Aritzia Inc. ATZ-T has raised its expectations for sales this year but lowered its forecasted gross profit margin, as retailers across the industry continue to be affected by higher-than-expected inflationary pressures.
The Vancouver-based apparel seller reported Thursday that it expects net revenue for this fiscal year to be between $1.875-billion to $1.9-billion – up from its previous outlook of $1.8-billion – driven largely by strength in its U.S. business, as Aritzia expands its presence south of the border.
But the company also expects gross profit margin to decline by roughly 100 to 150 basis points compared to last year, as supply chains continue to be stretched thin, inflation takes a toll and COVID-19 relief subsidies it received in the prior year have gone away. (A basis point represents one hundredth of one per cent.)
Aritzia reported that its first-quarter profits increased by 85.8 per cent to $33.3-million or 29 cents per share, compared to $17.9-million or 16 cents per share in the same period last year.
Unlike other retailers, Aritzia is continuing to build up its inventory levels to meet customer demand that executives say has not abated, even as inflation pinches people’s wallets.
Some major retailers in the U.S., including Walmart and Target, recently stated that they had too much inventory after they ordered in advance to cope with supply-chain snags, only to see a dip in customer demand that had surged earlier in the pandemic.
But Aritzia is correcting for a period last year when executives say it missed out on sales because it did not have enough product. At the end of the first quarter, its inventory was up 80 per cent compared to the prior year. The retailer now expects to have enough to meet demand through the fall and winter seasons. It is continuing to use expedited freight, including shipping some products by air.
“This decision resulted in significantly higher freight costs, but we intentionally prioritized our accelerated momentum,” chief executive officer Jennifer Wong said during a conference call Thursday to discuss the results.
Both sea and air freight costs have come down slightly from the peaks that the retailer saw in the past six to nine months, chief financial officer Todd Ingledew said, but the effect is not yet material for the company.
Aritzia reported net revenue of $407.9-million in the 13 weeks ended May 29, up 65.2 per cent from the same period last year. Comparable sales – an important metric that tracks sales growth not related to new store openings – grew by 29.4 per cent compared to the first quarter last year.
As the retailer continues to open new stores in the U.S. – with eight to 10 openings planned this year – it is also opening bigger stores. On Thursday, the company announced plans to open its largest store yet, on the stretch of Chicago’s Michigan Avenue, known as the Magnificent Mile shopping district. It is also expanding the square footage of three of its Toronto stores. The company is finding that deals on commercial real estate are improving.
“We’re actually … getting bigger stores and paying less rent than we were previously,” founder and executive chair Brian Hill said on the call.
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