Is Aritzia's glamorous story over?
The company's First Quarter Fiscal 2024 Financial Results left a bad taste for investors
Aritzia has been on a roll since the last few years until Q1 2024.
Let’s see the results:
Net revenue increased 13.4% from Q1 2023 to $462.7 million, with comparable sales growth of 4.1% compared to Q1 2023
United States net revenue increased 21.8% from Q1 2023 to $251.9 million, comprising 54.4% of net revenue in Q1 2024
Retail net revenue increased 13.8% from Q1 2023 to $327.6 million
eCommerce net revenue increased 12.5% from Q1 2023 to $135.1 million, comprising 29.2% of net revenue in Q1 2024
Gross profit margin decreased 540 bps to 38.9% from 44.3% in Q1 2023
Net income decreased 47.5% from Q1 2023 to $17.5 million
Adjusted EBITDA was $31.6 million or 6.8% of net revenue, a decrease of 54.6% compared to $69.6 million or 17.1% of net revenue in Q1 2023.
Net income was $17.5 million, a decrease of 47.5% compared to $33.3 million in Q1 2023.
Net income per diluted share of $0.15 per share, compared to $0.29 per share in Q1 2023
Adjusted Net Income per Diluted Share of $0.10 per share, compared to $0.35 per share in Q1 2023
Cash and cash equivalents at the end of Q1 2024 totaled $58.8 million compared to $179.4 million at the end of Q1 2023.
Gross profits took a big hit this quarter:
Gross profit margin was 38.9%, compared to 44.3% in Q1 2023. The 540 bps decrease in gross profit margin was driven by higher product related costs primarily due to inflationary pressure, normalized markdowns, temporary warehousing costs related to inventory management, pre-opening lease amortization costs for boutiques and our new distribution centre, and foreign currency headwinds. These impacts were partially offset by lower expedited freight costs.
SG&A
SG&A expenses increased by 27.6% to $153.5 million, compared to $120.3 million in Q1 2023. SG&A expenses were 33.2% of net revenue, compared to 29.5% in Q1 2023. The increase in SG&A expenses was primarily due to investments in retail wages and support office labour made in the back half of Fiscal 2023, as well as distribution centre project costs.
Inventory Levels
Inventory at the end of Q1 2024 was $485.0 million, an increase of 62.4% compared to $298.6 million at the end of Q1 2023. The Company remains on track for its inventory to normalize by the end of the second quarter of Fiscal 2024 and expects normalized markdowns in Fiscal 2024 to be no greater than pre-pandemic levels.
Outlook
Aritzia saw a deceleration in traffic trends beginning the first week of June, which management believes reflects macroeconomic pressure on the consumer as well as opportunities in the level of newness in its product assortment. The Company expects net revenue in the second quarter of Fiscal 2024 to be flat to slightly down compared to the second quarter of Fiscal 2023 on top of strong growth of 50% in the second quarter last year and 75% in the second quarter of Fiscal 2022. The Company also expects gross profit margin to decrease by 750Â bps and SG&A as a percent of net revenue to increase by 550 bps in the second quarter of Fiscal 2024 compared to the second quarter of Fiscal 2023.
Aritzia currently expects the following for Fiscal 2024:
Net revenue in the range of $2.25 billion to $2.35 billion, representing an increase of approximately 2% to 7% from Fiscal 2023 including the 53rd week.
Gross profit margin to decrease by approximately 3% compared to Fiscal 2023.
SG&A as a percent of net revenue to increase by approximately 3% compared to Fiscal 2023.
Given the not so good forecast from the management, I expect the share price to remain rangebound and maybe even go further down if the next quarter results are worse than the current one.
Apparel Retail is a tough discretionary business and unless the management is able to rein in the costs and pare down growth speed I expect more pain in the short term.
Disclosure: I continue to hold the stock and will observe the next 1-2 quarter results before taking a call.
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