Aritzia Inc (TSX:ATZ) stock went out of style with investors after the Canadian women’s clothing retailer, along with the release of better-than-expected fourth quarter fiscal 2023 results, unveiled disappointing full-year 2024 guidance.
Analysts at Canaccord Genuity (TSX:CF, LSE:CF) noted the company’s “robust” 4Q, with net revenue up 43.5% year-over-year to $637.6 million and profit up 9.1% to $37.3 million.
However, they highlighted the company’s fiscal 2024 outlook as more important which, while ahead of their forecast on revenue, fell short on gross margin and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
They noted that the company's weaker-than-anticipated margin guidance came on the back of what they viewed as an already weak 2023 fiscal year adjusted EBITDA margin performance.
“Aritzia anticipates gross margin deteriorating by 200 bps, compared to F2023 levels of 41.6%, and SG&A as a percentage of revenue increasing by 150 bps YoY to 28.9%,” the analysts wrote in a note to clients.
“As a result, the company is forecasting adjusted EBITDA margins of 12.5% for the year, below the 16% recorded in F2023, and well below our previous F2024 forecast of 16.8%.”
They added that looking ahead to 2025, Aritzia expects its EBITDA margins will return to at least 16% as DC pre-opening costs, inflationary pressures, and inventory storage costs subside.
“We believe it will be difficult for investors to look through the F2024 EBITDA margin guidance info F2025, particularly as this represents the second quarter in a row Aritzia has provided a material EBITDA margin outlook miss to the market,” the analysts wrote.
A ‘Buy’ on unchanged growth story
Canaccord’s analysts reiterated their ‘Buy’ rating on the stock but reduced their price target from C$65 to C$50.
“In our view, F2024 very much appears to be a year of investment for Aritzia, with notable margin pressure in the front half of the year, before stabilizing and margin expansion accelerating in F2025,” they wrote.
“As a result, we expect the stock will be challenged over the next two quarters until margin pressures subside. That said, the outlook for F2025 remains generally on track with our expectations ahead of the quarter, and longer term, we believe Aritzia remains a best-in-class retailer for those willing to look through the next couple quarters.”
Analysts at Stifel GMP also lowered their price target on the stock from C$62 to C$50 and repeated their ‘Buy’ rating.
“Despite near-term earnings pressure, Aritzia's growth story remains mostly unchanged with a long runway in the United States and internationally,” they wrote.
“The company is undergoing growing pains which are temporary in nature, and we see a path to a return to historic profitability levels. However, in the meantime, investors' confidence has been shaken.”
Aritizia’s Toronto-listed share had tumbled 19.9% at C$34.51 on Wednesday. Its US-listed shares had also fallen 19.6% to US$25.49.
Contact the author at emily.jarvie@proactiveinvestors.com
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