Oct 13, 2022
Aritzia more-than doubles inventory, citing surging demand
By Paige Ellis
Aritzia says inventory was up 150% vs. Q2 last year to mitigate risk of supply chain disruption
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The Vancouver-based company said it now expects sales to top $2 billion this fiscal year, driven by inflation-bucking U.S. shoppers, who drove revenue up 80 per cent in that key market last quarter.
“In Q2, we made further progress on our path to getting famous in the U.S.,” said Aritzia CEO Jennifer Wong on a conference call with analysts Wednesday evening. “Client growth [in the U.S.] has increased more than 300 per cent in the past two years.”
Aritzia also noted its inventory climbed by 150 per cent over the past year. According to analysts at Stifel GMP, that means the company’s product stockpile grew at three times the rate of sales.
But unlike other apparel makers who have dealt with inventory gluts with steep discounts, Aritzia’s executives said they see sustained demand for their products.
“We pretty much bought the majority of our fall/winter upfront in the season as well as… select items and select pieces for the spring,” Wong told analysts. “And a lot of that was to mitigate what we were foreseeing as continued supply chain disruptions that are still happening and making sure we were well positioned to capitalize on the demand that we’re seeing.”
In a note to clients, Stifel analyst Martin Landry acknowledged that Aritzia’s inventory growth may seem “concerning” at first glance.
“But the nature of the inventory mix, composed mostly of proven sellers with limited seasonal items reduces the risk,” he wrote.
Aritzia also noted that while they are discounting products more than last year, markdowns remain below pre-pandemic levels.
“Last year had extremely low levels of inventory… meaning that our markdown levels were abnormally low,” said chief financial officer Todd Ingledew. “We expect that we will return to a more normalized markdown level in Q4 this year.”
Aritzia reported net revenue climbed 50 per cent and profit rose 16 per cent in its second quarter, handily beating expectations. Its gross profit margin fell 270 basis points to 41.9 per cent, driven by higher transportation costs, discontinued COVID-19 relief subsidies and more-normalized discounts.
