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Aritzia ($ATZAF $ATZ.TO) Q4 and FY Earnings Recap
Q4
- Revenue increased 44% YoY to $638MM
- Gross profit margins continue to be under pressure, coming in at 38.0%, a 240bps decrease YoY
- Operating and EBT margins saw similar pressure, decreasing 150bps and 200bps YoY, respectively
- eCommerce revenue increased by 51% YoY while retail store sales increased by 38% YoY
- US revenue was up 56% YoY while Canadian revenue increased 32% YoY
Full Year
- Full year revenue increased 47%
- As with Q4, all margins were under pressure:
- Free cash flow was negative for the year the company intentionally increased their inventory.
- Despite more than doubling inventory YoY, their inventory metrics remained quite strong:
- eCommerce revenue increased 36% while retail stores revenue increased 53%. While we'd hope to see eCommerce increase at a higher rate, this is a case where we need to zoom out. Management first began reporting eCommerce vs. Retail Store revenue in February 2019 (FY2020) so we have nearly one year pre-COVID. That year, eCommerce was 23% of total revenue. Things got wonky during COVID but in this most recent year, eCommerce was 35% of total revenue. My guess is eCommerce % of total revenue keeps slowly creeping up.
- For the first time in company history, US revenue exceeded Canadian revenue. This despite Canada having 68 boutiques vs 46 in the US.
- Between Jan 20 and May 2, they repurchased 35,800 shares at an average price of CAD$39.42 (CAD$1.4MM total). That doesn't look great right now with their share price down 23% as I type this, currently trading at $33.14. However, that repurchase is <1% of the amount they are allowed to repurchase. It's a nothingburger. think their automatic share purchase program is buying up shares right now. As did I.
FY24 Guidance
- Management guidance for FY24 disappointed analysts, but as I've always said, analysts are really bad at guessing. As management mentioned, Aritzia's top line increased by 156% in the past two years. Those kind of gains are not sustainable. FY24 was guided for a 12% revenue increase at the midpoint and I expect Aritzia to increase that amount each quarter as they have done for each of the prior two years.
- Gross margin is expected to be further under pressure "reflecting ongoing inflationary pressures, normalized markdowns, pre-opening lease amortization and additional warehousing costs related to inventory management, partially offset by lower expedited freight costs."
- They continue to expand in the US in a controlled way, guiding for 8-10 new boutiques annually through FY27.
- As noted in the above, the economics on new boutiques are quite favorable which they expanded upon here
Through FY27 Guidance
- they are guiding for 15-17% revenue CAGR through FY27, which would be above their revenue growth rates prior to COVID, while EBITDA is projected to grow at 19% annually through FY27.
- They project their cash balance to grow to $1 billion+ by FY27, which would be a massive jump from their current cash balance of $86 million.
Aritzia is not $LULU. Not yet, at least. But there are certainly reasons to think Aritzia can outpace lululemon's growth over the next 5 years. For one, both companies are guiding for roughly the same growth over the next 5 years but Aritzia is leaning on US boutiques to drive that growth. To compare, lulu is growing US stores around 3-8% while Aritzia is guiding for 15-20% boutique growth.
Lululemon deserves their premium but this pick a metric and ask if the premium deserves to be this large?
My take: Own both. I do!
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