Aritzia (TSX:ATZ) has trailed the broader markets by a wide margin in the last 12 months. Shares of the retail company went public in 2016 and have since returned 113% to shareholders. However, in the last year, ATZ stock is down almost 20%, valuing the company at $4.2 billion by market cap.
Let’s see if Aritzia can stage a recovery in 2024 and derive outsized returns to investors.
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Is Aritzia stock a good buy today?
Aritzia designs and sells apparel and accessories for women in Canada and the United States. It is a multi-channel luxury retailer with a widening brand awareness in North America driven by an expanding geographical footprint and strong e-commerce growth.
Over the years, Aritzia has successfully capitalized on the availability of premier real estate, enabling the company to grow its boutique network across North America. It currently owns and operates 117 boutiques, of which 68 are located in Canada and the rest in the U.S.
Similar to other retail companies, Aritzia has driven online sales higher as it was forced to expand its online presence amid COVID-19. For instance, Aritzia almost doubled e-commerce sales in fiscal 2021 (ended in February), accounting for 50% of total revenue. In fiscal 2023, its online sales grew by 36%, accounting for 35% of total sales.
Aritzia has grown its sales from $542 million in fiscal 2016 to $2.2 billion in fiscal 2023, indicating annual growth rates of 22%. Comparatively, its adjusted net income has grown by 27% annually from $40 million to $215 million in this period.
A focus on growth
Aritzia believes its boutiques are a key component of its growth strategy, allowing the company to drive sales and profits over time. It opened six new boutiques in the U.S. in fiscal 2024, which is the largest luxury market globally. Aritzia now has 51 boutiques in the U.S. and has identified 100 other locations in the country, providing it with a significant runway for growth.
In fact, Aritzia emphasized its plans to open between eight to 10 new boutiques each year south of the border through 2027.
Aritzia estimates it generates $1,000 in yearly sales on a per-square-feet basis. So, an 8,000-square-foot retail outlet, which costs $3 million, will enable the company to generate $8 million in annual sales. With an average payback period of 15 months, Aritzia’s sales should increase by $80 million annually in the U.S., given its growth forecasts.
How did Aritzia perform in fiscal Q3 of 2024?
Due to a challenging macro environment, Aritzia grew sales by just 4.6% year over year to $653.5 million in fiscal Q3 of 2024. Its sales in the U.S. were up 4.2% at $326.6 million, accounting for 50% of total revenue. Aritzia’s e-commerce revenue rose 5.5% to $212.5 million, accounting for a third of total sales.
Analysts tracking ATZ stock expect 2024 sales to grow by 6.2% to $2.33 billion, while adjusted earnings might narrow to $0.91 per share from $1.86 per share in the year-ago period. However, Bay Street expects sales to surge by 12.5% to $2.62 billion in fiscal 2025 and earnings to double to $1.80 per share.
Priced at 1.6 times forward sales and 21 times forward earnings, ATZ stock is not too expensive, making it an exciting value buy today.
