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Aritzia (TSE: ATZ) - Company Deep Dive
Hi everyone, I just posted my dive deep on $ATZ.TO. I look at the brand in detail, study historical performance and management, and finally conclude on the intrinsic valuation.
Find the detailed article here (along with downloadable PDF):
Summary Deep Dive:
- Aritzia Inc. (TSE: ATZ, “Aritzia”) is a women’s apparel company which operates 115 boutiques in Canada and the United States. The company is headquartered in Vancouver, Canada. As of January 27, 2023, Aritzia had a market capitalization of $5,220 million and FY2022 revenues of $1,495 million.
- Aritzia operates as a design house which has several different in house brands which are sold through its stores and artizia.com. Aritzia currently sells its products under 10 main brands, that are, Babaton, Ten by Babaton, Wilfred, Wilfred free, Tna, TnAction, Super World (Super Puff), Sunday Best, Reigning Champ and Denim Forum. Aritzia’s products are priced at a premium and are positioned as ‘Everyday Luxury’.
- From FY2008 to FY2023, Aritzia grew its store count from 28 stores to 115 stores as of November 2022 as at compounded annual growth rate (“CAGR”) of 10%. Aritzia has 67 stores in Canada and 48 stores in the U.S. Its average store size is 8,000 square feet; however, flagship stores are often as big as 14,500 square feet.
- Driven by the move to online during the pandemic, Aritzia’s eCommerce has grown from 12% of revenue in 2016 at the time of IPO, to 35% of revenues currently.
- Aritzia has attractive store level economics. A new store typical costs $3 million in net investment of capex and inventory. The company generally makes revenue of $1,000 per sq. ft. in the first few years of operation. At an average store size of 8,000 sq. ft., this comes to annual revenue of $8 million per store. The payback period of new stores is between 12 to 18 months translating to an EBITDA margin of 30% per store, and a return on invested capital (“ROIC”) of 80% at store level.
- Management is highly experienced and has healthy ownership in Aritzia. Management’s interests are aligned with shareholder in terms of compensation (Performance Stock Units are linked to revenue and EPS). Management has met its 5-year financial performance goals even with the challenges posed by the pandemic. Board of directors are experienced fashion industry professionals and private equity professionals.
- Management has been good at capital allocation, with consistent share buybacks and reinvestment with a single caveat on small acquisition of men’s wear brand.
- Based on our discounted cash flow model, we estimate that Aritzia’s intrinsic value per share is $65. This represents an upside of 36% from the current share price of $47.3 as of January 27, 2023.
Disclaimer: Fairway Research is currently long Aritzia shares. This report is only for educational purposes and is not meant to be investment advice. Readers should do their own due diligence before investing.
fairwayresearch.substack.com
Aritzia (TSE: ATZ) - Strong brand at an attractive valuation - Company Deep Dive
Intrinsic Value Estimate as of January 2023
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