A falling stock price can mean two very different things. Sometimes investors have finally discovered the business is in trouble. Other times, an excellent company simply spent too long carrying a price tag that assumed nothing would ever go wrong.
The second situation is far more interesting. That’s what I see happening with Aritzia (TSX: ATZ).
Shares recently traded around $123, almost 30% below their 52-week high of $174.52. Normally, that kind of decline would send me hunting through the earnings report for something unpleasant hiding between adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and inventory.
Instead, Aritzia just reported one of the strongest quarters in its history.
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Into earnings
First-quarter fiscal 2027 revenue surged 43% year over year to $951 million. Comparable sales, which measure growth from established boutiques and digital channels rather than simply adding new stores, jumped an extraordinary 35%.
Demand was strong across Canada, the United States, physical stores, and digital channels. U.S. revenue climbed 55%, while digital revenue increased 56%. That U.S. number is particularly important. Canada created Aritzia. America could make it enormous.
The United States already generates about two-thirds of company revenue, yet Aritzia remains a relatively small retailer compared with the size of the American market. Management plans to continue opening boutiques while increasing digital sales and broader brand awareness. That’s a growth runway I’d happily keep watching for years.
Growth and profit
Rapidly expanding retailers can produce wonderful sales numbers while setting fire to margins. Aritzia is moving the other way. Adjusted EBITDA jumped 81% to $192 million last quarter. Its adjusted EBITDA margin expanded 410 basis points to a first-quarter record of 20.1%. That improvement is especially impressive given the tariff pressures retailers have been navigating.
Management expects fiscal 2027 revenue of roughly $4.4 billion to $4.6 billion and an adjusted EBITDA margin around 19.5%. So, the investment thesis isn’t simply “maybe Americans eventually discover Aritzia.” They already have. The question is how much larger the business can become.
Considerations
My biggest complaint about Aritzia has often been simple. That everyone knows it’s good. Quality becomes considerably less attractive when the share price demands perfection. At roughly $123, Aritzia now trades around 24 times forward earnings. That’s hardly bargain-bin territory. Yet it’s considerably more reasonable for a company growing revenue at this pace while expanding margins.
The stock’s decline has therefore improved the investment case without requiring deterioration in the underlying business. That said, fashion is famously unforgiving. Today’s must-have brand can become tomorrow’s pile of discounted sweaters surprisingly quickly. Aritzia must keep producing products customers actually want while expanding aggressively across the United States.
Tariffs remain another concern. The company also expects about $250 million in capital expenditures this year as it opens and repositions boutiques and supports future growth. A prolonged consumer slowdown could eventually hit demand as well. Those risks are why I’d build a position rather than throw every available dollar at the stock.
Bottom line
Still, look at what’s actually happened. The share price has fallen almost 30% from its high, revenue rose 43%, margins expanded, and U.S. sales rose 55%. Sometimes a selloff is the market warning investors that something has gone badly wrong. This one looks much more like an excellent business becoming cheaper.
