Aritzia should report an earnings beat for the first quarter of fiscal 2024, according to analysts at UBS.
The analysts believe the Canadian women’s clothing retailer maintained strong momentum during the quarter and forecast the beat along with the expectation that Aritzia will raise its 2024 financial year sales guidance by about 200 basis points.
This should improve sentiment around the stock, which they noted was bearish.
“While ATZ’s management will likely remain conservative on its margin outlook, we believe its sales guide will clear the market’s ‘bar’ for the event and cause sentiment to improve,” they wrote.
They noted that Aritzia’s stock typically moves plus or minus 7.3% over its earnings, and wrote that they believe it could move more than 7.3%.
“The downside risk is ATZ’s updated outlook disappoints the market, but we see a low chance of this scenario playing out,” they wrote. “Data suggest sentiment weak, and, in our view, limits downside risk around the event.”
On the company’s 1Q performance, the UBS analysts expect the retailer to report earnings per share of C$0.10, C$0.02 above the Street's consensus expectation.
They expect quarterly sales of $471 million, up 15% from the year-ago quarter, reflecting 3% comparable sales growth and the benefit of seven boutique openings over the last 12 months.
They noted that their analysis of Google data shows Aritzia’s US searches rose 79% during fiscal 1Q on a two-year basis.
Its analysis also showed US foot traffic monitor indicates traffic at Aritzia’s locations increased 62% during the quarter, also on a two-year basis.
Further, the analysts cited industry data which shows that Aritzia’s unique website visitors grew by 8% year-over-year during the same period, suggesting that the retailer is attracting new customers.
Taking these factors into account, the analysts maintained their ‘Buy’ rating on Aritzia stock with a price target of C$51. Their valuation is based on 18x their 2026 financial year earnings per share (EPS) estimate of C$2.85.
“Our multiples analysis indicates a C$51 price target puts ATZ's valuation in line with peers in terms of price-to-earnings ratio (P/E), price-to-sales ratio (P/Sales), and free cash flow (FCF) yield,” they wrote.
Aritzia shares traded at C$36.65 Friday afternoon.
Contact the author at emily.jarvie@proactiveinvestors.shcom
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