Aritzia Raises Sales Expectations, But Reduces Expected Gross Profit Margin Amid Inflationary Pressures

Aritzia Inc. ATZ-T raised its sales expectations this year but lowered its expected gross profit margin as industry retailers continue to be hit by higher-than-expected inflationary pressures.

The Vancouver-based clothing retailer said Thursday it expects net revenue for this fiscal year to be between $1.875 billion and $1.9 billion – up from its previous forecast of 1 $.8 billion – largely on the strength of its US business as Aritzia expands its presence south of the border.

But the company also expects the gross profit margin to decline by around 100 to 150 basis points from a year ago as supply chains continue to be stretched, inflation makes havoc and that the COVID-19 relief grants she received the previous year have disappeared. . (A basis point is one hundredth of one percent.)

Aritzia said first-quarter earnings rose 85.8% to $33.3 million or 29 cents per share from $17.9 million or 16 cents per share in the same period last year. .

Unlike other retailers, Aritzia continues to increase inventory levels to meet customer demand which executives say has not diminished, even as inflation pinches people’s wallets.

Some major retailers in the United States, including Walmart and Target, recently said they had too much inventory after ordering ahead to deal with supply chain issues, only to see a drop in demand for customers who had surged earlier in the pandemic.

But Aritzia is correcting for a period last year when executives said it missed sales because it didn’t have enough product. By the end of the first quarter, its inventory was up 80% from a year earlier. The retailer now expects to have enough to meet demand during the fall and winter seasons. It continues to use expedited freight, including shipping some products by air.

“This decision has resulted in a significant increase in transportation costs, but we have intentionally prioritized our accelerated momentum,” chief executive Jennifer Wong said on a conference call Thursday to discuss the results.

Sea and air freight costs have fallen slightly from peaks the retailer has seen in the past six to nine months, said chief financial officer Todd Ingledew, but the effect is not yet significant for the business. .

Aritzia reported net revenue of $407.9 million in the 13 weeks ended May 29, up 65.2% from the same period last year. Same-store sales — an important metric that tracks sales growth unrelated to new store openings — rose 29.4% from the first quarter of last year.

As the retailer continues to open new stores in the United States – with eight to 10 openings expected this year – it is also opening larger stores. On Thursday, the company announced plans to open its largest store yet, on the stretch of Michigan Avenue in Chicago known as the Magnificent Mile shopping district. It is also expanding the square footage of three of its Toronto stores. The company sees commercial real estate transactions improving.

“We’re actually getting bigger stores and paying less rent than before,” founder and executive chairman Brian Hill said on the call.

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