Proactive Investors - Aritzia Inc (TSX:TSX:ATZ)'s upcoming fiscal fourth quarter earnings report could boost sentiment for the stock if the retailer can demonstrate continued margin recovery, analysts at UBS believe.
Going into the report, due after the stock market closes on May 2, the analysts see sentiment around Aritzia leaning bearish.
“Our conversations with investors suggest several are skeptical about Aritzia’s comparison sales inflection and a plus 500 basis points year-over-year adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin recovery in fiscal 2025,” they wrote in a note to clients.
“We believe the ‘bar’ for the event is Aritzia maintains this margin recovery expectation, provides fiscal 2025 operating guidance implying C$1.80 to $1.90 earnings per share (EPS) and fiscal 1Q 2025 operating outlook supportive of the Street’s C$0.26 forecast.”
For Q4, the analysts noted that industry data points to improving trends, with US sales increasing 5% year-over-year during the period and up by 2,600 basis points over 3Q.
They also highlighted data which showed Aritzia’s online traffic grew sequentially, improving month-over-month throughout Q4 from a “weak” Q3 exit rate.
A pricing analysis by UBS Evidence Lab also showed promotional activity in Canada declined and central prices increased year-over-year in calendar 1Q 2024 and, importantly, the data suggests Aritzia’s US pricing was up from the year-ago quarter despite higher promotions.
“We believe Aritzia’s fundamentals sequentially improved in fiscal 4Q 2024 and the positive trend has carried into fiscal 2025,” they wrote.
The analysts have a ‘Buy’ rating on Aritzia and a C$50 price target.
Shares of Aritzia traded at C$34.60 on Tuesday afternoon. The stock is down about 20% in the last 12 months.