Post by
retiredcf on Jan 10, 2025 9:53am
CIBC
Joins in and raises their target by $12.00. GLTA
EQUITY RESEARCH
January 9, 2025 Earnings Update
ARITZIA INC.
Operational Execution Leads To Growth Acceleration
Our Conclusion
Q3 results were ahead of expectations driven by better-than-expected top-line growth in both U.S. and Canada. Importantly, momentum has actually
accelerated into Q4 and this supports a revenue guide well above previous
expectations. ATZ is delivering on the growth opportunity in the U.S. and with
consistent execution, this will continue into F2026 and beyond. Our estimates rise and we’re comfortable bumping our target P/E multiple to 28x (was 25x), which generates a $75 price target. ATZ remains Outperformer rated.
Key Points
FQ3 Beat Was Well-balanced: FQ3 results were nicely ahead of forecast and
guidance, driven largely by revenue ($729MM vs. CIBCe $710MM, consensus $699MM, guidance $675MM-$700MM) as well as better GM%. Revenue growth was well-balanced and while the U.S. stores drove the biggest growth, it was Canada and e-commerce that most notably beat our expectations. GM% benefitted from sales leverage, though markdowns were also lower vs. last year and the company battled an 80 bps headwind from freight.
Guidance Boosted And FQ4 Well Above Expectations: More important
than the strong FQ3 was the boosted full-year guidance, which reflects
accelerated sales momentum in December. Sales strength remains broad-
based, though clearly the U.S. is leading the charge, driven by the flagship
openings but also broader brand awareness and the payoff of more
aggressive marketing, both off- and on-line. We believe ATZ has returned to
a healthy balance of new items and proven sellers in its assortment, which
boosts our confidence in its ability to maintain sales momentum.
Margin Outlook Embeds Conservatism: Despite the 4% boost to full-year
revenue (and Q4 guidance mid-point resting 8% ahead of consensus heading into Q3), the full-year margin guidance was unchanged; management is still looking for ~450 bps of EBITDA margin increase. The company is planning to continue to invest in marketing, which seems appropriate given the top-line returns. Higher freight costs are also factor. Even still, we believe there is conservatism built in, and we sit modestly above the guide.
F2026 Should Bring Substantial Growth: We expect mid- to high-teens
square footage growth in F2026, which comes on top of the ~25% growth in
F2025E, which is back-end weighted. Even moderating comp store sales
growth to MSD (it was high-teens in November and above that in December)
implies revenue growth of 20%+. We expect margin expansion to remain
material, even as the company invests in digital. Tariff risk is manageable, in
our view. Net, our 2026E forecast implies >40% EPS growth and we likely see >30% in F2027 as ATZ moves toward its 19% EBITDA margin aspiration.
Valuation Has Room To Move Higher: Given the accelerating growth, we
are comfortable pushing our multiple higher and now apply 28x to our
F2026E EPS. Aritzia is executing in all areas of its business and continues to
have a runway of growth that is largely reliant on maintaining consistency.