TIP853: Aritzia (ATZ.TO): The Women's Apparel Brand Conquering the US, plus Nike, Lulu, and More w/ Kyle Grieve & Shawn O'Malley

Aritzia

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's 33x earnings multiple deserves a premium given roughly 20-25% compounding growth since 2020.

  Since Kyle began buying Aritzia in 2020, revenue has grown about 22% a year, EPS about 25% and cash from operations about 20%. He concedes the stock is expensive at 33 times earnings, but argues a business compounding at those rates deserves a premium multiple. He still holds it as his largest personal position.

  “since I started buying it in 2020, they've had revenue growth of 22%. They've had an EPS growth of 25% and cash from operations has grown at about 20%. So yes, while the multiple is expensive at 33 times earnings, it's a business that I think really deserves somewhat of a premium valuation.”at 5:34

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Aritzia's gross margins keep rising despite losing the de minimis tariff exemption, showing strong cost and pricing control.

  Shawn notes Aritzia's gross margin rose from about 37% a decade ago to about 46% today. He says this is more impressive because margins kept rising after the US closed the de minimis exemption, which removed the tariff-free route for small-ticket goods from Canada. He credits the company's responsiveness and flexibility, including shifting sourcing away from China and using its Ohio distribution centre, for withstanding the tariff pressure and still expanding margins.

  “And even more impressive is that their gross margins are still rising despite the closing of the de minimis exemption that allowed these small ticket items to bypass tariffs”at 17:12

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia has handled tariffs very well by shifting shipping and sourcing away from China and high-tariff countries.

  Kyle says Aritzia responded to the de minimis closure by shipping US orders from its existing Ohio distribution centre instead of Canada. During the 2025 US-China escalation, when China faced tariffs as high as 145%, it moved production to lower-tariff countries such as Vietnam. Per Kyle, the CFO said China's share of sourcing fell from about 30 to 35% to the mid single digits. He sees this as strong execution that protected margins.

  “I think Aritzia has done a really, really good job quickly changing some of its strategies to minimize the impact of this onto their business.”at 17:48

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's brand is its core competitive advantage, supported by strong store economics that let it keep winning customers.

  Kyle says Aritzia has no structural cost advantage like Costco or Walmart, so brand is the main moat. He cites his own observations of women wearing its clothes, and says the brand is strong enough that people recognise the items without entering a store. He also points to store sales of about $1,000 per square foot, well above a 400 to 700 dollar range he attributes to Shopify research on Tanger and Simon Property Group tenants. Keeping the brand intact and avoiding third-party distribution is how he thinks the company keeps its advantage.

  “the simplest answer that I can come up with is just brand. So the Aritzia brand is a very very strong and I've seen it with my own two eyes.”at 21:11

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Aritzia's first-party model, selling only its own brands through its own channels, gives it control over pricing, margins and presentation.

  Shawn argues that designing its own brands and selling mainly through its own stores and website lets Aritzia control design, pricing, margins and how the brand is presented. He notes that Aritzia's products do not appear in other retailers, so it can own the customer relationship. He accepts the trade-off that this caps scope compared with a broad retailer, but thinks control gives the brand a better chance of lasting over the long term.

  “they're successfully running this first party playbook of owning the customer relationship that Nike wanted to achieve and that Lululemon does for the most part do.”at 29:31

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia has a large US growth runway, with only 76 US stores against a market about nine times Canada's population.

  Canada has about 67 Aritzia locations, while the US, with roughly nine times Canada's population, has only 76. Kyle argues this gap means the brand can keep spreading into new US markets. Shawn adds that the US is Aritzia's next growth lever. Kyle also notes that larger repositioned boutiques lift square footage per store, which supports the expansion case.

  “The U. S. Has about nine times our population and currently only has 76 locations in The U. S. So the opportunity is very large to help spread the brand more and more into The U. S.”at 30:57

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's rising return on invested capital shows a durable competitive advantage.

  Kyle calculates Aritzia's latest-quarter ROIC at a touch below 28%. He says ROIC is rising over time, which he treats as a decent proxy for a competitive advantage. He expects it to hold roughly flat as the company keeps earning high returns on larger investment, which he still reads as a sign of advantage. Averages are hard to hold, so he expects some volatility year to year.

