E-commerce, U.S. expansion help Aritzia sales in difficult year for apparel industry

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Shares of Aritzia Inc. bucked the market downturn Wednesday after the apparel retailer posted resilient fourth-quarter results amid pandemic-related store closings.

During a year when the apparel industry was hit hard, Aritzia’s sales remained relatively stable. The Vancouver-based clothing retailer late Tuesday reported its fourth-quarter revenue decreased 2.9 per cent to $267.5-million from the same period a year ago, while 39 per cent of its stores were forced to close for the majority of the quarter because of government restrictions related to COVID-19.

Aritzia’s e-commerce sales grew 81.1 per cent in the quarter compared with last year, and its business in the United States – where vaccinations ramped up ahead of Canada and restrictions have been lifting – grew 9.2 per cent.

The company is expecting a continued recovery, driven by e-commerce and by its U.S. expansion.

“Despite near-term uncertainty, we believe the long-term opportunity for [Aritzia] remains rich with growth potential,” Bank of Nova Scotia analyst Patricia Baker wrote in a report entitled “A Solid Re-Opening Play” in which she set a one-year price target of $41 for Aritzia shares.

Aritzia reported net income of $16.1-million in the 13 weeks ended Feb. 28, compared with $21.7-million in the same period the prior year.

Aritzia’s stock price added 1 per cent on Wednesday to close at $30.55 on the TSX after the earnings announcement. During the early days of the pandemic last year the stock dipped to just under $11 a share, and has since rebounded, rising above its prepandemic peak.

As it was for many retailers, 2020 was the most difficult year in Aritzia’s history, chairman and chief executive officer Brian Hill said in an interview on Tuesday. cct.

“We were worried about the health of the business, and the health of everybody else – the industry and everybody in it,” he said.

During the pandemic, Aritzia was helped by its control of much of its supply chain – making it easier to change its inventory strategy quickly in response to shifting buying patterns – and by strong e-commerce operations.

“It wasn’t like we had stores, and then shifted to e-commerce that was difficult to operate; we have a world-class e-commerce site,” Mr. Hill said.

E-commerce has leapt forward during the pandemic, and some of that change is likely permanent: For the full year, Aritzia’s e-commerce revenue grew by 88.3 per cent, and made up half of its sales.

Mr. Hill estimated that if all the company’s stores had been open, e-commerce’s share of Aritzia’s total sales would be above 40 per cent, which is still significantly higher than the year before, when online sales were at 23 per cent of the total. That e-commerce growth has come with increased distribution and warehousing costs, and Aritzia is planning on investments to expand its distribution centre in Vancouver.

In the year ahead, Aritzia is planning to invest in further digital development and U.S. expansion, with six to eight new stores opening there this year. It also plans to expand product lines with new categories, such as swimwear and intimates, as well as more colours and sizes, and it wants to build brand awareness with U.S. and international customers.

“Aritzia is well-positioned to drive long-term growth, with ample liquidity, a strong omnichannel platform, category expansion opportunities, and a loyal employee and client base,” BMO Capital Markets analyst Stephen MacLeod wrote in a report. He has an “outperform” rating on Aritzia shares and set a price target of $39.

For the full year ended Feb. 28, Aritzia’s revenue declined by 12.6 per cent to $857.3-million. Net income fell by 78.8 per cent to $19.2-million.

During mandated store closings, Aritzia avoided layoffs and continued to pay staff, and it continued to pay rent on closed locations. While the company benefited from some rent relief and government subsidies, Mr. Hill said, it also faced higher expenses related to safety measures during COVID-19. Aritzia is expecting revenue to grow by 30 to 35 per cent in the year ahead.

“All things considered, if you’d told me [in April, 2020] that we were going to have a 12-per-cent decrease and we were still going to have stores closed throughout the year, I would have said you’re crazy,” Mr. Hill said. “To start the year with such momentum, I’m just thrilled with the team and the job they did.”

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