Q2 2020 Earnings Call

Thank you for standing by this the conference operator, welcome to where it's yes second quarter 2020 earnings call. As a reminder, all participants are in they listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions. The joined the question Q you mean press star.

Then one on your telephone keypad shouldn't need assistance during the conference call you may signal, an operator by pressing star and zero I will now turn the conference over to how in Kelly Vice President of Investor Relations. Please go ahead.

[noise]. Thank you Carl and thank you all for joining us on or what's your second quarter 20, <unk> earnings Conference call with me today, Our Brian Hill, our founder CEO , and Chairman, Jennifer Wall, President and COO and Todd angle do our Chief Financial Officer.

I'll begin today's call with management discussion followed by a question and answer Puria open to analyst and Investor.

Please note that remark on the conference call may contain certain information regarding our expectation future plans intentions that may constitute forward looking statement.

I refer you to our most recently filed management's discussion and analysis, which include the summary up a material assumptions as well as certain material risks and factors that could affect our future performance and our ability to deliver on these forward looking statement.

The second quarter 2020 earnings release, the related financial statements and DNA are available on SEDAR as well at the Investor Relations section of our website at <unk> Dot com.

Finally, all figures discussed on this conference call or in Canadian dollars, unless otherwise noted I will now turn the call over to Brian .

Thank you Hello, and thank you everyone for joining us today I Hope you all had a nice Canadian Thanksgiving holiday.

We're extremely pleased that we delivered yet another strong quarter financial results are consistent performance reflects the Richie as growing brand awareness in the United States enduring customer loyalty in Canada, and our ability to execute on our powerful business model.

Revenue grew 17.4% from last year fueled by meaningful ecommerce growth and four new boutiques to expansions and positive comparable retail sales.

We also remain excited that the U.S. continues to be our fastest growing market.

Overall comparable sales increased by 8.4%, marking our twentyth consecutive quarter of growth.

Compounding the 11.5% from the second quarter fiscal 2019 for a 20% to year call.

[noise] behind our growth is an increased affinity to our unique brand positioning of everyday luxury which is comprised of our beautiful high quality products exceptional clientele service.

And then aspiration all omnichannel shopping experience.

The ended the quarter amateur ended the last quarter, our inventory levels, where it typically high however, as discussed on our last conference call. We're confident they would be in line as we entered the fall.

The team did a magnificent job managing through the sales season, and we entered the fall with no excess inventory.

As a note our inventory levels are near perfect. This season.

We successfully launched our new fall collection in August .

Launch strategy of weekly new product drops designed to create excitement for our clients has been well received.

These early positive sales read set up set us up to place Reorders ahead of the important holiday season.

Shifting to our channels ecommerce continues to drive the growth of the company revenue in this channel grew at a higher pace in the second quarter and year to date compared to last year. Our growth is fueled by significant increase in both traffic and the number of transactions online.

Key to driving increased revenues and profit brand awareness and customer acquisition boutique expansion remains an important component of our growth strategy.

We opened a boutique involve American Minneapolis at the end of the second quarter and another in Cherry Creek Denver at the start of the third quarter.

Not only are these boutiques performing meaningfully ahead of expectations.

And our trending to pay back in under 18 months. We have also seen the near doubling in our E Commerce sales in these new markets.

On the back of last year's success, we have once again collaborated with Kendall Jenner on our fall campaign and expanded the program to include Haley Bieber Sofia Ritchie and other Mega Influencers.

Campaign continues to create excitement and we're delighted with the increased levels of engagement with our clients through social media.

Similarly, we're pleased with the continued success of our VIP program. The increase visibility has successful has been successful and more than doubling our celebrity placements since last year and contributed to a fourfold increase in media placements in major publications over the same period.

Underlying the exciting progress of our client facing side of the business is our continued commitment to invest in infrastructure to support our recent the future growth last quarter, we announced a new strategic partnership with essay Pete's develop a comprehensive client program that is now well underway.

We expect these new initiatives will elevate our client experienced a world class level across all channels with a potential to drive significant revenue growth.

General will provide an update on these initiatives.

40.

The patient and.

In summary.

Shortly.

Thrilled with our performance to date in fiscal 2020.

Yes, we did in accordance.

Similarly encouraged by the continued strength in both our accelerating ecommerce business overall.

Yeah.

And our success some units.

Before I discuss our business outlook I will turn the call over to Jennifer who will give you an update on our operational investments in greater detail.

Hello can you hear me.

