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

SPEAKER_1 (0:00)

You're listening to TIP.

Kyle Grieve (0:03)

Welcome back to The Investor's Podcast, Episode 853 Today, we're covering a business that I personally know better than almost any other because I've owned it since 2020, and it's still actually the largest position in my personal portfolio, and that business is Aritzia.

Shawn O'Malley (0:16)

I came into this episode knowing you'd be pitching Aritzia and maybe feeling a little gun shy because the last premium apparel brand that I fell in love with was Lululemon, and that just has not quite gone to plan for me.

Kyle Grieve (0:29)

And I think that's why I'm really excited to dig into this one with you, Shawn. You know, when you've held a stock through as many ups and downs as I have with Aritzia, you really have to ask yourself some of the hard questions like, is this business getting better or worse? Or am I holding this because the thesis still works or because I've just gotten more and more attached to the specific name?

Shawn O'Malley (0:46)

I think they're really valid questions for both of us and also our third co-host, Daniel, to be constantly asking ourselves about every position that we hold in our intrinsic value portfolio. But the timing of our conversation today around Aritzia is definitely very interesting. The stock has been hit pretty hard recently and yet the business is putting up some of the best growth numbers in its history of being a public company. So either the market is seeing something we aren't or it's handing investors a special chance to buy into a business that rarely looks cheap.

Kyle Grieve (1:19)

I'm excited to find the answer to that question. Let's go.

SPEAKER_1 (1:26)

Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.

We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only.

All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Shawn O'Malley and Kyle Grieve.

Kyle Grieve (2:11)

This is an episode that I'm very excited to do because I've really wanted to cover this business for a while, but the timing just never seemed quite right. So I've covered many businesses on this podcast that we ended up skipping simply because they were just too expensive. But Aritzia, the business that I'm about to cover, changes things up a bit. So the price is currently down about 31 percent, but Aritzia is a business that I already own in my personal account, and it's actually been there since 2020 Now, being a shareholder since that time hasn't been the easiest ride. Since owning it, I've gone through multiple drought downs ranging from 30 to 65 percent. I think it's one of those classic case studies of why being able to maintain conviction is just so important if you really want to get those multi-bagger like returns.

It would have been so easy to just bail on the business during any of those drawdowns, just to save myself the pain of seeing how much money that I'd lost on the position. But I've really held my shares other than a small trim earlier this year, and it's actually still the largest position in my personal account.

Shawn O'Malley (3:04)

I remember you giving a presentation to our mastermind community of investors last year about the business. Again, the timing was pretty interesting because I was pretty bullish on Lululemon at that time and its valuation. Even though you made a really compelling case for Aritzia, which is not exactly a Lulu competitor, but they're of course both in the retail apparel industry, I just couldn't get comfortable with the valuation of the business. So Lululemon was definitely an easier sell to a cheapskate like me. It was trading very cheaply, I think 10, 12, 14 times earnings.

Even with slowing growth, I still thought it was cheap enough to make a decent return. So a few things have since gone against me with that bet, including the CEO stepping away and being replaced with two interim co-CEOs, a proxy battle with the company's founder, Chip Wilson, and then just a deceleration in sales in their core market of North America, that honestly occurred much, much faster than I anticipated. So I feel a little burned by retail. Maybe I'm a little bitter, especially because I thought I was buying Lulu with a pretty wide margin of safety, but still things managed to go worse than I imagined. And my lesson, of course, is not entirely to avoid retail altogether, but it is that retail stocks can be a bit like playing with fire. Things can go from bad to worse very quickly in retail, but on the flip side, when a brand is surging, returns can be explosive. And Aritzia is at a minimum, sort of at a different stage in its life cycle, where there's a much larger runway ahead for growth, instead of being in this situation where it needs to figure out how to reignite growth like Lululemon has been in.