September Idea Competition - Aritzia Inc. ($ATZAF)
Wait, Who?
Aritzia is a vertically integrated fashion retailer offering what they call Everyday Luxury primarily catering to the female demographic. They maintain the bespoke-ness of your local luxury fashion shop while operating over 100 stores across Canada and the US. Each boutique, as they call their locations, is independently designed factoring in the local culture. No cookie-cutter locations. Also, their curated playlists are pretty good and available on $SPOT. I’m listening to their Cozy Sundays playlist as I write this.

Cool. Do They Move Product?

Since FY2018, Aritzia has seen their revenues grow at a CAGR of 19% while gross profit has grown at a CAGR of 22%. FY22 was a record year for margins with gross at 43.8%, operating at 15.8%, and net at 10.5%, improvements over FY20 (pre-COVID due to their FY ending in February's) of 270 bps, 30bps, and 130bps, respectively. Beyond margins, Aritzia reported C$2.36 in FCF/share, up 50% over two years earlier.

They’re pretty good at managing inventory as well. Aritzia has consistently maintained a TTM inventory turnover ratio between 4.0 and 5.0, figures other luxury retailers envy.

Talk Growthy To Me

Management identifies four growth drivers. Everybody wants to expand their eCommerce presence. That’s integral but boring to talk about. The keys to me are expansion.

  • Product Expansion

Aritzia made its first significant foray into the men’s demographic last year with the $63MM acquisition of Reigning Champs. This is a massive untapped market for them and the excitement from then-CEO Brian Hill showed in their press release. “...this acquisition meaningfully accelerates our product expansion into men's while bringing incremental growth to our already surging women's eCommerce and U.S. businesses. Capitalizing on our world-class operational expertise and infrastructure, men's, merchandised independently, will become a meaningful part of Aritzia's platform through our Reigning Champ acquisition.”

While management has been mum on the progress, there’s little reason to doubt their ability to successfully build out their men’s offerings although I expect them to take a slow, methodical approach.

  • Geographical Expansion

They currently have 109 boutiques, 61% being located in Canada and 39% in the US. Management recognizes the US opportunity as 19 of the 23 boutiques opened since 2018 have been south of their border.

Amounts in C$

Even though ~1/3 of their revenue comes from eCommerce, I believe revenue per boutique is a key metric to watch. As management noted below, geographical expansion is key in further driving eCommerce sales. Accordingly, management is guiding for 8-10 new boutiques in FY23 with all but 1 being in the US.

Don't think the boutiques aren't pulling their weight though. Aritzia generated over $1,230 in boutique sales per SqFt in FY22, on par with lululemon, who we'll discuss shortly.

Management and Insider Ownership

Aritzia has grown from one boutique opened by Brian Hill in 1984 to a rapidly growing up-and-coming behemoth currently run by Jennifer Wong, a veteran of the industry and a key figure in Aritzia’s eCommerce launch in 2012. Wong has been with Aritzia for 35 years, beginning with the company as a part-time sales associate in 1987, one year after their first boutique opened.

In May 2022, Aritzia announced that Wong would become CEO while Hill would transition to Executive Chair. In the press release, Aritzia was keen to note that Hill would remain part of the business and he had “no immediate plans to make changes in share ownership position", important as he currently owns nearly 20% of outstanding common shares.

Why Not Buy Lululemon? (The Valuation Section)
You could, sure, but you’d be paying premiums across the board for a company that’s growing sales just a few percentage points quicker and is at a more mature stage in its growth cycle. Evidence of that latter point is while both management teams are guiding for 26% revenue growth in their current FYs, lululemon recently released their five-year growth plan to double revenue to $12.5B by 2026. Sounds great except that would be a CAGR of <15% over the next 5 years, a significant slowdown.

Competitors such as $GOOS, $SHOO, $COLM, and $URBN are smaller in EV and may seem cheaper in some metrics, but that comes with 3Y revenue CAGRs <10%. With $ATZAF, you're paying a small premium over them, and a big discount to $LULU, for accelerating sales, gross profit, and net profit growth.

Disclosure Stuff
I own Aritzia and lululemon. There's room for both in a market-beating portfolio.
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Unfortunately I've been buying $ATZAF in a brokerage that is linked to Commonstock but isn't mapping my trades over so I've had to manually post when I did a trade. I actually just bought again on 9/2 but forgot to post that one. Here's my post from July 8 for a purchase I made on July 6 https://commonstock.com/post/9b2d9024-cadb-43e1-8cc5-8429d416bf18

On Septeber 2, I added another 7.5% more shares at a P/S of 2.9, forward P/S of 2.2, P/FCF of 22, and P/GP of 7.

All my other buys were between July 2021 and April 2022, before I joined Commonstock.
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Erick Mokaya's avatar
$102.4m follower assets
Erick Mokaya's avatar
$102.4m follower assets
In our newsletter this week:
🏦Takeaways from Jackson Hole symposium
💳Credit card delinquency rates up slightly
🎮A sharp slowdown in gaming revenue at $NVDA


Paul Cerro's avatar
$36.7m follower assets
It's All About "Perspective"
Just because some retailers have beat sales estimates recently does not mean they're out of the woods yet.

Take a look at 12 companies in this week's "Chart of the Week" that shoes how dire the inventory situation has become.


PMIs, New Home Sales, Earnings: Daily Contrarian, Aug. 23
Good morning CommonStock! Commodities are moving higher in the pre-market, with natural gas in the U.S. at 14-year highs…

We have PMIs at 0945 and new home sales at 1000. Also earnings: $M, $JD, $SJM, $DKS, $JWN, $URBN, and others.

