margin pressure, rebound expected F25+. Our F24E EBITDA margin 12.1% reflects: i) 12.6% top line growth to $2.47B vs guidance range $2.42-2.50B and includes an extra week, ii) transient GM% pressure -230 bps Y/Y broadly consistent with guidance -200 bps reflecting inflationary pressures, normalized markdowns, incremental warehousing costs, and pre-opening lease amortization partly offset by cycling of prior year airfreight headwind, and iii) SG&A ratio +155 bps (guidance +150 bps) reflecting investments in talent and wage inflation, and DC project costs. Looking ahead to F25, management is confident that product margin improvements, efficiencies and lower transient cost pressures should fully reconstitute EBITDA margin relative to F23A 16%, with upside (RBC CM: 16.1%).
Trimming target multiples from 13x to 12.5x EBITDA and from 25x to 24.5x EPS to reflect near-term earnings visibility and shift in interest rate outlook, PT to $57 (-$3). Maintaining SP rating. Target multiples reflect LT growth trajectory but heightened NT uncertainty, SP rating reflects sector exposure/positioning relative to other SMID-cap names.