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Aritzia Gives Back Gains After Exceptional Quarter

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Earlier this week, Canadian specialty retailer Aritzia delivered a strong quarter. Its stock jumped 10% on the news. It’s failed to hang on to those gains.

Canadian specialty retailer Aritzia (TSE:ATZ) gave back most of this week’s earnings driven.

On Wednesday, the Vancouver-based company [any posted strong second-quarter results that included nearly an 80% increase in U.S. sales. Its shares jumped 10% on the news.

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Down 8% year-to-date, it appears the negative sentiment that's gripped North American markets so far in 2022 is doing its best to hold back ATZ stock.

Long-term, however, the strength in the retailer's U.S. business is cause for shareholder celebrations. If it continues to grow south of the border, investors can expect its shares to follow the same path as Lululemon (NASDAQ.:LULU), its Vancouver neighbor.

Aritzia's Q2 Earnings

Aritzia said that seven of the eight boutiques it opened in the second quarter were in the U.S. It also expanded the size of one U.S. location along with four in Canada. The retailer has a 240,000-square-foot, third-party warehouse facility in Columbus, Ohio, to handle its U.S. business.

The company's revenue in Q2 2023 increased 50.1% to $525.5 million (all figures in Canadian dollars unless noted), with 28.3% same-store sales growth. In addition, its U.S. revenue accounted for 50.1% overall, putting it over 50% for the first time in its history.

Lululemon's U.S. sales went over 50% for the first time in fiscal 2011. Its share price has appreciated 348% in the decade since, twice the return of the S & 500 over the same period.

Another similarity between the two companies is their omnichannel retailing business model.

Aritzia's e-commerce revenue increased by 33.3% to $173.9 million in the second quarter on solid growth in Canada and the U.S. e-commerce now accounts for 33.1% of its overall revenue. While that's down from 37.2% in Q2 2022, its e-commerce growth remains very healthy.

Lululemon's direct-to-consumer e-commerce revenues only hit 33% in fiscal 2020.

As with most retailers, Aritzia's struggling with supply chain issues. In the second quarter, its gross margin was 41.9%, 270 basis points less than a year earlier. Increased freight costs were a significant contributor to the decline.

Despite the decline in gross margins, Aritzia's adjusted net income in the second quarter was $50.6 million, 14.0% higher than in Q2 2022.

Because of supply chain issues, many retailers face increased promotional pricing due to higher inventories than average. Aritzia feels its inventory of $455.1 million at the end of the second quarter -- 150% higher than a year ago -- won't require additional markdowns beyond those used in the past.

Aritzia expects fiscal 2023 full-year revenue of at least $2.0 billion, 35.5% higher than in 2022 at the midpoint of its guidance. That's up $125 million from its previous guidance.

It expects its retail network and e-commerce businesses in the U.S. and Canada to continue to perform at a high level over the second half of fiscal 2023.

Not only is Artizia's business performing at a high level, but so are management's share repurchases. Between Jan. 17, 2022, and Oct. 11, 2022, the company repurchased $69.2 million of its stock at an average price of $38.77, well below where it's currently trading.

Article by Will Ashworth, Fintel