More about today’s activity and sentiment here:
A Bunch of Stocks Getting Blown Up
Here are a bunch of stocks getting absolutely blown up over the last couple of weeks/months:

Visit highsandlows.substack.com to see more
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$JWN Nordstrom Crushes Expectations
Yesterday, Nordstrom $JWN quietly beat expectations and raised its full-year guidance sending the stock up 9% after the report. This came as a surprise to many investors following the awful reports from Target $TGT and Walmart $WMT. Let's dig in and see if the financials could’ve helped us see this move coming.

$JWN has been cut in half from its previous 52wk highs but is holding up surprisingly better than other retailers like $ANF, $GPS, and $URBN. Maybe some investors saw this move coming.

Heading into earnings, $JWN Nordstrom had the highest revenue growth and the third-highest valuation multiple. Perhaps, investors could’ve argued the stock was undervalued leading up to its report.

Unlike the other retailers on this list, Nordstrom $JWN has seen its margins rise in recent quarters. This focus on profitability could’ve been an early sign of an earnings beat.

Lastly, we can’t forget about the new metric we just added, free cash flow! When looking at the smaller retailers, Nordstrom $JWN delivered the second-highest amount of free cash flow per dollar of market cap. Although it is easy to look at the data in hindsight, trends can be a helpful part of the research process.
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Paul Cerro's avatar
$36.7m follower assets
Fashion resale market a big opportunity
The news: On Earth Day, April 22, lululemon athletica will expand its Like New trade-in and resale program nationwide.

  • The program, which is launching after a two-state pilot run last year, allows shoppers to trade in lululemon clothing such as pants, shorts, and jackets for an egift card. The retailer is also featuring an assortment of gently used lululemon items online.
  • A number of companies, including Another Tomorrow, Cuyana, Moda Operandi, Target, and Urban Outfitters, have also recently launched resale initiatives by teaming up with a partner, such as technology provider Trove Recommerce, luxury bag and accessories reseller Rebag, or online consignment store thredUP.

Expect this year to be a banner year for online fashion resale, with year-over-year sales growth of 46.6% reaching $15.50 billion thanks in part to more prominent retailers entering the space.

  • Forecasts project resale’s share of retail ecommerce apparel and accessories sales will rise from 6.0% in 2021 to 10.0% in 2025.

The news:
  • The program, which is launching after a two-state pilot run last year, allows shoppers to trade in lululemon clothing such as pants, shorts, and jackets for an egift card. The retailer is also featuring an assortment of gently used lululemon items online.
  • A number of companies, including Another Tomorrow, Cuyana, Moda Operandi, Target, and Urban Outfitters $URBN, have also recently launched resale initiatives by teaming up with a partner, such as technology provider Trove Recommerce, luxury bag and accessories reseller Rebag, or online consignment store thredUP $TDUP.

More on this: Expect this year to be a banner year for online fashion resale, with year-over-year sales growth of 46.6% reaching $15.50 billion thanks in part to more prominent retailers entering the space.
  • Forecast projects resale’s share of retail ecommerce apparel and accessories sales will rise from 6.0% in 2021 to 10.0% in 2025.

A focus on sustainability: Online fashion resale benefits from consumers’ growing interest in sustainability—particularly among younger consumers.
  • Nearly 50% of millennials and 38.4% of Gen Z shoppers consider sustainability “very important,” per a 2021 Composed and MaCher survey.
  • The growth in online fashion resale will be driven in part by the growing discretionary incomes of younger consumers, as well as a flood of retailers entering the space. That means there are more used goods available online to attract consumers to resale.
  • Resale platforms also benefit from flywheel effects, as buyers become sellers and vice versa.
  • Expecting annual average sales per buyer via online fashion resale marketplaces will more than double between 2021 and 2025.

The brand advantage: The initiatives by retailers such as lululemon $LULU can reassure consumers that the items they purchase are authentic and of a high quality. $REAL
  • That gives brands an advantage over peer-to-peer marketplaces, said Sky Canaves, eMarketer principal analyst at Insider Intelligence. “Brands can more easily gain consumer trust by guaranteeing the authenticity and condition of their secondhand offerings,” she said. “Resale can also improve relationships with consumers over the long term if brands can offer a consistent shopper experience for both new and used goods.”

The big takeaway: The resale market offers an enticing opportunity for brands to demonstrate their sustainability bona fides at the same time they’re opening up new revenue streams.
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Good morning contrarians! We aren’t out of the woods on Russia-Ukraine, or even close. As discussed yesterday, the Russian economy is very much behind the 8-ball and Biden could announce further sanctions in his State of the Union Speech tonight.

The conflict has impacted commodity supply chains pretty significantly, especially where Europe’s energy needs are concerned. If nothing else, it looks like buying any dip in commodities or commodity-related securities may be a wise move.

We also have retailers reporting earnings today, with Target ($TGT) just beating EPS but falling short of revenue estimates. Later we’ll hear from Kohl’s ($KSS), Nordstrom ($JWN), Ross Stores ($ROST), AutoZone ($AZO), and Urban Outfitters ($URBN). We also have Salesforce.com ($CRM), Baidu ($BIDU), Domino’s ($DPZ), Wendy’s ($WEN), JM Smucker ($SJM), and Hewlett Packard ($HPE). This all makes for a pretty busy earnings day that will in all likelihood be overshadowed by Russia-Ukraine.

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