A Member of Pat McKeough’s Inner Circle recently asked for his advice on Aritzia, a Vancouver-based women’s apparel designer and seller which is currently growing its market reach.
Pat likes the company’s efforts to diversify and grow in multiple markets, especially its U.S. footprint. Despite the risks associated with expansion and competition from online retailers, the firm’s focus on high-quality products and a loyal customer following positions it well for continued success.
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Aritzia Inc. (Symbol ATZ on Toronto; www.aritzia.com) is a Vancouver-based designer and seller of women’s apparel. The company currently operates 114 stores in North America, with 68 in Canada and 46 in the U.S.
Aritzia positions its products between fast fashion and luxury by offering a mix of higher-profit exclusive brands (making up 96% of its sales). The company’s “Everyday Luxury” approach focuses on well-designed, high-quality products at reasonable prices.
The fashion retailer places a lot of importance on the shopping experience offered at its boutiques. It aims to blend artistic touches, music and high-quality materials. All of its boutiques are designed by an in-house team of architects and interior designers to be both “aspirational” (demonstrating social prestige and material success) and comfortable.
The company first sold shares to the public and began trading on the Toronto exchange in October 2016 at $16 a share.
In June 2021, Aritzia acquired 75% of Reigning Champ. The remaining 25%, which is currently held by Reigning Champ’s management, will be converted to Aritzia shares in three installments between 2024 and 2026. The total sales price was $63 million.
Reigning Champ is a Vancouver-based designer and manufacturer of premium athletic wear with a classic take. The company got its start in men’s wear in 2006. It expanded into women’s wear in 2017.
Inner Circle: Aritzia’s recent acquisition offers multiple expansion benefits
Reigning Champ sells mostly online, although it has a small bricks-and-mortar chain, with two stores in Vancouver and two in Toronto. As well, in October 2021, it opened a store in Tokyo, Japan. The brand is also sold in retailers like Nordstrom and Gravity Pope. In addition, the company has done collaborations with Club Monaco, Converse, Everest and more.
The Reigning Champ acquisition lets Aritzia expand into the men’s apparel business. Reigning Champ’s senior leadership team will continue to operate the business in partnership with Aritzia for another two years before it gives complete control to the buyer.
Meanwhile, Aritzia will keep expanding in the U.S. with the planned addition of 100 more locations.
In the three months ended November 26, 2023—Aritzia’s overall revenue increased by 4.6% to $653.5 million. The company’s U.S. revenue increased by 4.2% to $326.6 million, comprising 50.0% of net revenue in Q3 2024.
Excluding one-time items, Aritzia earned $43.1 million, or $0.38 a share, in the quarter. This was a decrease from the previous year, but it still topped analysts’ consensus estimates of $0.342.
This means Aritzia’s U.S. expansion continues and offers the company a major source of future growth. In 2022, its U.S. business generated revenue of $1.1 billion, an increase of 66% from the previous year. In fact, the U.S. now accounts for more than half of the company’s total revenue. At the same time, e-commerce revenue last year jumped to $770 million, up 36%.
Expanding in the U.S. offers greater access to big markets, but it also adds risk. Aritzia faces strong competition from online retailers. In addition, it operates in the highly fickle clothing market. However, the company sells high-quality products with a loyal customer following.
Recommendation in Pat’s Inner Circle: Aritzia Inc. is a buy.
