Stock Talk Podcast Episode 296 Show Notes

You are listening to KeyStone’s Stock Talk Podcast – Episode 296

Great to chat with you again this week. I kick off the show with a review of Star Retail holding Aritzia Inc. (ATZ:TSX). Shares surged 18% on better-than-expected FY Q4 2025 number and strong FY 2026 guidance. Aaron reports on Income Stock holding Parkland Corporation (PKI:TSX), the fuel distributor and retailer which announced it will be acquired by Sunoco LP in Transaction Valued at $9.1 Billion. In our YSOT segment, Brennan answers a viewer question and updates Atlas Engineered Products (AEP:TSX-V), a Canadian Micro-cap which designs manufactures and sells engineered roof trusses, floor trusses, and wall panels. The stock is down 42% on the year – Brennan let’s you know if it is an opportunity. Finally, Brett tackles the impact of the Trump tariffs – how they are currently reverberating through the U.S. economy, and what we can expect in the near future.

Let’s get to the show – I welcome my cohost, Mr. Aaron Dunn, and the killer B’s, Brett and Brennan.

Warren Buffett to Retire After 2025

Warren Buffett announced at Berkshire Hathaway’s 2025 annual meeting that he will step down as CEO at the end of the year, recommending Vice Chairman Greg Abel as his successor beginning in 2026. Abel has been Buffett’s designated heir since 2021 but was unaware of the exact timing until the surprise announcement during the meeting’s closing moments. Buffett, who transformed Berkshire from a failing textile firm into a global conglomerate, will remain involved with the company but emphasized that Abel will have full decision-making authority. The news marked a significant turning point for Berkshire and its devoted community, with shareholders expressing both respect and uncertainty about the company’s future.

Buffett stated that only his children, Howard and Susan, were informed ahead of the public announcement. Abel, originally from Canada, joined Berkshire through its 1999 investment in MidAmerican Energy and rose steadily through the ranks. Buffett praised Abel’s leadership and predicted he would outperform even his own historic success. As Buffett concludes his 60-year run at the helm, his departure signals the end of an era in American capitalism.

Poll Question

Aritzia Inc. (ATZ:TSX) | Star of the Week

Company Description

Founded in 1984 by the Hill family,, Aritzia is a long-term growth-oriented innovative design house and fashion retailer of exclusive brands targeted primarily toward women aged 15–45. Aritzia operates ~130 stores across Canada and the U.S., in addition to an established eCommerce platform.

Aritzia is a strong niche player in a fragmented industry that differentiates itself through an integrated model encompassing conception, creation, distribution, and direct-to-consumer retailing.

Why is Aritzia our star of the week? A nearly 18% jump last week – I will get into what drove the jump in a second.

I think it is important to put the move into context in what has been a very volatile year for Aritzia (and most retailers generally) in the face of a tariff war.

That chart is a circumferous (to avoid the center – avoid going through the center) way of getting to up 5.4% on the year. Lows in the $38 range and highs in the $73 range, all to under up just over 5% – but that is what you get in an uncertain demand and supply chain environment driven by tariffs.

It is probably also relevant to point out the stellar 5-year performance for Aritiza.

Particularly when witnessed against a couple of the more well known Canadian retail names over the past 5 years, including…

And...

Q4 FY 2025

Ok..let’s take a look at the strong Q$ FY 2025 which drove Aritiza higher this past week.

Net revenue increased 31.3% to $895.1 million, with comparable sales growth of 26.0%.

United States net revenue increased 48.5% to $548.0 million, comprising 61.2% of net revenue:

Retail net revenue increased 24.2% to $517.1 million.

eCommerce net revenue increased 42.4% to $378.1 million, comprising 42.2% of net revenue.

Gross profit margin increased 420 bps to 42.5% from 38.3%.

Adjusted EBITDA increased 121.8% to $160.9 million.

Adjusted Net Income per Diluted Share was $0.83 per share, compared to $0.34 per share.

Balance Sheet

• Cash: $285.63 million
• Debt: $3.83 million
• Lease Obligations: $922.61 million

Strong balance sheet – significant net cash outside of lease obligations. 

Guidance / Outlook

Aritzia expects the following for the first quarter of Fiscal 2026:

Revenue: +24%-28% Y/Y to $620-640 million (prior published: $616 million).

Gross profit: +200 bps (prior published +58 bps).

SG&A as % revenues: -100 bps (prior published -111 bps).

Adjusted EBITDA margin: 14.0% (prior published: 10.8%).

Takeaway here: Annual forecasts broadly unchanged with better H1/26 offset by accelerating GM% headwinds in H2 as tariffs hit.

Tariffs – a major question on the company’s conference call.

Management have been proactive in diversifying the company’s manufacturing base in recent years – shifting some of its supply chain away from China, which has been hammered with triple-digit tariffs from the United States.

China is one of the top three countries it relies on to make its clothing (est. up to 50% starting calendar 2025), but it intends to cut its China production from 25 to 20 per cent for its upcoming fall-winter season.