  “But most importantly, the return on invested capital number seems to be rising over time, And this is a pretty decent proxy, which tells us that the business does have some sort of competitive advantage.”at 37:34

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's rising capex per boutique is fine, since stores earn strong returns and capex should fall.

  Aritzia spent about $237M of capex in the latest year across about 143 boutiques, roughly $1.5M per location. Capex per location has risen since the IPO, but Kyle links that to repositioning existing stores and building large US flagships. Capex as a share of revenue has ranged from about 3% to 10%. Kyle expects total capex to fall as the company moves to smaller boutiques and finishes its distribution-centre build-out. He also values the slow cadence of one to three new stores a year, which he sees as disciplined and consistent with stable revenue per square foot.

  “So the increase in CapEx per location doesn't really concern me at all.”at 39:16

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's skipping dividends and limited buybacks is the optimal capital allocation.

  Aritzia pays no dividend and runs a small buyback that mainly offsets share-based compensation dilution. Diluted shares still grow about 1% a year. The company has about $500M of cash and funds buybacks from operating cash flow rather than debt. Kyle thinks reinvesting most profit into new stores, which have high returns, is the best use of capital. He also notes the shares have not traded cheaply, which supports reinvesting over buying back stock.

  “So I really like the capital allocation strategy that management is executing here when it comes to shareholder distributions.”at 41:14

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Aritzia should lean into buybacks now, with cash high and the stock down a third.

  Shawn agrees with Kyle that reinvestment in stores comes first, since new stores pay back in 12 to 18 months. He pushes back that the current buyback mainly offsets dilution, and diluted shares still rise about 1% a year. With roughly $500M in cash and the stock down about a third from its high, he thinks this is the moment to buy back more, as long as store rollouts are not slowed. He likes that buybacks are funded from free cash flow rather than debt.

  “With roughly $500,000,000 in cash and then looking at the stock being down about a third from its high, this is sort of the moment maybe intuitively where you'd wanna see them lean in a bit more on buybacks”at 42:08

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Reigning Champ acquisition was a cheap option on menswear that fits the brand.

  Aritzia bought Reigning Champ for only $63M, which gives it exposure to menswear for a small price. Kyle sees it as an option, not a large bet. The brand fits Aritzia's offer, and men's apparel could keep husbands and boyfriends shopping in stores while they wait. Reigning Champ has only four stores and does not disclose financials, so Kyle judges its health from its Vancouver location and its expanding product range.

  “the way I see the [Reigning Champ] acquisition was purely kind of an option play. You know, it was super cheap at only $63,000,000 and basically gives them some sort of exposure to menswear.”at 43:17

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Fred Segal deal is better than Reigning Champ, giving Aritzia a historic flagship with no new debt.

  Shawn prefers the Fred Segal deal because it gives Aritzia a large, historic flagship in a prime retail location that shoppers already know. Kyle sees it as mainly a lease acquisition that will be retrofitted into an Aritzia flagship. Shawn also notes Aritzia funded both small deals without new debt, which he sees as evidence of disciplined balance-sheet management.

  “I think the [Fred Segal] deal is the better of the two because it hands Aritzia this really big historic flagship space in a prime retail location that shoppers already know.”at 44:44

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia is conservatively financed, with zero long-term debt and about $800M operating cash flow.

  Aritzia has no long-term debt and about $400M of available liquidity, which it does not need now. It generated about $800M of operating cash flow over the last year and has already spent heavily on its distribution centres in Toronto, Vancouver and Columbus, Ohio. Kyle notes it repaid the COVID revolver and a 2021 term loan in cash, and has carried no debt since. He thinks a future US distribution centre could need funding, but that is covered by cash flow.

  “[Aritzia is] even more so compared to Lululemon. So long term debt is currently at zero.”at 48:22

• Kyle Grieve · The Investor's Podcast NetworkBullish

  CEO Jennifer Wong is an excellent leader who created about $10B of market value.

