Aritzia Inc.

Aritzia Wraps Up Gifting with Relief Clothing Packages: Aritzia Inc. (TSX: ATZ) is an integrated design house of exclusive fashion brands that designs apparel and accessories for its collection of exclusive brands and sells them under the Aritzia banner. As on 25 August 2020, the market capitalization of the company stood at ~CAD 1.52 billion. The company has wrapped up its community^TM care program and has gifted relief packages to 100,000 frontline healthcare heroes.

Quarterly Performance (For the Period Ended 31 May 2020): During the quarter ended 31 May 2020, the company saw a meaningful closure of 96 boutiques, but eCommerce revenue increased by 150%. During the quarter, net revenue decreased by 43.4% to CAD 111.4 million and gross profit margin decreased to 11.7% from 43.5% in the pcp. This was mainly due to the deleveraging of occupancy, warehousing, and distribution costs from the loss of retail revenue. However, the company managed its expenditures and maintained liquidity to preserve its solid financial position. Growth in eCommerce, coupled with prudent inventory and expense management, enabled the company to end the quarter in a decent position with a cash balance of CAD 224.3 million.

Outlook: The company has provided guidance for FY21 and expects capital expenditures to be between CAD 30 million to CAD 35 million. It also anticipates opening another 5-6 new boutiques.

Key Risks: Given the market uncertainty, the company is exposed to a variety of risks including the risks related to restrictions that may be placed on servicing clients in reopened boutiques, supply chain performance and growth strategies, the company’s ability to mitigate the impacts of COVID-19, changes in the consumer discretionary spending and shopping habits, etc.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains ample inventory for the coming seasons with lower initial buy and flexibility to reorder to meet demand. Despite the uncertain retail environment, the company is confident in the tremendous growth potential of its business and will continue to invest in exceptional talent and world-class infrastructure. The company has its AGM on 17 September 2020. As per TSX, the stock of ATZ is trading on its average 52-weeks’ levels and retains the potential for further growth. The stock of ATZ gave a return of 7.8% in the past three months. We have valued the stock using the EV/Sales multiple based illustrative relative valuation approach and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past one month, resilience of the business in the times of uncertainty and key risks, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 18.01, up by 0.28% on 25 August 2020.

ATZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.