Yahoo Finance Aritzia close up 21% as sales surpass expectations, stock gets upgraded
Aritzia Inc.'s stock (ATZ.TO) closed the trading day on Thursday up 21 per cent after the company reported third-quarter earnings that saw sales surpass expectations, prompting at least one analyst upgrade.
The Vancouver-based clothing retailer reported that sales in the third quarter climbed five per cent annually to $653.5 million, surpassing the average analyst estimate of $621.9 million, according to Bloomberg. The company also eked out an increase in comparable sales – a key metric in the retail industry that excludes recently opened locations – of 0.5 per cent.
While sales were up, net income fell 39 per cent to $43.1 million as the company issued higher markdowns in the quarter in order to optimize inventory levels and faced pre-opening lease amortization costs for flagship boutiques.
Still, the results prompted CIBC analyst Mark Petrie to upgrade the rating on Aritzia's stock to "outperformer", raising the company's price target from $30 per share to $37 per share.
"Aritzia is delivering growth despite execution issues and consumer caution, and has numerous levers into (next year) and beyond," Petrie wrote in a note to clients. While he notes that the company will be affected if consumer discretionary spending further decelerates, CIBC believes Aritzia can still outperform given moderated expectations and as it brings more new products into stores.
"(We) believe the restoration of 'newness', the continued expansion into new U.S. markets, the ramp of digital marketing, and the rollout of further omnichannel capabilities are important offsets and should support Aritzia to outperform the category."
BMO Capital Markets analyst Stephen MacLeod maintained a rating of "market perform" for Aritzia, but hiked the share price target to $32.
"Revenue increased in both Canada (up 5.1 per cent) and the U.S. (up 4.2 per cent), with trends improving sequentially through the quarter," MacLeod wrote in a note to clients.
"While macro pressures remain, revenue trends have continued into Q4 with management noting a pickup in the U.S."
Shares of the Canadian clothing retailer jumped as much as 24 per cent on the Toronto Stock Exchange on Thursday. Aritzia's stock closed the trading day at $32.01, a gain of 21 per cent compared to Wednesday's close.
Aritzia's stock struggled through 2023, falling 41 per cent as the company dealt with higher inventory levels and focused its efforts on opening new store locations, particularly in the United States.
The company is still focused on expansion in the U.S., and will open between 11 and 13 stores south of the border while also expanding four to five flagship stores, including two in Manhattan. It has also increased its digital marketing efforts to raise brand awareness in the U.S.
Chief executive officer Jennifer Wong says Aritzia will have more new products in its overall assortment in the spring, something that is in line with its historical allotment balance after the company shifted away from it through the COVID-19 pandemic.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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