Currently have a $30.00 target. GLTA
EQUITY RESEARCH
ARITZIA INC
FQ2 Preview: Eyeing Sales Trend On Both Sides Of The Border
Aritzia will report its FQ2 results on Thursday September 28 after market
close. Management will host a conference call at 4:30pm EST; dial-in
number is 416-915-3239. The quarter ran from May 29 to August 27.
Thoughts On The Remainder Of F24: Heading into FQ2 earnings next
week, we expect the primary focus of investors will be on Aritzia’s underlying
sales momentum, including 1) how back-to-school performed, and 2) initial
customer reception and feedback on Aritzia’s Fall 2023 collection (some of
which launched one week earlier than usual). Per SimilarWeb, Aritzia’s
website traffic has shown a modest sequential pickup QTD (+7.6% through
September 17 vs. +1.5% in FQ1), though we remind investors that both
conversion and basket size are two important drivers of eCommerce sales
that are not measured through web traffic. Furthermore, while it is still early in
the season, we also note that a warmer start to fall than usual does not help
seasonal sales. Net, we continue to take a cautious view on H2/F24 as well
as on the shape of the recovery in F25 given a softening consumer, the
resumption of student loan payments next month in the U.S., a lack of
newness in the assortment, and increased competition among specialty
apparel players.
FQ2 Preview: We model FQ2 EBITDA of $10MM (vs. consensus of $13MM)
based on revenues of $519MM, down 1.3% Y/Y (vs. management’s guide of
“flat to down slightly”). By geography, we model revenue growth of +11% in
Canada and -13% in the U.S. (lapping +80% last year); based on a four-year
CAGR (vs. 2019), our estimates imply a 20bps sequential acceleration in
Canada and ~300bps sequential deceleration in the U.S. Below the top line,
we model margins in line with management commentary: 750bps of gross
margin compression driven by fixed cost deleverage, higher product costs,
normalized markdowns, temporary warehousing costs, and pre-opening
lease amortization. On SG&A, 550bps of expense deleverage driven by
lower revenues and investments in support office labour and retail wage
inflation.