Analysts at UBS have maintained their ‘Buy’ rating on Aritzia but lowered their price target on the stock after the Canadian clothing retailer lowered its guidance when handing down its first quarter fiscal 2024 earnings.
They wrote in a note to clients that they maintained their ‘Buy’ rating for three reasons, the first being their view that sentiment on the stock was near a trough level based on their conversations with investors.
Second, they believe Aritzia’s updated outlook incorporates a tougher consumer spending environment.
Finally, the analysts forecast that Aritzia’s earnings per share (EPS) growth will bottom in 2Q and could start to positively surprise again in the second half of fiscal 2024 driven by cost savings initiatives.
However, they noted two key reasons that could change its positive view: weaker-than-expected performance from new store openings and less conviction on Aritzia’s margin recapture potential.
The analysts lowered their fiscal 2024, fiscal 2025, and fiscal 2026 EPS estimates by 38%, 20%, and 9%, respectively.
For fiscal 2024, they reduced their sales forecast by 950 basis points to 5% year-over-year given softer comparable sales for the rest of the year.
“We model deeper fixed cost deleverage and thus our FY24 operating margin estimate is down 270 basis points versus prior, leading to a 38% decline in our FY24 EPS estimate,” they explained.
For fiscal 2025, they anticipate Aritzia’s revenue growth will accelerate given diminishing macro headwinds, more store openings, and positive comparable sales.
“However, we expect a slower margin recapture and this, along with a lower revenue base, are key reasons our FY25 and FY26 EPS estimates fall 20% and 9% versus prior, respectively,” they wrote.
Having lowered their EPS estimates, the analysts reduced their price target on the stock by 20% from C$51 to C$41.
Aritzia shares traded hands at C$27.25 at noon on Thursday.
Contact the author at emily.jarvie@proactiveinvestors.com
Follow her on Twitter @emilyjjarvie