When the market closed on Wednesday and Aritzia (TSX:ATZ) was set to report its third quarter fiscal 2024 earnings, analysts and investors were anxiously awaiting to see how the impressive retail stock would perform.
Aritzia’s share price has been hammered over the last two years after reaching its all-time high of roughly $60 almost exactly two years ago.
As the economy worsened, there was significant concern that a consumer discretionary stock like Aritzia could see significant impacts on its operations and its margin in particular.
So when earnings were well ahead of consensus expectations, it was no surprise the stock gained a whopping 21% yesterday alone, and today is up again early in morning trading.
The impressive rebound of Aritzia’s stock demonstrates the value of focusing on undervalued, high-quality companies. Here are five key things to know about its recent earnings.
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Aritzia’s revenue beat expectations
With investors concerned with how the economic environment may impact Aritzia, it was promising to see it beat analysts’ estimates for revenue.
Aritzia stock reported e-commerce revenue growth of 5.5%, plus same-store-sales growth (SSSG) of 0.5%, compared to expectations of a 4% decline.
Plus, when you consider new store openings, Aritzia’s revenue came in at $653.5 million compared to expectations of $623.2 million.
Aritzia’s EPS exceeded consensus expectations
Aritzia’s margins have been impacted this year due to more promotions on its products as a result of the economic environment, and expenses have been up due to an increase in labour costs, both of which were expected. Aritzia has also been making progress on increasing the efficiency of its operations to cut costs where it can.
This, plus its impressive revenue generation resulted in higher-than-expected earnings per share (EPS) for Aritzia in the third quarter at $0.47 compared to the consensus estimate of $0.41. This is a major reason for the big jump in share price.
Aritzia stock has impressive short-term growth potential
In addition to the impressive results, Aritzia also has a prudent plan for both improving its margins and growing its sales in the coming years.
For example, it’s already on its way to opening six new boutiques in F2024, all of which are opening in the U.S., where Aritzia is rapidly expanding its presence. At the end of the third quarter Aritzia had 68 boutiques in Canada and 49 in the United States.
And while Aritzia also typically sees SSSG in most quarters, particularly when the economy is strong, opening new stores is key to the rapid growth of Aritzia.
First off, opening a new store costs on average $3 million and has an average payback period of just 12-18 months. Furthermore, as new stores open Aritzia often sees an increase in ecommerce sales as well in the region, as more consumers become aware of its brand.
Don’t forget its long-term growth potential
On top of this exciting short-term potential, Aritzia has major plans over the longer term as well. For example, by fiscal 2027, Aritzia plans to more than double its sales in the U.S., as well as its e-commerce sales. And in total it expects its retail sales to grow by more than 50%.
The stock also expects net revenue of $3.5–$3.8 billion in fiscal 2027, as well as its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to grow to 19% of revenue ($665 million to $722 million).
Aritzia plans to achieve this growth by opening approximately 8–10 new USA boutiques annually through fiscal 2027, growing its total boutique count to approximately 150, and increasing its total retail square footage by up to 60%.
Aritzia stock still trades undervalued
Despite jumping by 21% yesterday, Aritzia stock is still trading at 20.1 times its estimated earnings over the next 12 months. That’s relatively cheap for such an impressive growth stock. For comparison, its three-year average is 28.1 times.
Even more compelling, however, is that as Aritzia is expected to rebound over the coming years it’s currently trading at just 17.7 times its fiscal 2025 (next year’s) earnings and just 13.8 times its expected earnings in fiscal 2026.
So although Aritzia stock is not as cheap as it has been trading over the last year few months, you could certainly still consider it today.