  Jennifer Wong has been at Aritzia since 1987 and became CEO in 2022. Under her, the company retained about $500M of earnings while market cap rose over $10B, which passes Buffett's $1-for-$1 test. Kyle credits her with supply-chain and tariff management, and with rising margins. He is more critical of her capital allocation, which he does not see as her main strength, and of low insider ownership: the founder holds over 15% with voting control, Wong owns a fraction of 1%, and much of the board holds only options. Shawn pushes back that capital efficiency has improved, which Kyle partly accepts.

  “I think Jennifer was the right choice and I think she's done a ridiculously good job so far as a CEO.”at 57:46

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's 33x earnings multiple is not a real risk, given its multi-year growth.

  Shawn raised the risk that a 33x earnings multiple could compress if results disappoint. Kyle disagrees that the multiple is itself a risk. A business that shows steady multi-year growth deserves a higher multiple than the market average, so the premium is earned. He would rather look at the business risks, such as the brand fading.

  “But I hesitate to say that the multiple in itself is an actual risk simply because of the growth that I mentioned earlier in this business.”at 1:03:15

• Kyle Grieve · The Investor's Podcast NetworkUncertain

  Aritzia has weak moats and could fade like past mall brands, though not an immediate concern.

  Kyle says Aritzia has no switching costs, network effects, cost advantages or IP that a competitor cannot copy. He cites once-dominant mall brands such as Abercrombie, J.Crew, Gap and American Apparel that have faded. He is not very worried about a Nike- or Lululemon-style collapse right now. He will watch gross margin compression, heavy discounting and a slowdown in new store openings as early warnings.

  “While the brand is very, very strong Aritzia, you know, they don't have switching costs. They don't have network effects, no cost advantages, and no IP, which another clothing competitor can't just go out and replicate.”at 1:03:15

• Shawn O'Malley · The Investor's Podcast NetworkUncertain

  Aritzia's 35% comp growth may be a hot-brand peak; watch comparable sales closely.

  Shawn argues the brand is strengthening and the business is still growing fast, with revenue up 43%, comparable sales up 35% and US revenue up about 55%. As a devil's advocate, he says this looks like a hot brand before it cools. Lululemon had similar blowout quarters before it slowed. A 35% comp sets a high bar, and once growth normalises even at a strong rate, a retail stock on 33x earnings can fall sharply. He says comparable sales is the number to watch most closely.

  “I would say that this is exactly what a hot brand looks like before things cool down.”at 1:05:23

• Shawn O'Malley · The Investor's Podcast NetworkUncertain

  At 33x earnings, Aritzia's premium could be punished if growth slows, even with a healthy brand.

  Shawn notes Aritzia trades at 33x earnings, a premium to companies like Microsoft and Google. Even if growth stays strong, a retail stock priced that way can be hit hard once growth normalises. He says the brand can be healthy and the stock still fall. The risk is a valuation reset rather than a fundamental collapse.

  “a stock, a retail stock in particular, trading at 33 times earnings, a premium to some of the best companies in the world like, you know, Microsoft and Google, well then it can be punished really dramatically even if for the most part the brand is healthy.”at 1:05:54

• Shawn O'Malley · The Investor's Podcast NetworkUncertain

  Aritzia's US expansion could bring risks if it opens too fast into weaker locations.

  Shawn says the US expansion is working well for now but creates new risks. Opening faster could mean taking weaker sites with less foot traffic. It could also add stores before logistics can support them. He draws on Uber's failed expansion into China and Southeast Asia to argue that copying a home-market playbook abroad is rarely simple, and that each market has its own competition and customer habits.

  “[Aritzia] pretty clearly wants the US expansion to work out and it is working out well for now, but that does open them up to different risks.”at 1:08:48

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia can support about 300 US boutiques, up from 76, given low US penetration.

  Aritzia has about 143 boutiques, with 67 in Canada and 76 in the US. About 67% of revenue now comes from the US. The US has about nine times Canada's population. Kyle thinks the brand could support four to five times as many US boutiques as Canada, roughly 300 stores. He sees this runway as the main growth lever over the next five to ten years. He acknowledges the brand may never be as popular in the US as in Canada.

  “Now, there is a chance that Aritzia will never be as popular in The US as in Canada, I still think there's a good chance that The US can easily support, let's say four or five times as many boutiques as we have in Canada.”at 1:10:55

• Kyle Grieve · The Investor's Podcast NetworkBullish

  US pricing and margins make the US more profitable than Canada, a tailwind for Aritzia.

