Aritzia Inc. (TSE:ATZ) experienced a significant uptick of up to 24% in early Thursday trading, propelled by third-quarter earnings that outpaced expectations and prompted an upgrade from at least one analyst.
The Vancouver-based clothing retailer disclosed that third-quarter sales saw a robust 5% annual increase, reaching $653.5 million, surpassing the average analyst estimate of $621.9 million as reported by Bloomberg. Aritzia also managed a slight uptick in comparable sales, a pivotal metric in the retail sector that excludes recently opened locations, registering a 0.5% increase.
Despite the positive sales figures, net income witnessed a 39% decline to $43.1 million. This dip was attributed to higher markdowns in the quarter aimed at optimizing inventory levels and pre-opening lease amortization costs for flagship boutiques.
CIBC analyst Mark Petrie responded to the results by upgrading Aritzia’s stock rating to “outperformer” and raising the price target from $30 per share to $37 per share. In a report, Petrie expressed confidence in Aritzia’s growth potential, highlighting the company’s resilience despite execution challenges and consumer caution. He emphasized the various avenues Aritzia has for the upcoming year and beyond.
While acknowledging the potential impact of further deceleration in consumer discretionary spending, CIBC believes that Aritzia can still outperform its peers due to moderated expectations and strategic initiatives such as introducing new products into stores, expanding into new U.S. markets, ramping up digital marketing efforts, and enhancing omnichannel capabilities.
Shares of Aritzia on the Toronto Stock Exchange were trading at $31.98 as of 10:30 a.m. ET, reflecting a remarkable 21% gain compared to the previous day’s close.
Throughout 2023, Aritzia’s stock faced challenges, witnessing a 41% decline as the company grappled with higher inventory levels and prioritized opening new store locations, particularly in the United States.
The company remains committed to U.S. expansion, planning to open 11 to 13 stores south of the border and expanding four to five flagship stores, including two in Manhattan. Additionally, increased digital marketing efforts aim to boost brand awareness in the U.S.
CEO Jennifer Wong emphasized that Aritzia will introduce more new products in its overall assortment in the spring, aligning with its historical allotment balance after shifting away from it during the COVID-19 pandemic.
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