Artizia (TSX:ATZ) has been one of the fastest-growing retailers in recent years, offering new and trendy fashions for all. It’s also been one of the best-performing retail stocks. But things have become increasingly difficult and challenging for the consumer and the broader economic environment. What does this mean for Aritzia stock?
Here’s what you have to know about Aritzia before making any investment decision about the stock.
Aritzia stock has more than doubled
On a five-year basis, Aritzia’s stock price has more than doubled. This is no surprise, really, as the retailer’s performance during that period was really strong.
For example, its revenue increased 151% to $2.2 billion. Also, its net income increased by 140%. This was driven by store count expansion as well as strong same-store sales growth, as Aritzia’s brand became increasingly known and popular.
But these days, Aritzia’s stock price has been falling from its highs. In fact, the stock is down almost 40% from its 2022 highs. This has been driven by a slowing consumer and the consequent slowing of Aritzia’s revenue growth.
Revenue growth has stalled
This brings me to the next point. While the company had been easily posting double-digit revenue growth not too long ago, today, this has slowed considerably. In the company’s latest quarter, its third quarter, fiscal 2024, the company posted revenue growth of a mere 5%. Even worse, same-store sales growth was almost non-existent, at 0.5%.
Along with this, the company experienced a sharp decline in its earnings before interest, taxes, depreciation, and amortization, which fell 23% versus the prior year. Finally, its earnings per share (EPS) declined 30% to $0.47.
Estimates are falling
Naturally, with these results, we are seeing expectations for the company come down. At this time, the consensus estimate for Aritzia is calling for EPS of $0.91 in fiscal 2024, $1.83 in fiscal 2025, and $2.35 in fiscal 2026. This equates to growth rates of (51%), 100%, and 28%, respectively.
If the consumer spending environment continues to worsen, and I think the risk of this happening is real, then estimates will come down further to reflect this.
Aritzia has big plans
Despite this slowdown in consumer spending, the company continues to plan out and execute its ambitious growth plans. From now until fiscal 2025, Aritzia plans to expand its real estate footprint and invest heavily in its e-commerce platform.
Aritzia stock’s valuation doesn’t reflect the reality
In my view, Aritzia is clearly facing many risks related to the worsening macroeconomic environment. The company can be considered a pricier option for apparel, and in times of a weakening consumer spending environment, this is not where you want to be invested.
Yet, Aritzia’s stock price is currently trading at 41 times this year’s consensus EPS estimate. This is pricey for a cyclical retailer at any time, but especially in these times.
Retail stocks are cyclical
During the years when retailers like Aritzia were seeing strong and consistent sales growth, it might have been easy to forget that retailers like Aritzia are highly cyclical. This means that their fortunes are dictated by the economic cycle of consumer spending, which is out of their control.
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Aritzia’s guidance for this fiscal year reflects this reality. The company expects revenue to come in between $2.32 billion and $2.34 billion, or 6% to 7% higher than the prior year. Simply put, slowing consumer spending is hitting Aritzia’s growth plans.
The bottom line
So, where does that leave us? Well, the bottom line is that, in my view, this is no time to be investing in premium-priced retailers. The macro environment is a significant factor for these retailers to win without its cooperation.
Despite my admiration for the company’s impressive performance over the last many years, I remain on the sidelines.
