Previous retail stocks within our Intrinsic Value Portfolio have fared poorly; whether we are talking about Lululemon or Nike, we haven’t had much success. But in my personal account, one retailer has done stellar: Aritzia. While Lululemon and Nike had strong arguments for their cheapness as investments, they lacked Aritzia’s abundant growth.

And while the market often pays up for growth, it sometimes doesn’t pay up enough, doubting the durability of a company’s growth. Especially in retail, the burden of proof remains continually quite high, because, well, we’re not the only ones who’ve been burned by retail.

If you thought we couldn’t find a business less widely understood by men than Lululemon, we’ll comfortably surpass that marker in exploring Aritzia today.

Sure, Aritzia doesn’t stamp its logo on all of its products, but I promise many women have no problem spotting the brand in the wild.

— Kyle

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I’ve owned Aritzia since 2020, and it’s still the largest position in my personal account. While it’s been a winner, it’s also come with its fair share of volatility. I’ve endured multiple drawdowns of 30-65%, despite the business compounding revenue annually at 24% and earnings per share at 30% in that time!

While growing quickly in the U.S., outside of major cities, you’ll seldom find Americans familiar with the brand. To people like Shawn and his wife, the brand is relatively “new.”

The stock is now roughly 6 times my average cost basis. And if I’m being honest, holding it has been an easy decision in hindsight and a hard one in real time. When I recorded my episode with Shawn on Aritzia, the stock was down 31% from its highs. The question I initially set out to answer was simple: was the market seeing weakness that I was blind to, or was this business just trading at a discount?

Then, after Shawn and I recorded the episode, Aritzia reported its fiscal second quarter, and the market answered that question for us, with shares climbing 22.5% the day earnings dropped. Whatever KPI you chose- revenue growth, comparable sales growth, US growth, or eCommerce- it exceeded expectations.

That changes the framing of the original thesis a bit. The business case has probably gotten a little stronger since we released the episode. My probability-weighted intrinsic value was about $148 a share, and the 23% discount I described is all but gone. So now the question becomes whether the business is good enough, and the runway long enough, to own at fair value.

Aritzia is a vertically integrated design house that sells its own brands, almost entirely to women, through its boutiques, website, and app. It calls its unique positioning in the fashion industry “Everyday Luxury”: well-made, well-designed clothes and accessories with high-touch service, priced so a typical professional can actually buy them.

To wrap your head around everyday luxury, it helps to define what it is not. It’s not Hermès or Louis Vuitton. Nobody buys a $10,000 jacket at Aritzia. But it’s also not H&M or Shein, where the garment looks fine when you first buy it, then falls apart after a few washes. A pair of Aritzia pants can easily run you $180. But the quality is high; my wife has a pair of leggings she’s owned for over 20 years that are still wearable!

Brian Hill, a third-generation retailer, founded Aritzia, but its roots trace back to Hill’s of Kerrisdale, a Vancouver department store. Back in 1984, a young Brian Hill started Aritzia in a corner of that store. Early on, it stuck to selling third-party brands. But over the next four decades, that business model shifted considerably.

There were four major decisions that have helped build Aritzia:

When I’ve brought up Aritzia to the average investor, they always tell me the same thing: “retail is hard, and Aritzia at the end of the day doesn’t sell anything that I can’t find elsewhere.” And I don’t have a good argument against that, but remember I can also buy 100 different beverages, yet I keep going back to Coke (usually in the Diet or Zero variety). I do this because of Coke’s brand. That’s why Aritzia shoppers keep coming back, too.

What a competitor who pops up tomorrow can’t replicate is over four decades of trust that Aritzia has built. Customers know the fit, know the quality, and have a good idea of what wearing it signals to others. And that trust shows up in the numbers. Gross margin went from about 37% when it IPO’d in 2016 up to 49% today.

To me, this signals that people are willing to pay more for Aritzia’s goods. Arguably, the most impressive part of Aritzia’s margin expansion is how poor the environment has been as it scaled up. Tariffs and the end of the de minimis exemption (which allowed them to ship items under $800 to the U.S. with no customs fee) have been in place for the past few years, and they’ve still improved margins despite the headwind.

