Aritzia Inc T.ATZ

TD

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Q3/F25 RESULTS: STRONG BEAT AND A TREMENDOUS BASE FOR GROWTH IN F2026

THE TD COWEN INSIGHT

Aritzia's Q3/F25 results cemented the completion of its successful turnaround and the foundation to capitalize on a material growth runway in the U.S. is in place. Its growth outlook stems from product resonation, an acceleration of store openings, and eCommerce penetration. Combined with cost initiatives/leverage Aritzia is positioned for attractive EPS/FCF growth, warranting a premium valuation.

Impact: POSITIVE

Q3/F25 Summary: There were so many positives in the results it is difficult to critique outside an FX gain. Revenue growth was ~12% but normalizing for the Archive/Warehouse sales was ~16%, well ahead of consensus. Growth was >23% y/y in the U.S. and, upon normalizing, >5% in a challenging Canadian consumer environment, inclusive of eCommerce growth of mid-teens. Its product is resonating with consumers, its brand is gaining share in the U.S, and its digital initiatives are driving traffic. Ongoing cost initiatives and scale drove pre-IFRS 16 EBITDA margin expansion (~470bps) ahead of expectations. This resulted in EPS of $0.71, ahead of consensus of $0.62.

F2025 Guidance Raised/Conservative: Management raised F2025 guidance due to a higher annual revenue outlook with its mid-point guide increased by ~4% to $2.68bln (prior $2.57bln). Its key margin metrics were unchanged and we view as potentially conservative, implying F2025 EPS of $1.80-$1.90 (consensus $1.73). This includes mid-point Q4/F25E revenue $840mm (~8% above consensus) and Q4/F25 EPS of ~$0.71 relative to consensus of $0.68.

Confidence in F2027 Guidance: Management confidently reiterated its F2027 key guidance metrics that implies EPS of ~$3.50, excluding an NCIB. We have raised our F2027E EPS to $3.42 from $3.10 and highlight the pre-quarter consensus of $2.98.

FCF - What to Do With the Cash?: Aritzia generated ~$102mm in FCF in Q3/F25, increasing its pre-IFRS 16 net cash to ~$207mm. Our updated forecast has it generating ~$600mm in FCF through F2027. Management stated it will be opportunistic with its NCIB; however, we believe it may be more aggressive or evaluate an SIB in time.

Investment Summary: Aritzia reported a quarter/outlook that outperformed on all key metrics. That stated, the opportunity from its nascent flagships, its acceleration/runway of/ for new U.S. store openings, its successful digital initiatives/forthcoming investment, and ability to drive cost savings and operating leverage provide an attractive base for future growth. We anticipate a positive share price reaction and are increasing our target price on upward financial revisions to $75.00 from $68.00.