  US is about two-thirds of Aritzia's revenue, and margins across gross and net lines have improved, so the US cannot be less profitable than Canada and is likely more profitable. His wife's store checks showed US prices roughly match Canadian prices in nominal terms. A Finch trench coat retails for about C$300 in Canada versus about US$265 in the US, so the US still pays a premium once converted, while input costs are essentially the same. This lets margins drift up as US expansion proceeds. Tariffs, if they are over, should also help margins hold up.

  “So the ability to price their products this way helps them get a very nice little tailwind here as the margins in The US are going to be higher on products compared to Canada.”at 1:14:23

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia has a lot of open US brand-awareness room to gain market share.

  Conversations with a New York community member and her friends suggested that many women outside New York had never heard of Aritzia, even though the brand is known around its 5th Avenue flagship. He reads this as a large pool of unaware US customers to convert. For that reason he sees little need to prioritise international expansion now, since the US market is still large.

  “So what this really tells me is that they have a lot of open space for Aritzia continue to gain more and more market share specifically in The US.”at 1:16:52

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia's base-case intrinsic value is about $215, roughly 12% upside, on mid-teens growth.

  Base case assumes revenue grows about 15% a year, in the mid-to-high teens over the next five years, from new and bigger boutiques, higher same-store sales, faster US growth and digital. That is below the roughly 20% revenue CAGR since the IPO. A reverse DCF suggests the market prices in about 12% revenue growth. Margins are modelled to rise only from 20.6% to 21%, seen as conservative given US pricing, tariffs hopefully over, and SG&A leverage. A terminal EV/EBITDA of about 15x is in line with history. The base case gives about $215, roughly 12% above today's price. Probability-weighted across bull (25%) and bear (20%) cases with a 20% margin of safety, he gets about $148, which he said implies a discount of about 23% to the current price.

  “Lastly here, I give them an EV to EBITDA multiple about 15 times... And with that, get a base case price of about $215 which offers about a 12% return from today's prices.”at 1:21:46

• Kyle Grieve · The Investor's Podcast NetworkBullish

  Aritzia is a rare compounder with a long growth runway, unlike saturated Nike and Lululemon.

  He sees the key difference from Lululemon or Nike as Aritzia still having a lot of revenue growth ahead. He thinks the brand is far from the saturated feel Nike and Lululemon now show. He has held through strong intrinsic-value growth, and the stock is about five times his average cost. The business numbers, rather than the brand itself, make the growth case.

  “the big differentiator that you get with a business like Aritzia versus a Lululemon or a Nike is that the business has a lot of revenue growth left in it.”at 1:23:03

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Aritzia lacks switching costs and network effects, so he is inclined to pass.

  Brand is Aritzia's one competitive advantage, but there are no switching costs because moving between clothing products is easy, and no network effects to fall back on. A reverse network effect could follow if the brand's popularity cools, and retail can turn from great to bad quickly. Few clothing brands have proven durable compounders. Holding would be a timing game of exiting before the market sees a decline, which he does not think he can do. He prefers businesses with wide margins of safety or durable earnings power, so he is inclined to pass for now despite the strong growth, margin, balance sheet and store economics.

  “There are no switching costs, right?... There's really no network effects either to fall back on, especially if the brand's popularity ever cools.”at 1:24:00

Lululemon Athletica

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Lululemon's product momentum has stalled, with leggings falling and athleisure share slipping toward competitors Aloe and Vuori.

  Shawn says leggings are about a third of Lululemon's sales and fell about 20% last quarter as tastes moved to looser outfits. By one estimate, its share of athleisure fell about 10 percentage points in August to roughly 44%, with Aloe and Vuori taking much of that share. He calls the product suite stale and says the brand has lost some of what made it special. He still says Lululemon owns close to half the category, so it is 'their game to lose', and sees the new CEO's task as making the product exciting again.

  “leggings are roughly a third of Lulu's sales and they fell about 20% last quarter as tastes shifted toward looser outfits.”at 31:57

• Kyle Grieve · The Investor's Podcast NetworkBearish

  Lululemon's growth is getting harder because its North American market is saturated and the brand is already well known there.

