Aritzia Inc. Stock Profile
Canada has a long history of creating unique and trendy clothing brands. Lululemon may be most well known but Arc’teryx, Herschel Supply Co., Canada Goose, Sorel and Kit & Ace are also worldwide brands known for great quality products. I would add to this list Aritzia Inc., which is the company I am profiling this week as my first stock profile of 2019. While I love the look of the stores and the clothes, I personally have not shopped at Aritzia on a regular basis as I find their clothes are geared to a younger demographic.
Aritzia went public in 2016 and has 92 stores across North American with 66 stores in Canada and 26 stores in the United States. Aritzia is vertically integrated, meaning they plan, develop and design their collections and partner with the mills, suppliers and manufacturers who make their products. Aritzia places itself above “fast fashion” but below “luxury” and “affordable luxury” in terms of fashion categories. Aritzia’s growth goals are as follows: 1. Grow its eCommerce business 2. Expand and Enhance boutique network 3. Drive ongoing exclusive brand and product innovation 4. Build brand awareness and 5. Enhance brand awareness.
Aritzia hopes to have eCommerce consist of 25% of total revenue by fiscal 2021. It is opening 7 new boutiques in 2019 and 6 in 2020. It has not closed a boutique in its 34-year history which is an impressive statistic! It has recently opened boutiques in San Diego and SOHO. Some of its in-house brands include Tna, Wilfred, Babaton, The Constant and a new denim brand launched in August called Denim Forum.
In terms of sustainability measures, Aritzia is working towards better practices but currently implements the following:
use responsibly sourced goose down in its parkas and jackets;
sources viscose fabric from sustainable sources;
uses Tercel whose components are recycled back into the system;
member of the Better Cotton Initiative;
no animal-derived materials;
95% of locations have LED lightbulbs;
has a vendor code of conduct; and
partners with non-profits and community organizations.
Aritzia has had some impressive steady Net Revenue growth for the past 20 years. It has grown from $153 million in 2008 to $743 million in 2018. It is targeting net revenue of $1.1 to $1.2 billion by 2021 with an opening of 5-6 boutiques per year. Aritzia seems to take a controlled approach to growth of its boutiques which is prudent in light of the growth of e-commerce. It would appear to be moving in the right direction with its focus on eCommerce and its goal to have that form a large part of its revenue.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary, but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own Aritzia Inc. stock and am not affiliated with them in any manner.
What is Aritzia stock doing?
As at January 28, 2019, the numbers from our basic stock evaluation tools are as follows:
Share price: $16.52 CAD
One share of Abbott would cost $16.52 CAD. The price over the past 52 weeks has ranged from $11.59 to $19.79. So, it is trading at the higher end of the 52-week range.
Price to Earnings (P/E): 25.03
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The Index P/E is 13.68 so Aritzia is higher than the index. This is not surprising given it is considered a small cap growth type company.
Dividend Yield: N/A
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Aritzia is not paying a dividend at this time.
Earnings per Share (EPS): 0.65 (Diluted)
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Given Aritzia only went public in 2016, there is not much data to review so minimal EPS growth to consider.
Revenue: $835.05 Million
Increasing revenue is a good sign that the company is growing. Aritzia’s revenue has grown impressively from $377 million in 2014 to $835 million TTM this year.
Return on Equity (ROE): 24.74% TTM
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. Aside from a negative year in 2017 (for reasons to be researched), Aritzia’s ROE has stayed fairly consistent between 20% and 34%. This is considerably higher than the index ROE of 12.96%.
Market Capitalization: $1.8789 Billion
Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle. Aritzia would be considered a small cap stock.
Net Profit Margin: 9.09% TTM
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. Aritzia’s is about half the size of the Index’s Net Profit Margin of 16.15%.
Free Cash Flow per Share: 0.87
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. It shows the cash that the company actually holds that could be distributed out to shareholders without impacting the continued development of the company.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should consider one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash. A low free cash flow per share could also mean the company is earning less profit.
Price to Sales (P/S): 2.28
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data, so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 1.37 and unfortunately, we do not have the comparison data.
Price to Book (P/B): 5.25
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. Morningstar states that the index for P/B is 1.57.
Price to Cash Flow (P/CF): 13.39
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the index is 7.50. Aritzia is double the Index P/CF.
Aritzia is doing well in this challenging retail environment. With so many bricks and mortar stores closing due to online pressure. Aritzia obviously offers a retail experience that attracts people to the physical boutiques. Judging from the esthetics of its stores, I would agree with that notion. The stores are very welcoming and have the look and feel of a cozy living room. Having said that, their goal of increasing eCommerce is a necessity and will assist with future growth.
******* Top photo courtesy of Annie Spratt on Unsplash