Remarks, Todd will provide some key highlights of our second quarter financial results.

I'll turn the call over to you now Jennifer.

Thanks, Brian Good afternoon, everyone as Brian mentioned, we continue to make strategic investments in our infrastructure and processes to support our recent and long term growth. This includes the suite of projects. We are currently working on with S&P to elevate the customer.

Experience.

The product lifecycle management system to approve the manner in which we bring a new product to market.

Expansions to our distribution centers to support our upcoming holiday sales and set us up for growth over the next three to five year and finally, just further augment our E. Commerce growth, we are implementing new initiatives involving new social commerce channels, and digital marketplaces to better engage our clients throughout their journey.

Inspiration to purchase.

I will discuss each of the entire.

Last quarter, we announced strategic partnership with S&P to develop a comprehensive customer program.

We are excited that this project is now well underway to provide a brief recap the customer program is a multiyear initiatives that comprises of for projects that will be implemented in phases.

No 360, the marketing communications platform concierge and the digital selling tool.

We are excited to announce the first two of these projects will be completed and time for holiday this year.

The first customer Threesixty enabled us to store view and edit client information from all of our Frontend system.

This will give us an enhanced few of our clients including their attribute.

Past purchases and preferences in real time.

The second is the marketing communications platform.

Aspects that are more targeted approach to marketing communication when enhance our topline growth.

We have kicked off the work streams for the remaining two projects and expect these to launch later in fiscal 2021.

We're targeting to have caused years up and running to replace the old case management system in our client care center by the first quarter.

This new integrated solution will not only allow us to enhance our client experience to the lifecycle of their purchase. It also represents a significant revenue generating opportunity I'd be personalized each of our 1.3 million client interaction per year through CACI ours.

Laughed and perhaps the most exciting out of the suite is the digital selling to all.

The project will be completed across multiple phases commencing next year.

In the form of a mobile app the digital selling tool will provide enriched client information and product data to improve the productivity of our approximately 3000 style advisers, who are already exceptional at how they sell and how they service our client.

This powerful tool is expected to accelerate sales across all of our channel and elevate the overall shopping experience.

The product lifecycle management system or PLM for short is another foundational technology, we are implementing.

The Pos system manages the data to support all of the process is necessary to bring to bring a products to market.

The application will provide visibility to our raw material and enable us to focus on innovation drive quality reduce speed to market and optimize cost in our manufacturing processes.

To identify Workstreams are currently underway and we are on track to rollout our first release for the spring season with others to follow.

During the quarter. We also completed the expansion of both our third party distribution center in total we added 180000 square feet of space between the Toronto area in Columbus, Ohio, DC, representing an 80% increase for these facility.

These expansion support both our growing e-commerce , and retail business with added capacity to handle higher levels of throughput.

Finally, we are implementing new ways to connect with our clients through social commerce platform and digital marketplaces. We're excited about the opportunity to offer our clients unique shopping experiences by providing additional ways to engage with and discover our brand both online and through social media.

We are in the implementation phase for these initiatives and we expect they will increased brand awareness driving incremental revenue and further augment the growth of our E Commerce business.

Hope to be in a position to give you an update in the coming months.

And then you look at the pipeline of opportunities ahead of a it is crucial that we have the right infrastructure in place to support our future growth.

We're pleased with the progress on each of these initiatives we have in place.

We are confident these strategic investments will keep us on the forefront providing exceptional client service and operational shopping experience for which we are well now I.

I will now turn the call over to Todd to discuss our financial result.

Thank you Jennifer and good afternoon, everyone.

We're extremely pleased with our performance and the advancement, we made on our current and long term growth strategies in the second quarter.

As a reminder, we began reporting under AFE for a 16, the new leasing standard in the first quarter.

The net impact of via for a 16 in the second quarter was a reduction of $128000 to net income.

We do not expect the standard to have a material impact on net income for the remainder of the year.

My review of our financial results.

I'll focus my commentary on the comparative figures, which exclude the impact of IRS 16.

Turning to our results net revenue grew 17.4% to $241.2 million in the quarter.

This was driven by meaningful growth in our ecommerce business.

For new and to expand it boutiques.

And positive comparable boutique sales.

Also included in net revenue were revenues from our annual warehouse sale, which always occurs in the week before labor day. However, the quarter end timing was such that it was included in the second quarter this year compared to the third quarter last year.

This shift in timing contributed low single digit percentage gross to net revenue in the second quarter.

Comparable sales increased 8.4% compounded on the 11.5% increase in the second quarter last year.

