Is Aritzia Stock a Buy Now?

Aritzia stock has gained significantly year to date. Meanwhile, the momentum in its business will likely sustain, supporting the uptrend in its share price.

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After underperforming the broader equity markets over the past year, Aritzia (TSX:ATZ) stock marked a stellar recovery and has gained over 46% year to date. This Canadian stock stock got a significant lift from its solid third-quarter financial results. 

Notably, this luxury apparel design house delivered a net revenue of $654 million, up 5% year over year. This growth is particularly noteworthy given the exceptional revenue increases of 38% and 63% in the third quarters of the preceding two fiscal years, respectively. Moreover, comparable sales saw a modest uptick of 0.5% for the quarter, building upon a substantial 23% growth rate from the corresponding period last year.

In the U.S., Aritzia witnessed a 4% increase in net revenue for the quarter, following a robust 58% growth in the same quarter of the prior year. Similarly, in the Canadian market, sales grew by 5%, building upon the 22% growth recorded in the third quarter of fiscal 2023.

Adding to the positives, the company’s new boutiques continue to perform well, resulting in better-than-expected payback periods. Further, Aritzia introduced new styles that resonated well with customers. 

While Aritzia’s strong financial performance has driven its share price higher, the momentum in its business will likely be sustained, indicating that its shares could continue to rise, delivering significant capital gains in the coming months. With this backdrop, let’s look at the factors supporting the upside in Aritzia stock. 

Aritzia stock: Growth catalysts 

Aritzia’s top line will likely benefit from opening new boutiques. Notably, the company’s new boutiques have demonstrated robust performance, exceeding anticipated payback periods. Impressively, these new locations are projected to achieve payback within approximately one year, ahead of the company’s expectations of 12 to 18 months. 

The ongoing expansion of Aritzia’s boutiques is expected to drive its revenue and profitability in the upcoming quarters, potentially bolstering its share price.

Further, Aritzia focuses on improving its online customer experiences and bolstering its omnichannel offerings. The company continued testing additional omnichannel services, such as buying online, pickup in-store, and shipping from the store. Its ship-from-store initiative in Canada was successfully implemented and surpassed revenue expectations.

The company’s management expects its omnichannel services to gradually contribute to its e-commerce sales and provide a notable boost. Moreover, as the early results from its omnichannel efforts are promising, it plans to launch these services in the U.S., which will support its sales.

In terms of new styles, Aritzia expects its assortment to improve with a higher proportion of new styles for spring 2024. This will likely drive its top line. Further, the opening of its new distribution facility significantly reduces its inventory management costs and supports its profitability. 

Bottom line 

Aritzia’s top and bottom lines could continue to benefit from its real estate expansion, omnichannel offerings, and its focus on expense management and driving efficiency. The company expects its top line to grow at a compound annual growth rate of 15-17% through 2027. Moreover, its bottom line is likely to show improvement, which supports my bull case. 

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.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aritzia. The Motley Fool has a disclosure policy.

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