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  5. ATZ: I am a holder of the stock at levels slightly higher than present and have been pleased with the last two quarters do you think the turnaround is in place. [Aritzia Inc. Subordinate Voting Shares]
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Q: I am a holder of the stock at levels slightly higher than present and have been pleased with the last two quarters do you think the turnaround is in place. The inventory has been reduced from the previous high in the last 6 months or so. Is the current inventory at a level that is right sized for the sales or is it still high. Do you have a rule of thumb for a stock like this for inventory size vs some other metric. Any further color you can add on inventory would be helpful as I am lacking the knowledge. Thanks
Asked by Jerome on May 10, 2024
5i Research Answer:

We think as a simple rule of thumb investors should look at the growth in inventory level relative to sales growth. For example, if sales growth was 10%, investors should see a similar growth of 10% inventory. On the other hand, if sales growth was 10%, but inventory grew at a more significant pace such as 30%, then it could indicate a risk for overstocking, which may result in inventory write-off or selling at a discount, as a result, impairing the brand value. For ATZ, we think the worst is already behind the company, ATZ seems to be resuming its growth trajectory from here. If ATZ could manage to grow 15as management indicates, we think the stock could see a multiple re-rate from here, and we would be comfortable owning it for the long term.