Aritzia

Aritzia Q2 2018 EPS $0.09 vs. estimates of $0.09

Management Commentary: 

“We are pleased with our strong financial results for the second quarter as we continued to deliver double digit revenue growth, in addition to significant normalized margin expansion” said Brian Hill, Aritzia’s Founder, Chief Executive Officer and Chairman.

Mr. Hill added, “I believe we remain well positioned to deliver significant growth as we continue to focus on identifying premier locations, meaningfully growing our eCommerce business, and consistently delivering product that our customers want.”

Highlights:

-Net revenue increased by 10.2% to $174.0 million from $157.9 million in Q2 last year.

-Comparable sales growth was 5.4%, following 16.4% growth in Q2 last year.

-Adjusted EBITDA increased by 4.5% to $20.7 million from $19.8 million in Q2 last year.

-Net income increased to $5.0 million, compared to a net loss of $67.3 million in Q2 last year.

-The Company opened two new stores (Rush Street in Chicago and Babaton Yorkdale in Greater Toronto) and expanded one store (Square One in Greater Toronto) during the second quarter of fiscal 2018.

My Comments:

-Positive sign to see gross profit increase by 11.4%.

-Expenses as a percent of net revenue decreased from the quarter a year ago, another good sign.

-Excluding certain short-term items, Adjusted EBITDA rose 23%, growing faster than expenses.

-The rise in the Canadian dollar caused an increase in some expenses, something I don’t foresee lasting.

-Management highlighted growth in their eCommerce business, a long-term trend any retailer needs to be investing in.

Recommendation: Hold

-I view Aritiza’s brand strength as a major factor to their success. They are investing in eCommerce and should not be as threatened by Amazon as most traditional retailers are that are reliant on other companies product to sell.

-Currently, in the markets, any retailer with a physical presence has faced short-term resistance as they shift online.

-In Canada, the traditional shopping experience is not dying, but evolving and Aritzia is well positioned to reap the benefits.

-Another part of their success: social media, as seen when Meghan Markle wore an Aritzia dress to the Invictus Games opening ceremony, that dress is now sold out for months. That’s powerful.

Disclosure: I, Jared Flomen, own shares of Aritzia.

Please consult a financial advisor before making investment decisions. This report represents my views, not actionable advice.