After declining by 10% last year, the selloff in Aritzia (TSX:ATZ) stock has intensified in 2023. As of September 26, ATZ stock has seen 54.4% year-to-date value erosion to trade at $21.57 per share, with a market cap of $2.4 billion.
Before discussing whether Aritzia stock is a buy now, let’s take a closer look at its recent financial growth trends and key recent developments to understand how they might impact its price movement going forward.
If you don’t know much about it already, Aritzia is a Vancouver-headquartered design house and retailer of everyday luxury clothing. ATZ stock got growth investors’ attention after more than doubling in value in 2021 by posting 103% gains that year. The company’s ability to manage its supply chain better than most other retailers amid the global supply chain disruptions in the post-pandemic era could be the primary reason for these gains.
In 2022, however, the stock turned negative as uncertainties about the possible impact of growing macroeconomic challenges on its financial growth worried investors. This could be one of the key reasons Aritzia stock has struggled to maintain its gains since then.
Analyzing its financial growth trends
Despite its dismal stock price performance in the last year, Aritzia’s recent financial growth trends still look impressive. For example, the company has been beating Bay Street analysts’ revenue estimates for the last 13 consecutive quarters.
Aritzia registered a strong double-digit 47% YoY (year-over-year) increase in its fiscal year 2023 (ended in February) sales to $2.2 billion. Although its Canadian market sales grew positively by about 31% YoY during that period, its U.S. market sales jumped by around 66% from a year ago. Along with a 54% YoY rise in its active clients in the United States, Aritzia delivered a strong 21.6% increase in its adjusted annual earnings in fiscal 2023, even as inflationary pressures and supply chain risks continued.
Is ATZ stock a buy now?
While high inflationary pressures and rapidly rising interest rates have badly affected consumer spending in recent quarters, Aritzia’s top line is still growing positively. In the first quarter of its fiscal year 2024 (ended in May), the company posted a 13% YoY rise in its total revenue. But Aritzia blamed negative factors, including “higher product costs, normalized markdowns, temporary warehousing costs and preopening lease amortization for flagship boutiques,” for hurting its profitability during the quarter.
As these largely temporary factors might affect its profits in the coming quarters as well, they can keep ATZ stock volatile in the short term. But that doesn’t make it a bad stock to invest in for the long term. Let me explain why.
Besides its home market, the company has significantly expanded its presence in the United States market in recent years. In its fiscal year 2023, the U.S. segment accounted for nearly 51% of its net revenue, up from 45% in the previous fiscal year. Moreover, Aritzia’s U.S. active client base has almost doubled in two years between its fiscal year 2021 and 2023, which can help it accelerate its financial growth in the coming years. That’s why its improving long-term fundamental outlook still makes Aritzia an attractive Canadian stock to buy on the dip to hold for years to come.
Note that Aritzia will announce its latest quarterly results after the market closing bell on September 28, which could make its stock prices more volatile.