Aritzia Inc. (TSX: ATZ) is an innovative design house and fashion boutique. The Company conceives, creates, develops and retails fashion brands. The Company temporarily closed all its retail boutique stores in Canada and the United States and focused on its online segment.

To weather the current downturn, the Company secured a $100.0 million revolving credit facility, to support its short-term working capital requirements. The Company also reduced its temporary compensation for the senior leadership team by 25% and cancelled cash portion of the Director’s remuneration.

FY20 Financial Highlights: ATZ reported a resilient annual performance and reported a 12.2% y-o-y growth in revenue of CAD 980.59 million. The increase was driven by a positive performance across all geographies and all channels through higher eCommerce penetration of 23% driven by strong growth within both traffic and transactions across Canada and the United States. Income from operations increased significantly to CAD 152.27 million, as compared to CAD 116.07 million in pcp, driven by higher revenue and lower stock-based compensation, while increased selling, general and administrative expense remained as a drag. Net income stood higher at CAD 90.59 million, as compared to CAD 78.73 million, driven by a higher income from operations, an increase in other income, offset by a significantly higher finance expense.

FY20 Income Statement Highlights 9Source: Company Reports)

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

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

Stock Recommendation: The stock corrected ~13% in the last three months, due to market volatility across the broader market. The eCommerce segment was marked by stellar growth, which has supported its top line and cash flows. The group has optimized its on-line operations to enhance personalization, which has resulted in higher conversion and client loyalty. The group is accelerating infrastructure investments related to eCommerce and omnichannel projects. To support the short-term working capital, the group has suspended its share repurchase program and has deferred its capex planning regarding the construction activities of its boutiques. The Company is focusing on several cost reduction strategies by minimizing non-essential operating costs and ongoing negotiations with suppliers, vendors, and landlords for concessions. The group witnessed a favorable response for its Spring/Summer products and sales events through the eCommerce channel. The business saw a ~150% surge in its eCommerce revenue sine the physical store closure owing to COVID-19 Pandemic. The group has started phased reopening of its retail stores from 7 May 2020 onwards which is likely to drive the sales along with eCommerce Channel. The stock made a bounce back and reported a ~22% growth in the last one month and is trading above its 20-days and 50-days SMA of CAD 15.98 and CAD 14.38, respectively, which indicates a short-term bullish pattern. The stock is currently trading at a forward EV/Sales multiple of ~2.9x and we believe this multiple to expand in the near term on account of the above-mentioned reason. We have valued the stock using a forward EV/Sales multiple of 3.5x have arrived at a target upside of lower-double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 19.2 on June 1, 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.