On top of that are the Aritzia Boutique economics. Aritzia reports generating roughly $1,000 in sales per square foot. The average, according to data from Tanger and Simon Property Group, is closer to $400 to $700.

Aritzia has an unusual fiscal year, with the latest quarter being Fiscal Q2 2027. And it was Aritzia’s best quarter ever. Part of the reason this quarter mattered so much is that many investors, I believe, had much lower expectations, as they presumably thought the US was headed for macroeconomic weakness. Instead of poorer results, they knocked it out of the park in every way imaginable.

All the margin and EBITDA figures also exclude a $97 million tariff refund, which greatly boosted their profitability numbers but isn't recurring. This is another reminder that headline numbers can often obscure the economic reality. So always remember to strip out one-time windfalls to avoid future errors. In Aritzia’s adjusted results, they removed it, which deserves credit.

Three areas of this earnings report really stood out to me.

First, US growth is re-accelerating. Last quarter, US revenue grew an outstanding 55%. But this quarter it grew 60%. The US growth story is really starting to take shape as they grew their US square footage by 20%, with double-digit comparable sales. Aritzia entered new cities in Birmingham, New Orleans, and St. Louis. Aritzia’s CFO, Todd Ingledew, said newer boutiques are generating higher sales per square foot than prior cohorts and are tracking to even faster payback periods.

Second is the growth in traffic. This means that Aritzia is generating more sales from adding customers, and not from price increases or from existing customers spending more at the stores. Markdowns also fell meaningfully, showing a strong inventory position and high demand. Growth driven by more customers showing up and paying full price is the highest-grade retail growth you can achieve.

Third is the improvement in margins. I already mentioned how gross margins have improved over the years, but over the past year they have been even more impressive. Aritzia had a 34% incremental EBITDA margin. I don’t expect growth like that to continue, but it’s a strong signal that Aritzia is managing costs well.

As a result, management raised its full-year guidance from $4.78 to $4.88 billion in revenue, 29% to 32% growth, and an adjusted EBITDA margin of about 20%. That margin is about 1% above the long-range fiscal 2027 target set at the last Investor Day.

I have heard concerns about the second half. Q3 guidance is 23% to 27% growth, implying second-half growth rates in the high teens to low 20s. Aritzia is about to lap the October 2025 app launch, along with some exceptional growth years. So in the near term, they are getting investors to rein in expectations, which I’m fine with, because this isn’t a business that will keep growing revenue at 44% forever (nor can any business do that).

Aritzia has three growth engines they’ve relied on for the past few years. These are the same ones I think can keep Aritzia compounding for many years. What I like about Aritzia's growth setup is that it doesn’t require much innovation or risk; they just need to do what they’ve done historically, but at a larger scale.

The first part of that equation is in scaling the U.S. I discussed how well they have done in this when we looked at their latest quarter, but really the U.S. has been a key growth driver for multiple years:

Aritzia ended the quarter with 79 U.S. boutiques and has 82 today. Canada has about 67. The U.S. has roughly nine times Canada's population, and it generates about two-thirds of Aritzia's revenue. So even if you assume the U.S. never loves Aritzia as much as Canada, it should be able to support 5 times as many stores as Canada. This puts the total US opportunity in the 300-store range, nearly four times the current footprint.

While Aritzia could expedite store openings, I think their conservative approach of opening 12-14 per year is smart. This number has gradually increased. And you’d assume that if they are only opening this amount of stores each year, their revenue will stop growing as fast. But that hasn’t been the case simply because the US is still so underpenetrated.

This leads to the next growth driver: the digital space. This includes things like their app and eCommerce. The mobile app, launched a year ago, has already surpassed 2.5 million downloads. This has improved sales in native North American markets as well as internationally, where sales rose over 165% in the last year.

The third growth driver is brand awareness. This driver is the hardest to model but arguably the most important to Aritzia's growth story. In 2025, I spoke with an investor friend of mine and his wife, who spends time for work between Canada and New York. She felt that, outside New Yorkers who walk past the Fifth Avenue flagship every day, many American women had never heard of Aritzia.

That is the bull case in a single sentence: the brand converts people once they find it, and most of the U.S. hasn’t found it yet. Stores and digital also feed each other, too. There are still lineups around the corner when new boutiques open.