Management estimates reliance on China will fall even further by next spring, when Aritzia predicts just a “mid-single-digit percentage” of production will happen there,

As part of that diversification, she said the business will turn to long-standing partners in the 12 other countries, like Vietnam and Cambodia, where Aritzia produces clothing. It will also explore new countries and broker relationships with new suppliers that can improve its existing products.

This is an impressive pivot over a relatively short period of time.

Valuations

• PE (adj) (2025a): ~29.4x
• PE (adj) (2026e): ~24.8
• PE (adj) (2026e): ~18.6

Reasonable valuations – in a vacuum – not living in a vacuum at present.

Conclusion

Q4 FY 2025 result were very strong in terms of revenue, margin, and EPS growth. 

Reasonable valuations in a non-tariff environment – or vacuum, but we are not living in a vacuum and the almost certainty weakness creeping in either in the current quarter or by years end as the consumer pulls back spending in an uncertain environment makes this high quality business.

HOLD rating near-term.

US Tariffs & Ports

I’m going to go through the impact of the Trump tariffs and how they are currently reverberating through the American Economy, and what we can expect in the near future.

Last week, we got the advanced US Q1 2025 GDP numbers, with GDP falling 0.3%. This was driven by a massive surge in imports as companies tried to front-run tariffs.

The chart I have up now shows the massive change year-over-year in the increase in imports, growing 5%. GDP is consumption, which is consumer spending + investment + government spending + net exports, which is exports minus imports. So the much higher imports lower GDP, which is why you get the contractionary effect. This impact is normally temporary as the imports flow into companies’ inventory and then are sold, which will appear in the consumption of future GDP.

I will mention here as well that these are the advanced GDP numbers, which do get revised to the preliminary numbers and then the final numbers. And during times of stress, the revisions are more likely to be greater.

But we can see the Atlanta Fed’s GDPNow does expect growth during Q2 of 1.1%.  This is the continuation of the general slowdown we have been seeing, but not to the same degree as the headline number for Q1.

The US did have the first early impacts of tariffs in March against steel, aluminum and auto, but it wasn’t until “liberation day”, April 2nd, when we saw the broad tariffs implemented and after that the increased Tariffs on China up to 145%.

Likely moving into the next quarter, we will see the opposite impact from trade. Since we saw all that front running, imports regardless of tariffs would likely but lower in the coming quarters. But with the Tariffs you will of course have lower demand, particularly for Chinese products, as the costs have surged with the 145% tariffs.

Further, the US has removed the de minimis, which exempted packages declared under $800 from normal customs. Which companies, like Temu and Shein, took full advantage of. In the chart I have up, you can see the massive surge in low-value packages over the past decade. The small packages will now be subject to a 120% fee or $100 flat rate, which is going to be further increased to $200 on June 1st.

I have the total US imports from China up as well and as you can see over the past decade the dollar value of imports has more-or-less plateaued . Contrasted to the surge in the volume low value packages. This change alone could cause structural change to US China trade relations.

Overall, we will see a drop in demand for Chinese products into the US. JPMorgan is expecting a 75-80% drop in shipping from China into the US for the second half of the year.

Ports can really be seen as the front line for the impending impact on the US. We can see the drop in imports in the shipment data. We can look at the data for the ports of LA & longbeach, the largest port in the US.  As the ships take 2-3 weeks to travel from China to the US West Coast, the lower amount of imports into the US is really now just starting in May. Shipments from China make up about 45% of the activity for the Port. This week, shipments for the port are expected to drop by 35% year-over-year and 16% from the prior week. Next week is expected to fall 11% year-over-year, with the following week rising 65% year-over-year. However, those figures will likely drop as the scheduled routes on which this dashboard relies will be cancelled or the port is skipped, otherwise known as blank sailing. Assuming no shift in tariffs or deminimus rules. This isn’t going to create an empty port like I’ve seen some YouTube videos and social media posts claim, but it is a clear slowdown in port activity.

So what does this mean:

1. In the coming days and weeks, there will likely be a slowdown in trucking and port worker hours. As imports fall, fewer products are being moved around the country. This will result in heightened unemployment within the industry and weaker fundamentals for companies within the industry.  This will be the start of the real-world impact of tariffs.
2. Next, as the built-up inventory gets moved through US consumers will start to see either higher prices and fewer products on shelves. For instance, instead of 10 types of blue shirts, you might only see 5 types and at a higher price. This will start to happen in the next few weeks to later May early June depending on the inventory on hand and the degree of reliance on imports. Larger retailers might be able to absorb the costs a bit better, but small businesses will need to look to pass through costs quickly. But for some companies they may have months of inventory on hand allowing them time to shift supply chains out of China. But generally, this will begin to put upward pressure on inflation within the US in the second quarter.
3. As the financial markets digest the impact, volatility may increase once again. We’ve seen a period of reprieve with a broad market recovery. But if there is no change of pace and the policies remain erratic, volatility will likely come back.

The next big question is whether we will see a pullback on tariffs. The 90-day pause on the heightened tariffs internationally to the baseline 10% will run out on July 8th. If we don’t have trade deals being announced by then, the real-world impacts will be exacerbated.

