Pacific Trader: Aritzia snaps back like a stretchy shoulder strap

As recession fears fade, the fashion retailer's stock has gained 80 percent

The stock: Are we heading into a recession or not? If you want to take the temperature of market sentiment, a good thermometer might be Aritzia (TSX:ATZ). As a pure-play consumer discretionary stock, it will be one of the companies most exposed to any cuts to household expenditures.

The drivers: That’s what most investors thought would happen in 2023, which saw the Vancouver-based fashion retailer’s shares slump 42 percent. Indeed, the company itself marked down its sales and profit projections for the current fiscal year in July, then reported a $6-million net loss for the second quarter ended August 27. And a highly critical Business Insider expose on the company’s supposedly Glengarry-style culture under founder and executive chair Brian Hill didn’t help either.

But the stock turned a corner and now has rebounded 80 percent from its November 1 low of $21.02 to $37.83 as of Tuesday’s close (February 13). Aritzia shares jumped 20 percent on January 11 alone, following the release of quarterly results showing net revenue had actually grown from a year earlier, to $653.5 million (though net income still dropped 39 percent year-over-year, to $43.1 million). The bullish mood mirrors broader market sentiment, which is now leaning towards a soft landing for the U.S. economy.

Of course, the balance of Aritzia’s sales are still in Canada, and the economic indicators are not so positive in the Great White North. The sales dynamics are different on either side of the border too: in Canada, the company can count on customer loyalty; in the U.S., the brand has freshness going for it. The question is whether Aritzia’s performance can continue to exceed expectations.

Word on the street: “While ATZ’s relative value positioning puts the company on strong footing, shares are likely to remain range-bound until macro visibility improves and/or we see how ATZ performs during a downturn,” RBC Dominion Securities analyst Irene Nattel commented on February 11. She has a “sector perform” rating and $40 target on the stock.

Coming and going: Forest company Conifex Timber (TSX:CFF) took a tumble February 5 after its plans to branch out into cryptocurrency mining were foiled by the B.C. Supreme Court. The court ruled that BC Hydro was within its rights to pause new electrical connections for data mining operations, which in Conifex’s case would have consumed as much power as half a million residential apartments, the utility said.