TOP STORY
👗 Aritzia jumps 15% after earnings, with US growth leading the charge

📈 It was an excellent week for investors, with both the US and Canadian markets hitting record highs, but on the Toronto Stock Exchange, one stock shone above the rest: Aritizia ($ATZ).

💃 The Canadian clothing retailer, which primarily sells “everyday luxury” to young women, saw a massive +15% stock jump after it reported earnings, with the stock now up +76% so far this year.

👟 This is in stark contrast to other retailers like Nike ($NKE) and Lululemon ($LULU), whose stocks have been beaten down -31% and -42% so far in 2024.

🌟 So, let’s unpack the earnings and try to make sense of why Aritiza is standing out from the pack…

🇺🇸 Aritiza’s US expansion is driving over 90% of its revenue growth

Since launching its first two stores in the US in 2008, the US has been a major focus and growth driver for the Canadian retailer.

And while the US still only makes up 57.1% of the company’s total net revenue, the US drove over 90% of the company’s net revenue growth for the quarter.

Aritzia now has over 52 of its 119 stores in the US and believes more store openings in the US are its most “consistent and predictable growth driver:”

US growth translated to strong overall net revenue and earnings growth, with e-commerce lagging behind retail revenue growth:

• 📊 Net Revenue: $498.6M, +7.8% from last year

• 🇺🇸 USA Revenue: $284.7M, +13% from last year

• 👩‍💻 E-commerce Revenue: $140.8M, +4.2% from last year

• 🛍️ Retail Revenue: $357.8M, +9.2% from last year

• 💸 Adj. Earnings per Share: $0.22, 30% higher than analyst expected $0.17

📉 Recovering from last year’s slump

This year’s gain has been a welcome relief for investors who saw Aritiza fall nearly 60% from 2022 highs after inventory issues led to discounts and lower margins.

And while the company has bounced back, the stock’s volatility is a reminder that growth stocks can be highly susceptible to earnings, as the company’s valuation is counting on it’s future growth.

👟 A rough year for Nike and Lulu, why not Aritzia?

Unlike Aritzia, Nike and Lulu have been having a rough year, down -31% and -42% so far in 2024.

• 👟 Nike had its worst day in its 44-year history in June, tanking 20% after announcing that it expected a 10% year-over-year decline, blaming its slumping China business

• 🧘 Lulu's troubles have been driven by slowing US sales, the departure of its chief product officers, and increased competition from upstarts like Alo and Vuori

🤔 With both Nike and Lulu also blaming ‘fundamental trends’ in the economy, why hasn’t Aritiza faced the same decline?

🌎 Well, unlike Nike and Lulu, who already have mature US and international businesses, Aritiza still has significant untapped growth opportunities from new markets.

With the US being a ~10x larger market than Canada and still only accounting for 57% of Aritizia’s revenue, there is still a massive opportunity ahead for Aritzia.

Not to say that opportunity will be easy to capture - the US is much more competitive - but it does leave much more room for Aritiza to grow.

🎯 Analysts seem to agree, with 6 raising their price target for the stock to an average of $49.25 (3% higher than the current stock price).

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RETAIL
🛒 Costco down 5% after first membership fee increase since 2017

😰 Costco's stock ($COST) has been on an absolute tear over the last year - up 54% - but it saw signs of trouble this week after dropping 5% on the announcement that it will increase its membership fee for the first time in seven years.

💰 Memberships are critical for Costco, accounting for 2/3rds of Costco’s profits and allowing the company to support it’s low low prices.

💸 According to the analysts, the fact prices went up isn’t the issue - it was that they weren't increased by more. With only an 8% price increase across memberships, this amounts to a barely 1% annualized increase - less than the rate of inflation.

The increase was also widely expected, so it wasn’t a big surprise for investors. As such, Costco holders shouldn't be too worried about the small correction given the stock's strong track record (not to mention the 7.4% revenue increase reported that’s been completely overshadowed by the membership fee increase).

ANNOUNCEMENT
🤩 Webull launches RRSP and TFSA

Exciting news for Canadian investors: Webull - the popular US brokerage that expanded to Canada this year - just announced support for TFSA and RRSP accounts!

And just in time, as Blossom just added support for Webull broker-linking 😎

They also have an up to $200 sign-up promo right now, so make sure to check it out and take advantage of the bonus!

FROM THE BLOSSOM COMMUNITY
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