These strong results reflect momentum across both channels and geographies.

Comp growth was led by a meaningful increase in our ecommerce business as we continued to gain traction on or digital initiatives.

In addition, we saw positive comparable sales in our existing boutiques.

Gross profit margin, excluding the impact of I have for a 16 was 37.2% down 20 basis points.

The 20 basis point decline was better than our expectations.

We're extremely pleased with how we cleared through the higher than normal levels of our spring summer inventory.

Which resulted in markdowns coming in lower than expected.

Gross profit margin was also negatively impacted by the weakening of the Canadian dollar and the shift in timing of our warehouse sale.

These pressures were almost entirely offset by leverage from our occupancy costs.

A higher mix of exclusive brand product and improvements from our ongoing sourcing initiatives.

SGN a expenses excluding the impact of wafer is 16 increase by 14.8% to $60.7 million.

Ex SGN, a expenses were 25.2% of net revenue compared to 25.7% last year.

This 50 basis point improvement year over year was primarily due to leverage on SGN, a expenses and timing of marketing spend.

Mostly offset by investments made in our customer projects.

Adjusted EBITDA, excluding the impact of IRS 16 increased by 10.1% to $36.4 million were 15.1% of net revenue compared to 16.1% last year.

Adjusted EBITDA was impacted by a year over year swing of $2.6 million from other expenses, we had other expenses of $700000. This year.

Primarily from FX losses, compared to other income of $1.9 million last year, primarily from FX gains.

Excluding these impacts adjusted EBITDA would have increased 18.3%.

Adjusted net income grew 8% to $19.8 million.

Adjusted net income per diluted share increased by 12.5% to 18 cents from 16 cents in the second quarter last year.

Our cash balance totaled $30 million and we were $20 million drawn on our revolving credit facility at the end of the quarter.

As compared to a cash balance of $55 million was zero drawn at the end of the second quarter last year.

The primary use of our cash flow from operations since the second quarter last year was the repurchase of $107 million of shares concurrent with the March 2019 secondary offering as well as $37.1 million of capital investment in our business.

During the second quarter, we work through our spring summer merchandise, leaving us with a clean inventory position heading into the fall.

Inventory at the ended the second quarter was 22% higher year over year.

The increase reflects the anticipated growth in our business.

And a strategic inventory investment in our outerwear.

Turning to our outlook, we expect positive comparable sales growth in the low to mid single digits in the third quarter.

This follows exceptionally strong comp growth of 12.9% in the third quarter last year.

For the full year fiscal 2020, we continue to expect to deliver low double digit revenue growth.

Removing revenue from the additional week in fiscal 2019 net revenue in fiscal 2020 is expected to grow in the low to mid teens.

Gross profit margin expectations for the second half of the year have not changed.

We continue to expect gross margin in the back half to be lower than the same period last year.

Due to ongoing higher raw material costs and the effect of new terrorists from the trade dispute between the United States in China.

These impacts will be partially offset by leverage on occupancy costs and our ongoing sourcing initiatives.

Based on these factors and the better than expected gross margin from the second quarter. We now expect gross margin to be flat to slightly down for the full year fiscal 2020 compared to fiscal 2019.

We continue to expect SGN a to grow faster than revenue in fiscal 2020, as we make strategic investments in technology and infrastructure.

These investments will predominantly be cloud based and are now expensed.

Incremental SGN a expenses related to these initiatives for the back half of fiscal 2020 are expected to be approximately $5 million to $6 million.

Total project spend for the year maintained at $7 million to $8 million.

We continue to plan net capital expenditures of $45 million to $50 million, which include costs related to new expanded and reposition boutiques. In addition to infrastructure investments.

We're pleased with the momentum across our business as we continue to make advancements on our long term strategic initiatives that are driving profitable growth.

We remain on track to meet or exceed our stated 2021 financial targets.

With that I will now turn it back to Brian to discuss our growth initiatives.

Thank you Todd looking forward I feel we are incredibly well positioned to grow our business with continued product innovation significant revenue growth through e-commerce in U.S market channels and marketing initiatives aimed at driving brand awareness all of which supports our commitment to our brand for this positioning of everyday luxury.

Our beautiful high quality products continue to resonate with our clients. We had a successful fall launch and our winter merchandise is launching this week with can which and continues over the next few weeks.

Turning to our brand portfolio, we launched 10 by Babbitt Tom in mid September . This is an exclusive new collection of sleek evening, where essentially that includes form fitting silhouettes in satins knits and match. We're excited about the addition of this new brand and how it is serving to round out our babytree on collection.

