Monthly Archives: November 2021

October Portfolio Update | 2021

 

Thoughts on the Market: October Edition

Do your holiday shopping early unless you’re buying on Amazon.

The world’s supply chains are plugged up. This isn’t new. Nike warned in March 2021 that container shortages and port congestion were delaying shipments of goods, and the situation has only deteriorated since then. Fortunately, brands like Nike and Aritzia that sell DTC (direct-to-consumer) can offset these challenges with increased sell-through at full prices given the scarcity of product. One advantage of online stores is their ability to show the customer the lack of stock or lead times for an item. As shown in figure 1, Aritzia can essentially pre-sell items, which is also a big boost to its working capital. Read

October Focus Stock – ATZ

 

Updating our Aritzia views.

Aritzia has been a core holding in our Global Equity Growth portfolio for the past 18 months, having increased our position to a 4% target weighting from 2% during the depths of the pandemic. The position has performed particularly well in the past year with the shares up 125%. We have always been fans of Aritzia, first adding the name in the fourth quarter of 2018, and summarized our investment thesis in May 2019, when we highlighted the benefits of Aritzia’s direct-to-consumer (DTC) approach and its U.S. expansion opportunity.

”We are most bullish on Aritzia’s growing U.S. presence. The company has 25 locations, although currently those locations are mostly located on the West Coast.  The company has 12 stores from Seattle to San Diego, with the remainder mainly in Chicago (5) and New York City (5). This leaves ample room for growth, with blue sky potential in major markets. As Aritzia’s brand recognition grows in the U.S., it can more profitably add locations on an infill basis. For example, while St. Louis, MO, with a 2.5 million metro area population, could easily support multiple locations, the company can open in much larger cities such as Phoenix, Miami and Houston before looking at 2nd and 3rd tier cities, effectively de-risking its investment in distribution.”

Two years and a pandemic later, Aritzia’s U.S. expansion strategy is playing out stronger than expected. First off, the pandemic has accelerated the adoption of eCommerce, with Aritzia’s DTC operations benefitting from this shift. Secondly, its brand strength, balance sheet and the fact that it is “under-stored” allows the company to stay on offence while other large mall retailers are on the ropes. This combination of factors helped Aritzia grow first half FY22 U.S. revenue 73% from the same period two years ago. eCommerce revenue increased 169% over that timeframe.We can evaluate Aritzia’s brand strength using Google Trends. Google Trends benchmarks weekly search activity to the highest level in a selected period. Figure 1 shows the 3-year trend for U.S. Google searches. The two spikes in the middle represent Black Friday searches in 2019 and 2020, indicating peak search interest in Aritzia. Interestingly, recent U.S. search activity has trended towards levels close to Black Friday even though Aritzia has not had any promotional activity in 2021. We believe this indicates increased interest in the brand and expect searches on 2021 Black Friday to achieve record levels.

 

Figure 1. Aritzia United States Search Trends (Oct 2018-Oct 2021)

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