I’ve discussed a lot today how margins have continued to rise. The simplest answer is from decreasing input costs. Much of the initial markup gain comes from cost savings as volumes grow, plus optimizing product mix. You also get operating leverage on things like SG&A, plus the tailwind of the US mix shift.

Aritzia tends to price roughly in parity across the border. A Finch trench coat costs $298 in Canada, and $265 in the US. If you convert the US price to Canadian dollars, Americans are paying more for the same item, with the same input costs. As the US takes up more market share, margins should rise as well.

My return on invested capital calculation puts Aritzia at about 28%, and it's rising. You don’t need to be an MBA to see that’s an exceptional number and well above their cost of capital. And even if Aritzia doesn’t keep expanding that number, I think holding it steady is a win, as they can keep earning a high return while investing in more stores, distribution capacity, and digital infrastructure.

Aritzia is also a cash-generating business, with over $800 million of operating cash flow over the last year. To make their financials even better, they carry zero debt and currently have $528 million in cash on the balance sheet.

There is an update on the buybacks, which Aritzia has traditionally used to offset share-based compensation. Traditionally, they’ve increased shares outstanding by a 1% CAGR due to share-based compensation. But this calendar year, they reduced their share count by 1.5% by buying back 2.1 million shares. The stock price was down quite a bit earlier, and buybacks at those depressed levels should be value accretive.

Jennifer Wong, Aritzia’s CEO, started as a style advisor on the boutique floor in 1987 and became CEO in 2022. Few other CEOs have truly climbed from bottom to top as she has.

As CEO, she has retained roughly $500 million in earnings while the company's market value has risen by more than $10 billion, demonstrating her ability to create value.

Aritzia’s founder, Brian Hill, remains executive chair. He owns 15% of the company and still has voting control. He has done a great job aligning himself with shareholders by taking a $1 salary and a $1 bonus since the IPO — all he cares about is driving the stock higher over time.

But I had a few complaints. Outside of Brian Hill, insider ownership is thin. Wong owns much less than 1%. Incentive pay ties to revenue, EBITDA margin, and adjusted EBIT, all income-statement metrics. None of it rewards capital efficiency or cash flow generation. But with how good things are going today, it’s hard to complain too much.

The first risk I’d highlight is in Aritzia’s brand. The brand has to constantly defend itself against competitors. J. Crew, Gap, American Apparel and Club Monaco once owned real estate in some of the best malls. But ask a 20-something today if they know those brands, and a shocking number will have no idea what you’re talking about. So if the brand were to weaken, and if shoppers no longer think it’s "cool,” then there is always the risk that customers spend their money elsewhere.

A bear would argue that, although Aritzia’s growth looks incredible right now, this is what a hot brand looks like before it cools down. High growth numbers can set up future quarters with an incredibly high bar. Management has already put the brakes on FY2027, setting expectations for a slowdown in the back half of the year. With Aritzia trading at 29x earnings, there isn’t quite as much room for disappointment.

Some other risks worth paying attention to:

I built my base case on a few simple assumptions. First, I modeled revenue growth at a 15% CAGR for the next five years. This is below the 20% growth rate Aritzia has posted since its IPO. Next, I assumed Aritzia continues to gain operating leverage, pushing margins to about 21%, which I consider conservative given the US's rapid growth. Lastly, I gave it an exit multiple of 15x EV/EBITDA, in line with Aritzia’s historical average, which I think is reasonable for a business still growing in the mid-teens in five years time.

That gave me a base-case value of $215 a share. Inputting my bear and bull case gets the intrinsic value to $148. To better gauge how the market viewed my growth assumptions, I ran a reverse discounted cash flow, which showed the market assuming a revenue growth rate of about 12%. I still think my number is sufficient and accounts for future slowdowns in revenue growth.

After the latest earnings release, the business went from being at a 23% discount to my intrinsic value to about 0%. While it’s great to see Aritzia’s financials validate the bull-case numbers, I don’t see any reason to change my modeling or assumptions. Thus, we chose not to add Aritzia to the Intrinsic Value Portfolio given our recent experience with retailers.

To listen to our full discussion of Aritzia, or for more company Deep Dives, check out our podcast here.

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