Canadian investors looking to buy the dip may wish to consider the clothing scene, with shares of Canadian apparel firms Aritzia (TSX:ATZ) and Lululemon (NASDAQ:LULU) both comfortably off their all-time highs.
Undoubtedly, high fashion can be pretty fickle, leading to booms and busts that may be too much for long-term investors to handle. However, with a bust already likely in the books, investors may wish to shift gears to focus on a boom that may just be around the corner. Indeed, apparel is a tough place to be right now, with numerous big names in the industry falling hard in recent years.
Though there are no clear catalysts that could propel them out of their current funk in the fourth quarter, I like the longer-term setup for investors seeking sizeable upside potential through the next three years.
Aritzia and Lululemon have both dealt with stiff challenges of late, but with their brand power still intact, perhaps the two names could be in a great spot to make up for lost time at the first signs of an improving economy. Let’s take a closer look at the two women’s clothing retailers to find out which is the better bargain for your buck this fall.
Aritzia
Aritzia is a Vancouver-based company with a brand that many Canadians are all too familiar with. Though the stock crashed back in 2022 and 2023, shedding more than 62% from peak to trough, shares have since woken up in a big way.
Shares have more than doubled (up around 130%) since its late-2023 lows. And though the huge discount is all but gone, I still find Aritzia to be a stellar long-term growth stock as the firm continues expanding beyond the borders of Canada. Specifically, the U.S. expansion has been pretty successful so far. However, until Aritzia gets more aggressive with new store openings down south, next-level growth may be put off.
As rates fall and consumers recover, look for Aritzia sales to heat up. Perhaps a more aggressive expansion plan would make more sense as management looks to play things by ear.
Either way, Aritzia’s very much in growth mode, making it a prime candidate for investors seeking a rich upside play in apparel. The stock goes for 27.8 times forward price-to-earnings (P/E), which isn’t all too expensive for a proven growth play. As for LULU, the stock’s down 50% and could struggle to recover as new products (think Breeze Through) struggle to really impress.
Lululemon
Lululemon is another Vancouver-based clothing retailer that’s faced pressure in recent years, thanks in part to higher rates, fast-rising rivals, and changing fashions. The Canadian company, whose shares don’t even trade on the TSX Index, is best known for its yoga wear dawned in and out of the yoga studio.
However, the firm has made efforts to expand into footwear and more casual athleisure apparel categories over the years. Despite this, the company seems less able to “pivot” as athleisure goes out of style. Simply put, the Aritzia brand seems more agile, given it doesn’t solely concentrate on a small corner of apparel (sportswear). So, if it’s jeans that are in, Aritzia can adjust accordingly and profit from the next trend.
Lululemon is in a tight spot (no pun intended), so it should certainly be on its way out for good this time. I have no idea how Lululemon can adapt as sales look to grind to a halt. While LULU stock is cheaper than ATZ at 20 times trailing P/E, I’d argue that ATZ is the better buy. It’s still gaining growth, and its brand, I believe, is more resilient to changes in fashion.
