Oh boy, was it a bad end to the week for shares of Aritzia (TSX:ATZ), which tumbled around 24% in a single day following the release of the company’s latest quarterly earnings results. Indeed, the winds of recession seem to be felt by the women’s clothing retailer, with consumer traffic supposedly slowing down.
As a discretionary retailer (a retailer of nice-to-have goods), the slowdown should really have come as no surprise. However, given how much damage had already been done to the stock going into the number, I think the post-earnings plunge was a bit of a shocker.
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Just how low can Aritzia stock go, as Canada moves closer to the next economic downturn?
It remains to be seen. Regardless, I think the dip may have opened a nice window of opportunity for contrarians willing to go against the grain, as most others find reasons to hit the sell button on the battered retailer.
Though there may not be a whole lot of catalysts up ahead, I think Aritzia’s long-term growth prospects have not changed a heck of a lot. Regardless, discretionary stocks tend to boom when times are good, and consumers are willing to open up their wallets, only to bust when it comes time to tighten the purse strings.
Fortunately, the Aritzia brand still seems robust and positioned for continued growth, as management looks to expand its footprint beyond Canada. When it comes to the long game, it’s all about brand affinity.
In that regard, few mid-cap stocks (ATZ stock boasts a $2.947 billion market cap at the time of writing) have the potential to build brand power over time as Aritzia has. Indeed, it is not easy to build a brand that’s able to jolt margins. Regardless, investors willing to look beyond the rough quarter (and tough ones to come) may be in a spot to get Aritzia stock at a pretty reasonable multiple ahead of what could be a prosperous next 10 years.
Aritzia’s numbers weren’t pretty. But let’s not hit the panic button just yet
The company saw revenue growth stall, while profit sunk 47.5% for the first quarter. Undoubtedly, that’s a steep and seemingly alarming fall. However, I think the market pendulum has “overswung” to the pessimistic side! It doesn’t matter how fashionable the wears are this time of year; few firms have been able to resist the macro headwinds, especially the discretionaries.
After such a big drop to lows not seen since before the 2020 stock market crash, I think Aritzia is entering deep-value territory. As inflation pressures ease and consumers begin feeling confident again, I think Aritzia could be able to deliver a comeback quarter. After that, many of us will probably forget about the ugly first quarter.
Like it or not, Aritzia stock is on the discount rack. And as fickle as fashion can be, I think value hunters and long-term growth hunters ought to give the stock a second look right here. I think it’s a buy.
