Could Aritzia (TSX:ATZ) Be a Millionaire-Maker Stock?

Why Aritzia Inc. (TSX:ATZ) is a strong buy after another terrific quarter of sales growth.

| More on:
question marks written reminders tickets

Image source: Getty Images

Back when Aritzia (TSX:ATZ) had its IPO back in 2016, I urged investors to avoid the stock like the plague, citing overvaluation, overly optimistic growth prospects, and the volatility (as well as fickleness) of the business of fast fashion.

Forever 21 is a fast-fashion retailer that went belly up and is a significant reason why I was hesitant to recommend Aritzia in its earlier years.

Fast-forward to 2018, I changed my tune with Aritzia, highlighting clever use of social media influencers and celebrities to build upon Aritzia’s brand equity, which would give it a boost as it looked to expand into the U.S. market.

Sure, there were still many things that could have gone wrong with fast fashion, like the pile-up of inventory and the erosion of margins in the event of excessive discounting. Still, I thought Aritzia’s marketing strategy and stellar in-store experience separated itself from the likes of a poorly-run retailer like Forever 21.

Did Meghan Markle put the sparkle back in Aritzia stock? Fellow Fool Will Ashworth certainly thought so.

“Joey Frenette made an astute observation recently about Markle’s popularity, the brand, and its expansion into the U.S., suggesting that the American’s fondness for British royalty, especially now that one of their own is part of the family, will provide immense help as it moves into the American market,” wrote Ashworth.

“As long as Markle keeps buying Aritzia clothing, the promotional value of her association is priceless.”

With Markle now a member of the Canadian family after the widely publicized retreat from royal duties, Aritzia stands to profit profoundly as Markle continues dawning articles of clothing from the Vancouver-based upscale fashion retailer.

Add promos by influencers like Kendall Jenner into the equation and you’ve got the formula for big-time sales growth alongside even fatter margins, potentially fatter than Aritzia’s trendy Super Puff jackets.

For Q3 fiscal 2020, Aritzia delivered an excellent beat, with adjusted EPS numbers of $0.32, beating analyst expectations by a penny. Same-store sales (SSS) grew 5.1% for the quarter thanks in part to strong growth in e-commerce, while net revenue jumped 10% year over year.

It’s apparent that consumers have a rapidly growing affinity for the brand, thanks to the strengthening of brand equity over the past few years. With significant strength exhibited in the U.S. market, Aritzia will be one of Canada’s best retail stocks to own over the next five years.

While gross margins were a tad sluggish for the quarter, falling 50 basis points due to the weakening of the loonie, over the long run,  margins should expand as the brand looks to evolve into a luxury brand. I certainly wouldn’t rule it out given that Aritzia clothes have been worn by royalty!

Moreover, as the retailer continues investing in the customer experience, with its upscale brick-and-mortar locations and improving e-commerce platform, I see the potential for further SSS as Aritzia looks to widen its footprint in the U.S.

Foolish takeaway

Could Aritzia be a millionaire-maker stock? I wouldn’t rule it out, especially if you think Aritzia can continue the magnitude of success it’s had over the past year.

As a discretionary, Aritzia is more vulnerable to an economic downturn, but I’d say the rewards are well worth the risks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Investing

Are telehealth stocks still good buys after the covid pandemic?
Investing

Dialogue Health: Why I’m Buying This Reeling Growth Stock Today

Dialogue Health Technologies Inc. (TSX:CARE) is a growth stock worth watching in the burgeoning telehealth space.

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Dividend Stocks

2 Top Stocks for a Self-Directed RRSP

These top TSX dividend stocks look cheap right now for a self-directed RRSP.

Read more »

Growing plant shoots on coins
Investing

How to Turn a $50 TFSA Into $10,000

Start saving and investing regularly in your TFSA to grow your savings more quickly to $10,000 and beyond!

Read more »

Payday ringed on a calendar
Investing

Passive-Income Power: How to Churn Out Over $420/Month in TAX-FREE Income

Canadian investors can generate passive income that exceeds $420 a month with stocks like Extendicare Inc. (TSX:EXE) in the spring…

Read more »

potted green plant grows up in arrow shape
Investing

3 Growth Stocks for Canadian Investors Seeking Fast Returns

Growth stocks should be easy to find in the next few months, but these have the biggest opportunity of making…

Read more »

Investing

2 Great REITs That Won’t Stay Cheap Forever

First Capital REIT (TSX:FCR.UN) and Automotive Properties REIT (TSX:APR.UN) are cheap real estate plays for yield-seeking Canadian investors.

Read more »

shopping online, e-commerce
Tech Stocks

Young Investors: Shopify (TSX:SHOP) Stock May Finally Be Worth Buying

Shopify (TSX:SHOP)(NYSE:SHOP) stock is attempting to stage a bottom, but should investors be buyers amid the market chaos?

Read more »

stock analysis
Investing

3 Ideal Stocks for Your Short-Term TFSA Growth Goals

Depending on what your short-term growth goals are, you can choose from the diverse pool of growth stocks, including linear…

Read more »