The moderation in the inflation rate and an anticipated stabilization or reduction in interest rates could lead to an improvement in the economy, supporting consumer discretionary stocks. Further, most consumer discretionary stocks have witnessed a pullback in the recent past, proving a favourable entry point near the current levels.
Against this backdrop, let’s look at three Canadian stocks poised to benefit from the rebound in consumer spending.
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Aritzia
Aritzia (TSX: ATZ) stock has notably lagged behind the broader equity markets, registering a year-to-date decline of approximately 53%. This decline is primarily attributed to a deceleration in its growth rate and margin pressure, resulting from macroeconomic challenges and a lack of newness within its product offerings. However, it’s important to note that Aritzia’s current challenges are temporary. Moreover, the substantial drop in its stock price represents an attractive buying opportunity for investors.
The company is already taking action to address these near-term challenges. The luxury fashion brand focuses on enhancing its product pipeline and introducing fresh additions across its product range, all while stabilizing its supply chain. These efforts are expected to reaccelerate its sales growth. Furthermore, the company’s commitment to cost efficiencies, combined with an improvement in the macroeconomic environment, will provide strong support for its financial performance.
Aritzia is poised to benefit from its square footage expansion, cost savings initiatives, and leverage on fixed costs. These factors will likely support its revenue and profitability in the foreseeable future. Aritzia expects its net revenue to increase at an annualized growth rate of 15-17% through 2027. The opening of new boutiques, expanded presence in the U.S. market, strength in its e-commerce sales, and increased brand awareness will support its overall financials.
In summary, Aritzia has the potential to outperform the broader market in the long run. Additionally, its stock trades at an attractive discount, providing an excellent opportunity to purchase its shares.
Canada Goose
Like Aritzia, Canada Goose (TSX: GOOS) stock has underperformed in the broader markets this year. Shares of this Canadian lifestyle brand and manufacturer of performance luxury apparel are down over 21% year to date. The macro headwinds and weakness in China remained a drag.
However, the company’s operating environment is improving, as reflected by its strong revenues during the first quarter (Q1) of fiscal 2024. Further, its DTC (direct-to-consumer) business in China marked a steep recovery, which is positive.
Looking ahead, the recovery in the Asia Pacific region, primarily China, expansion of its DTC network, and new product categories will accelerate its growth rate and support its share price. Also, its luxury brand positioning and growing women and Gen Z customer segments bode well for future growth.
Spin Master
Shares of the children’s entertainment company Spin Master (TSX: TOY) are under pressure due to inventory issues. Its toy gross product sales remained challenged in the first half due to the higher inventory levels that caused retailers to slow orders. Nonetheless, the company completed the retailer inventory clearance activities, which paves the way for new product launches for this holiday season, which will support its growth.
Investors should note that Spin Master generates the bulk of its net income and cash flows in the third and fourth quarters, as most of its gross product sales occur during the same period.
The anticipated increase in toy gross product sales, new product launches, and ongoing strength in the entertainment and digital games segment are positives. The company’s management remains upbeat and expects jam-packed toy, entertainment, and game releases to work in favour of the company and its share price.