  Kyle says he has worried for several years that Lululemon's brand is already widely known in North America, its main market. The US was an enormous growth story for the company for a long time, and Kyle thinks that market is now largely saturated, so growth is increasingly hard to find. He still sees people wearing the brand and does not think it has faltered, so his concern is about growth runway rather than brand damage.

  “my primary worry with Lululemon, which I've had for the past few years is just that the brand is incredibly well known in its primary market of North America. And because The US was such an incredible growth story for so long for Lululemon, it's been largely saturated”at 33:12

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Lululemon's China growth cannot offset North American deceleration, so its core market is the problem.

  China revenue grew about 30% as recently as Q1, but the Americas are roughly three-quarters of sales and China only about 15%. To offset a 5% decline in the Americas, China would need about 25% annual growth. Last quarter China slowed sharply, with comparable sales down 8% in constant currency. International can be a good second act, but it is hard to rescue a business once its core market stalls. He contrasts this with Aritzia, which still has US runway before it needs international. He references his Lululemon losses.

  “But even at that pace, it couldn't make up for North America decelerating because The Americas are still roughly three quarters of Lulu's sales, while China is only about 15%.”at 1:18:24

Reddit

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Reddit's explosive growth has pulled its multiple down, so it is a compounder with a long runway despite a 37x earnings multiple.

  Shawn says Reddit trades at about 37 times earnings, but its growth has been so explosive that the stock has grown into a lower multiple since his fund added it. He sees Reddit as a compounder with a very long runway, comparable to Airbnb and Aritzia. He suggests investors should hold such businesses rather than trade them, because the growth continues to justify the price.

  “except in Reddit's case where actually their growth has been so explosive that they've actually grown into a lower multiple.”at 6:32

Airbnb

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Airbnb is a compounder with a long runway despite trading at over 38 times earnings.

  Shawn says Airbnb trades at over 38 times earnings, yet his fund is comfortable owning premium-priced compounders. Airbnb has been a slow grind higher, up about a third from where the fund bought it, and the business has executed better than he expected. He compares it with Aritzia and Reddit as companies that can keep compounding over a long period, so they are worth holding through rich valuations.

  “I think I see Airbnb and Reddit similarly to how you see Aritzia as being really compounders with a very long runway.”at 6:32

Alphabet

Across the shows: 10 speakers in other episodes, 10 bullish and 2 bearish calls, past 30 days

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Fears that AI chatbots would kill Google search have faded, and Alphabet has executed better than expected.

  Shawn's fund bought Alphabet at an average cost of about $178 a share, when the market feared AI chatbots would kill Google search. The stock is now around $355, roughly a double for the fund. He says those fears have largely faded and the business has performed better than he expected. He keeps the position as its biggest holding and says rising prices alone are not a reason to sell.

  “So the AI fears that gave us our entry point have largely faded and the business has executed better than I expected.”at 8:15

Nike

Across the shows: 4 speakers in other episodes, 1 bullish and 2 bearish calls, past 30 days

• Shawn O'Malley · The Investor's Podcast NetworkBearish

  Nike's push to sell directly to customers backfired, since shoppers were less loyal than expected and it lost wholesale shelf space.

  Shawn argues Nike got too greedy by trying to own the customer relationship and steering shoppers to its own stores instead of wholesale partners such as Dick's and Nordstrom Rack. He says customers were not as loyal to Nike as it thought. Nike then pulled its products from Foot Locker, which found other brands sold just as well in the same prime space. He presents this as a strategy mistake that Aritzia and Lululemon are better at avoiding.

  “But then Nike pretty famously shot themselves in the foot by getting a bit too greedy a few years ago, I'd say.”at 28:22

US consumer

• Shawn O'Malley · The Investor's Podcast Network

  Three-year US retail spending data shows no reason to be alarmed about consumer weakness.

  Shawn looked at a three-year US Census Bureau chart on retail spending, which he says gives no reason for alarm. He is watching for a slowdown after the recent first quarter-point rate hike, but he does not see one in the data yet. His point is that the falling Aritzia share price is not explained by a broad consumer slowdown.

  “But as I'm just looking at a three year chart from the US Census Bureau on retail spending, I don't really see any reason to be alarmed.”at 52:58