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On Tuesday, Raymond (NSE:RYMD) James upgraded shares of Aritzia Inc (TSX:ATZ:CN) (OTC: ATZAF) from Market Perform to Outperform, though the price target was reduced from C$65.00 to C$55.00. The adjustment reflects the firm’s analysis of the current global tariff environment and its potential impact on the company’s financials. The fashion retailer, currently valued at $3.5 billion, has demonstrated solid performance with revenue growth of 10.4% in the last twelve months. According to InvestingPro analysis, the company’s current Fair Value suggests slight undervaluation, despite recent market volatility.
Michael Glen at Raymond James provided insights into the tariff-related challenges that could affect Aritzia (OTC:ATZAF)’s gross margins, which currently stand at 42%. According to his assessment, the imposition of a 145% tariff on goods from China (which includes a 125% reciprocal tariff and an additional 20% due to fentanyl-related measures) and a 10% reciprocal tariff on goods from Vietnam, Cambodia, and Bangladesh could lead to a significant gross margin headwind for Aritzia. InvestingPro data shows the company maintains a moderate debt level and good financial health, which could help weather these challenges. Subscribers can access 10+ additional ProTips and comprehensive financial metrics.
The firm’s report detailed how these tariffs might influence Aritzia’s annual results. Citing the company’s previous statements, a 10% increase in tariffs on Chinese imports could result in a 30 basis points contraction in gross margins. Based on this, Raymond James estimates that the combined effect of all the proposed tariffs could amount to a 500-550 basis points decrease in Aritzia’s gross margins.
The analysis by Raymond James does not take into account several factors that could potentially mitigate the impact of the tariffs. These include the possibility of suppliers absorbing some of the increased costs, Aritzia adjusting its pricing strategy, or the company shifting its production away from China to countries with lower tariffs.
Lastly, the report suggests that Aritzia could offset the gross margin pressure from tariffs by implementing price increases. An estimated 5% price hike across both the Canadian and U.S. markets, or a 9% increase specifically in the U.S., would be needed to balance the anticipated gross margin dollar impact from the new tariffs. The company’s strong market position, evidenced by its $1.8 billion in revenue and positive earnings outlook, could support such pricing adjustments. For detailed analysis and valuation metrics, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Aritzia has seen several developments that may interest investors. Desjardins has initiated coverage on the company with a Buy rating, setting a price target of C$82.00. The analysts project significant earnings per share growth for Aritzia, estimating a 40% increase in fiscal year 2026 and a 20% rise in fiscal year 2027. Jefferies also began coverage with a Buy rating and a Cdn$85.00 price target, citing growth drivers such as store expansion and increased profit margins. BMO Capital Markets, while reducing its price target from Cdn$80.00 to Cdn$74.00, maintained an Outperform rating on Aritzia. BMO noted positive web traffic trends, especially in the U.S. market, which showed a 28% increase in March. Despite tariff-related risks, BMO expressed confidence in Aritzia’s brand momentum and strategic positioning. Analysts from Desjardins and Jefferies highlighted Aritzia’s strong financials and potential for growth, indicating a positive outlook for the company’s future.
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