Back when interest rates were low and consumer spending was high, Artizia (TSX: ATZ) and Canada Goose Holdings (TSX: GOOS) saw their stocks shine. In fact, these were two of the most sought-after retail stocks. From their respective initial public offerings (IPOs), Aritzia stock and Canada Goose stock provided investors with tech stock-like returns for a short time period.
However, times are different today. Let’s see which of these two retail stocks is the better stock to buy today.
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Canada Goose stock
The $1,000 winter jacket craze was a thing, and as more and more people bought them, more and more wanted them. But those were the days of ultra-low interest rates—when our mortgages had low interest rates, and our living expenses were reasonable.
Let’s fast forward to today. Interest rates are higher, so mortgage payments are becoming increasingly higher. Also, inflation has increased food and gasoline prices. Life, in general, is way more expensive. This has made consumers less able and less willing to make luxury purchases, such as the $1,000 winter jacket at Canada Goose.
This is evidenced in Canada Goose’s direct-to-consumer same-store sales growth of a mere 1.6% in its latest quarter, the third quarter of fiscal 2024. This increase, along with the company’s revenue increase of 6%, is a far cry from the days of double-digit increases. Things are expected to continue to deteriorate, with the company giving guidance for comparable sales growth of between a low single-digit decrease to a low single-digit increase for the full year.
From a stock price perspective, the good news is that Canada Goose is not reflecting much in terms of growth. The bad news is that there might still be downside risk to analyst earnings estimates.
Aritzia stock
Aritzia is another premium-priced retailer that’s struggling to post strong comparable sales growth like it used to in the past. But this is to be expected, given the sharp increase in interest rates and the inflation that we’ve been experiencing.
In its latest quarter, the fourth quarter of fiscal 2024, Aritzia posted revenue growth of 7%. This was accompanied by a comparable sales decline of 3%, and it illustrates the industry-wide issue of slowing consumer spending.
Looking at Aritzia stock’s performance over the last few years, we can see that after a very strong post-IPO performance, it has stalled. However, the retailer’s stellar performance with regard to introducing new product categories and expanding both its store locations and its global e-commerce business has given the stock new life.
Finally, the company’s gross margin improvements show efficiency gains. This will continue to improve the bottom line in the years ahead.
The bottom line
I have been pretty convinced that now is not the time to buy retail stocks such as the two discussed in this article. Both of these companies are experiencing falling sales trends, and valuations have not come down far enough to reflect this, in my view. However, there will, of course, be a time to step in and buy them.
With this in mind, I think that Aritzia is the better stock to buy if and when its valuation comes down from current levels and begins to more adequately reflect the real risks of the business.
