Why Aritzia Stock Plunged by 18% in February

Aritzia stock dived 18.3% in February amid investors’ fear that emerging geopolitical tensions could worsen the global supply chain crisis.

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What happened?

Aritzia (TSX:ATZ) stock turned negative in February after posting consistent gains in the previous four months. Despite starting the year on a solid note with 12.6% gains in January, ATZ shares dived by 18.3% last month to $48.19 per share, erasing all its gains in 2022. As a result, it’s now trading with nearly 8% year-to-date losses. By comparison, the main TSX benchmark has fallen slightly by 0.5% in 2022 so far.

So what?

If you don’t know it already, Aritzia is a Vancouver-based apparel designer and retailer with a market cap of about $5.5 billion. After focusing on women’s apparel for several years, the company announced its plans to expand its business into the menswear segment in 2021.

There was no company-specific news in February that could be blamed for Aritzia stock’s big losses in February. Instead, the recent broader market selloff due to the Russian invasion of Ukraine and worries about its negative impact on the global supply chain could be some of the reasons why ATZ stock fell last month.

Notably, Aritzia has been one of a few Canadian companies that have managed to handle supply chain disruptions smartly in the last few quarters. In January, its founder and CEO Brian Hill revealed how “the pandemic’s resurgence resulted in meaningful supply chain disruptions taking shape in the form of factory closures, reduced production efficiency and ongoing shipping delays.” In such a situation, the possibilities of the ongoing geopolitical tensions affecting the global supply chain further are no less than a nightmare for its investors. That’s why I consider these worries one of the key reasons for Aritzia stock’s sharp losses in February.

Now what?

Aritzia has successfully managed to mitigate similar supply chain challenges in the recent past with the help of strategic inventory management and increased use of expedited freight. However, its costs could continue to swell with a prolonged supply chain crisis and affect its financial growth. That said, it’s still too soon to comment on the direct impact of the ongoing geopolitical tensions on Aritzia’s supply chain.

The Canadian clothing company’s financial growth in recent quarters has been impressive. In its fiscal year 2022, analysts expect Aritzia’s total revenue to rise by about 69% year over year. Its earnings in the fiscal year 2022 are expected to jump to $1.43 from just $0.23 per share in the previous fiscal year. While only about 34% of its total revenue in fiscal 2021 came from the U.S. market, this share percentage is likely to increase sharply in the ongoing fiscal year due to its strengthening sales in the country.

Given all these positive factors, I wouldn’t recommend selling Aritzia stock despite supply chain uncertainties, as its continued strong financial growth and international market expansion could help its stock recover fast in the near term.

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.

The Motley Fool recommends ARITZIA INC. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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