Stocks to buy

Aritzia (OTCMKTS:ATZAF) stock popped earlier this week after the Vancouver-based company reported Q3 2023 results that were out-of-this-world good. 

The Canadian women’s retailer’s U.S. quarterly revenue surpassed its Canadian revenue for the first time in its history. It’s a sign that good things will happen for ATZAF stock in 2023. As retailers go, it’s got a winning story to tell investors on both sides of the border. 

The retailer’s story isn’t that of an overnight sensation. 

Executive Chair Brian Hill opened the first Aritzia boutique at Vancouver’s Oakridge Centre in 1984. So it’s taken nearly four decades to get some tangible U.S. recognition. However, now that it’s on analysts’ radar screen, the sky’s the limit for this mid-cap stock.

Down 24% over the past year, aggressive investors ought to consider buying ATZAF stock while it’s still reasonably priced. Unfortunately, this time next year, I highly doubt it will be under $50.

Here are three reasons I feel this way.  

ATZAF Aritzia  $35.28

Everyday Luxury More Than Pays the Bills

As someone who’s followed Lululemon (NASDAQ:LULU) for years—I first wrote about LULU for InvestorPlace in 2013—my opinion of the retailer has changed. But then, I thought little of the company or its focus on yoga wear. 

However, I slowly warmed to LULU as it broadened its appeal beyond yoga. By March 2016, I considered it a clear buy. By then, it had been four years since Lululemon’s U.S. revenue exceeded its domestic sales. It took LULU 13 years to get to this point. It’s taken Aritzia 38 years, or 3x as long.

It’s not an overnight sensation, but don’t confuse this with not having staying power. The company’s focus on “everyday luxury” has delivered significant growth when many retailers are struggling to keep the lights on. 

“We are very well known and loved in Canada,’”CEO Jennifer Wong said in a Bloomberg interview. “And now we want to get famous in the US. It has really taken off in the last few years.”

In Q3 2023, its revenues were 37.8% higher to 624.6 million Canadian dollars ($466.9 million), with a 9.8% increase in adjusted net income per share to 67 Canadian cents ($0.50). Its U.S. revenue increased 57.8% to 313.5 million Canadian dollars ($234.3 million), accounting for 50.2% overall.

The Analysts Like Aritzia

According to the Wall Street Journal, eight analysts are currently covering Aritzia. Seven of them rate it a Buy with a median price target of 62 Canadian dollars ($46.34), 31% higher than where it’s currently trading. 

Canada’s Financial Post recently discussed why consumers and analysts are attracted to the brand.

“The stores are beautiful, and the service is excellent,” said Mark Petrie, analyst at CIBC World Markets who has covered Aritzia since it went public in 2016. “It’s a compelling intersection of value and quality where not a lot of other brands live,” the paper reported Petrie’s comments.

As the Financial Post reported, the company has a 10-day return policy, one-third that of many retailers, and it hardly ever discounts its merchandise, providing consistent margins.

“Sometimes it keeps me up at night to think what’s the quarter when this breaks?” said Dylan Carden, an analyst at William Blair & Co. “But I’ve been thinking that now for the three or four years that I’ve been covering it. They are just exceptional merchants.”

It’s Barely Scratched the Surface

When LULU’s U.S. sales surpassed its Canadian revenue in 2011, it already had 108 stores in the U.S. compared to 47 in Canada. 

Aritzia is expected to have 114 open by the end of fiscal 2023, 46 in the U.S., with a significant number of its American locations in New York, Los Angeles, and Chicago. In addition, it expects to open seven in the U.S. in fiscal 2023. 

Deliberate but intentional would be the best way to describe its expansion outside its home market. 

Global Data retail consultant Neil Saunders believes that if Aritzia keeps on its existing trajectory, U.S. retailers will lose market share as the Canadian retailer becomes better known.

“This threat will only grow if Aritzia keeps on its trajectory of success,” the Financial Post reported Saunders said.

In late October, Aritzia revealed its five-year growth plan. It includes growing revenue to 3.65 billion Canadian dollars ($2.73 billion) at the midpoint of its 2027 guidance, with 693.5 million Canadian dollars ($518.4 million) in adjusted EBITDA.

Further, it plans to double its U.S. and e-commerce revenue between now and the end of 2027.

“We have a long runway ahead and are well-positioned on our path to getting famous in the United States, while delivering sustained, profitable growth for our shareholders,” Wong stated in its Oct. 27 press release.

The sky’s the limit. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.