Aritzia Inc (TSX:ATZ) shares tumbled almost 20% after the company’s first quarter fiscal 2024 results highlighted the impact of the current challenging consumer environment on the retailer.
The Canadian brand posted earnings per share of $0.10 for the quarter which ended on May 28, 2023, down 72% from earnings per share of $0.35 in the same quarter last year but higher than the consensus analyst expectation of $0.09.
Its net income fell by 47.5% from the year-ago quarter to $17.5 million and revenue rose 13.4% to $462.7 million.
Stifel analysts noted that a decline in earnings was expected as Aritzia copes with margin headwinds.
Sending the stock lower was management’s revision of its full-year guidance with the brand now expecting 600 basis points of pressure year-over-year on its earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, “a meaningful change” from the 350 basis points pressure communicated in May, Stifel’s analysts highlighted.
“The macroeconomic environment is weighing on sales which could decline year-over-year in 2Q FY24,” they wrote in a note to clients.
“Lower expected sales for FY24 are resulting in a deterioration in the fixed cost absorption, which explains the change in EBITDA margin guidance.”
They added that the significant downward revision to guidance just three months after implementation may reduce management’s credibility.
“However, the revision is likely driven by macro challenges rather than company-specific issues,” they wrote.
Stifel’s analysts lowered their price target on the stock to C$40 from C$50 “to reflect ongoing challenges” but maintained their Buy rating on their long-term view of the stock.
They wrote that their target price is derived from the average of a 12.5 times multiple applied to their 2025 financial year EBITDA forecasts (previously 14 times), a 19 times multiple applied to their 2025 financial year estimate (previously 20 times), and a discounted cash flow calculation.
“Overall, we view the current headwinds as being temporary and thus our long-term thesis on Aritzia remains unchanged,” the analysts concluded.
Aritzia shares were down 19.4% at C$27.11 on Wednesday morning.
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