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After 18 months and a long slog to win back investors, Aritzia Inc. finally hit a hot streak. The celebration lasted barely a week.

As soon as the stock popped this month on the back of strong earnings, the retailer’s private equity backer unloaded more shares, putting pressure on a stock that had just returned to its initial-public-offering price.

Immediately after the 2016 IPO, Aritzia’s shares traded well – an encouraging sign amid a tough market for women’s fashion. Yet within a few months, investors started to flee. Over the span of a year, the stock plummeted 45 per cent.

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Pedestrians pass a Toronto Aritzia store in May, 2018. An RBC analyst says the retailer is executing its growth strategy well, with highlights including sales growth driven by bricks-and-mortar stores.CARLO ALLEGRI/Reuters

After bottoming out last November, a rebound gathered steam this March. Early this month, the retailer’s shares returned to their IPO price. A few days later the stock took off, jumping 11 per cent in a single day.

Within a week, however, a major private backer killed some of the buzz by announcing a $100-million share sale. The stock is back down 7 per cent since, closing at the $16 IPO price on Tuesday, and the current overhang could drag on.

The recent pullback is a shame because it masks the kind of turnaround that rarely materializes.

When Aritzia went public, heavy investor demand prompted the company to boost its deal size by more than a quarter to $460-million. Although Aritzia would not receive any of the proceeds – they flowed to founder Brian Hill and long-time private equity backer Berkshire Partners – investors were smitten because Aritzia had built a perfect niche for itself between fast-fashion players such as Zara and H&M and luxury outlets such as Saks and Nordstrom.

There was also growth potential. The chain was successfully expanding in the United States, with 18 stores there at the time of the IPO; it was building an e-commerce platform; and it employed a smart public relations strategy that put the retailer on the radar of key stylists, who then dressed clients such as Taylor Swift in its apparel.

The momentum continued for another quarter, prompting the company’s backers to unload even more of their shares at $17.45. From there, though, the stock nosedived. It was a frustrating time: The company was still delivering sales growth, but the women’s retail market was extremely competitive and highly promotional, and investors seemed less convinced that Aritzia could thrive.

Over the course of 2017, the retailer’s stock was a clear underperformer within the sector and the shares lost their premium valuation.

Come 2018, investor sentiment has changed – and fast. Suddenly Aritzia’s long-term strategy has come back into focus.

Key tenets of the vision include securing a supply chain that emphasizes quality and building a large distribution centre in Vancouver; investing in e-commerce, with a plan to deliver 25 per cent of its sales from this platform in three years, up from 12 per cent in 2016; upgrading point-of-sale systems to help manage inventory and data; and expanding its bricks-and-mortar presence across the United States.

Financial results are only torquing interest. Early this month, the company reported strong earnings and a gross margin of 40.4 per cent – this after Meghan Markle was spotted sporting the Aritzia trench coat leading up to the latest royal wedding.

“Planning is one thing, executing is another, and Aritzia is executing well on all elements of its growth strategy," RBC Dominion Securities analyst Irene Nattel wrote in a recent research report. Highlights include comparable sales growth driven by bricks-and-mortar stores, better e-commerce penetration and decent cost control.

The U.S. performance, backed by a scorching economy, is crucial to this performance – and provides upside, according to CIBC World Markets analyst Mark Petrie, because it is a much larger market than Canada’s and currently accounts for just 27 per cent of trailing sales.

After the stock price jumped, Aritzia’s private equity backer decided to unload more shares, reducing its stake to 22 per cent. In an e-mail, the company said the sales are consistent with Berkshire’s long-stated intentions to “responsibly reduce their ownership over time.”

Because it has been such a long road back, investors who have remained loyal to the company can only hope it doesn’t trigger the same weakness that materialized the last time they sold.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/05/24 4:00pm EDT.

SymbolName% changeLast
ATZ-T
Aritzia Inc
-0.52%32.25

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