And of course, with Trump, things can shift at a moment’s notice. Trump just announced a 100% tariff on foreign films for national security purposes, somehow. I think Trump just wants to be in another Home Alone.  But, the general instability exacerbates the negative impacts of tariffs.

Companies and financial markets like clear policy, regardless of if it is a negative or positive impact for them. One possibility that I will end my segment on is do we just see the tariff pause continue to be extended or will we see a set policy.

YSOT Atlas Engineered Products (AEP:TSX-V)

Company Description

Atlas Engineered Products designs manufactures and sells engineered roof trusses, floor trusses, and wall panels. And distributes engineered wood products for use by builders of residential and commercial wood-framed buildings.

The company’s strategy is focused on profitability and organic revenue growth within its current markets, and the pursuit of a roll-up acquisition strategy to consolidate similar companies operating in the truss and engineered wood products industry across Canada.

I have covered the stock on the podcast several times, with Ryan covering them last in December of 2024, so considering they posted their Q4 2024 Financial results on April 25th, while the stock continues to slide lower, I thought I would quickly update the business.

Q4 2024 Financials

Revenue increased 6% to $15.1M, due to a number of large multi-family projects starting in Q4, 2024. Sales increased due to projects moving forward as the interest rates had been declining, which was starting to result in an increase in orders. There was also a large multi-family project which began in the quarter.

Gross margin for the three months ended December 31, 2024 was 24%, which is higher than gross margin of 21% for the three months ended December 31, 2023. Gross margins increased due to the project pricing for materials that were obtained for the large multi-family job.Adj. EBITDA was down 45% to $2.1 million which is an adjusted EBITDA margin of 14% compared to 27% for Q4 2023. These decreases were mainly due to the decrease in net income resulting from a more competitive market for sales and the increased costs related to future sales and robotics plans that required significant expansion in sales teams, management, and support staff.

Net loss for the quarter was $(212K), or ($0.01) per share, compared to a gain of $519 thousand or $0.01 per share in Q4 2023. The decline is related to the impacts on Adj. EBITDA, such as a more competitive market and increased costs for its sales and robotics expansion, but the company also recognized an impairment loss of $1.5 million due to the write off of the vendor deposit with its previous automation partner, House of Design”. The deposit was deemed uncertain as to the recoverability due to the vendor’s lack of communication and closing of the business, but the company has begun legal proceeding to try to recoup the money. So there could potentially be a benefit in a future period if recovered, but overall, it’s a bad look for Atlas.

Balance Sheet

Balance sheet remained healthy with $13.2M in cash, with $24.6 million in debt and leases, providing a net debt position of $11.4 million. And the company has a trailing net debt to EBITDA multiple of 1.34x times which is reasonable.

And as I noted last time I covered the stock, they did do a private placement last spring to help bolster the balance sheet while they make capacity expansions through robotics, so you can see the issued shares increasing to about 70M.

Outlook

And just looking at the outlook, management indicates that they continue to work on improved operating utilization and technology to enhance the company’s performance. 2024 was a more competitive year as interest rates had risen, but was beginning to experience an increase in quoting by the end of the year as interest rates were declining.

The company anticipates 2025 will be a more competitive market despite the interest rate reductions due to the current political landscape and implemented tariffs are anticipated to impact businesses and consumers across North America.

The company continues to assess M&A opportunities, like its acquisition of LCF in 2023 and announced that another had completed the due diligence phase with anticipated closing in early spring of 2025.

Valuations

Looking at the forward valuations on the company, last time when Ryan covered the stock at  $1.22 back in December 2024, analysts were expecting $0.05 in adjusted earnings for FY 2025 which equated to a forward PE of 23 times.

But following the Q4 results posted in April, analysts have been dragging these EPS estimates lower, from $0.05, now down to $0.04 as at the time of recording this podcast.

And the anticipated inflection year of FY 2026 when Atlas brings on its robotics in a more meaningful fashion, down from a whopping $0.14 consensus back in December of 2024, now down to just $0.05 for the year – Equating to a forward PE of 14.7x.

So these revisions are likely taking into account the overall competitive quoting environment, tariff uncertainty, and the delays of the robotics at LCF and Hi-Tech.

Conclusion

In reference to Atlas, we believe it is an intriguing business. And I do like the potential play on the housing sector in Canada given the lack of supply. But it does remain a competitive market as indicated by management’s outlook and tariffs pose a risk for the housing market in Canada and the overall Canadian Economy.

Fundamentally the business remains pricey on trailing numbers (negative EPS for FY 2024), but if over the next couple of years, it can fulfill its capacity enhancements and lower costs, the forward financials and valuation multiples appear much better.

I remain hesitant at this time, the business is investing for capacity in the face of potential headwinds (including tariffs), recorded an impairment of $1.4M with a robotics vendor which is not a good look, and isn’t ”cheap” even after its recent decline in price.

Overall, I think that Atlas is an intriguing business, but it makes sense why the stock has been declining, and we continue to Monitor the business at this time.