Several analysts made significant cuts to their price targets on Aritzia Inc. (ATZ-T) after the clothing retailer took them off guard Tuesday with a cut to its forward guidance.
Aritzia reported solid fiscal first quarter 2024 results, with net revenue of $463-million beating the Street consensus by $1-million, and adjusted EBITDA of $32-million also $1-million ahead of the Street.
But the good news ended there. Slower store traffic during the first week of June and other factors led the company forecasting revenue for the second quarter of fiscal 2024 to be flat to slightly down vs. last year’s $526 million, while gross margin is expected to decline 750 basis points year over year (an incremental 100 bps worse than previously expected) and selling, general and administrative expenses as a percentage of revenue is projected to decline 550 basis points year over year (an incremental 150 basis points worse than expected).
That guidance, according to analysts, means adjusted EBITDA for the fiscal second quarter is projected at about $19-million, well below the consensus forecast of $29-million.
Canaccord Genuity cut its target price to C$37 from C$50, CIBC cut its target to C$30 from C$44, RBC cut its target price to C$46 from C$57, BMO cut its target price to C$37 from C$50, Stifel GMP cut its target price to C$40 from C$50 and TD Securities cut its target price to C$32 from C$50.
TD also downgraded its rating on Aritzia to “hold” from “buy”.
“All told, we acknowledge that the quarter has created an added element of uncertainty in the near-term, with demand expectations clearly lower than they were about three months ago,” commented Canaccord analyst Derek Dley.
“Having said that, we remain optimistic about Aritzia’s growth prospects beyond F2024, with new boutique openings weighted towards the end of the year and 20% square footage growth slated for F2025, along with higher levels of innovation slated to return to Aritzia’s assortment for the Spring 2024 selling season. Though we imagine uncertainty surrounding demand will keep some investors on the sidelines in the near-term, Aritzia’s medium-to-long term growth prospects keep us BUY-rated,” Mr. Dley said in a note to clients.
RBC analyst Irene Nattel, who continues to rate the retail “sector perform”, also expressed some optimism about the company’s longer-term outlook despite near-term challenges.
“Although FQ1 results were in line with expectations, slowing consumer demand/downward revision to guidance due to multiple cost headwinds, many of which should be transient, will likely further weaken investor confidence and conviction to own,” Ms. Nattel said in a note to clients.