It illustrates how our multi brand strategy enables us to meet customer needs and stay relevant in the ever changing fashion landscape.

In short, we're happy with the balance assortment in our product offering we are seeing success in both product category and brand expansions as a results of our ongoing commitment to innovative creative development.

Our talented team at designers and merchants continue to deliver a balanced mix of high quality products that attainable price points for which we are well known in wells out.

Another key element of everyday luxury is the aspiration of shopping experience, we provide to our customers both online and in our boutiques.

As part of enhancing the ritzy Dot com experience, we recently expanded our photo studio and added key personnel to elevate our on model styling and photography.

We continue to grow our Clienteling program and build out seamless omni channel capabilities as we can plead some of our key infrastructure investments as Jennifer mentioned earlier.

As I've noted in the past I expect our growing brand awareness and boutique expansion will play a meaningful role and contributing to ecommerce growth in the United States.

Turning to our boutiques since the end of the second quarter, we opened up in Cherry Creek, Denver, and two additional pop up locations, one in Greenwich, Connecticut, Connecticut, and the other and Kalona Canada.

We plan to open to more boutiques in the fourth quarter. This year at the Houston Galleria and the domain in Austin, both in Texas.

Both are located in new markets for its here.

American Dream and East Ratherford was originally scheduled to open this year also but a recent pushed back by the landlord in the centers retail opening day will delay it to early 2020.

All of our new boutiques are in premier locations with top tier shopping desk within top tier shopping destinations and we expect it to drive brand awareness and meaningful revenues and profits.

We are currently finalizing our new boutiques for fiscal 2021, and we anticipate slightly increasing the cadence of new boutique openings going forward.

As mentioned previously our growing brand awareness and strong sales performance have increasingly allowed us to obtain premier locations and negotiate terms and deliver a highly attractive returns.

Looking ahead, we plan to expand our presence in California and of target other major regions in the United States, including some in hot weather markets. So we are currently building a strategy to support.

With 27 boutiques in United States at present, we have ample runway for growth.

In conclusion, we are delighted with another strong quarter and the sustained momentum our business through e-commerce boutique expansion and the growth of the U.S. market.

This Friday October 18 is there it is 30 Fiveth birthday.

As I look back on this journey I'm proud of what we have embraced that we're proud.

Of the way we have embraced the changes in our environment, while staying true to our powerful business model that has been a foundation for our success.

We believe that our unique offering of everyday luxury combined with our first rate execution as a fashion business will enable us to continued to deliver consistent revenue and profitable growth as we go forward.

With that we will now welcome questions I turn the call back to the operator.

Thank you and certainly Sir we will now begin to question and answer session to join the question can you you May Press Star then one on your telephone keypad.

You will hear its own acknowledging your request if you're using his speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then too.

We will pause for a momentous colors join the queue.

Okay.

Yes.

The first question comes from Mark Altschwager of Baird. Please go ahead.

Great good afternoon, and heavy 35th birthday.

Okay.

I wanted to start out.

To the Q2 comp really nice to see the solid performance thing or do you have an estimate for how much the the clearance big clearance of the excess bring inventory may boosted the comp in the quarter, just trying to get a sense of maybe more normalized growth rate now that you've got inventory back in good shape heading into fall.

Okay.

Yes, I think what we would say is the comp was marginally aided by the additional inventory.

But not in a not in a meaningful manner.

Okay. Thanks, and then looking ahead can you talk a little bit about your outlook for the holiday period. This year wondering if there's any change to your approach from a marketing and promotional perspective to be aware of I'm, just given a somewhat more compress calendar.

How you're thinking about gifting.

Any changes to your approach there to note versus versus prior years.

You know I think there's a few different ways to look at the compressed calendar, we actually think it's the opposite as a positive effect because.

Thanksgiving is American Thanksgiving is later and so we actually get an extra week of full price sales versus the other way around so we're actually thinking it will have a.

Slight positive effect on our margins.

We're finding that the.

Comping on our peak periods is.

It's a little bit tougher than than than comping on our periods in our in between periods. So it's hard to say I know, we had particularly in Canada, we are really getting.

Ahead of the rest of the market.

On on these sales and I think we did a really good job getting on the sort of effect of American Thanksgiving in Canada, but I think thats, probably caught up by now so we just see us.

From my perspective, I didn't see us.

Continuing to go out and execute and continue to slip to deliver and.

I don't really have a prospective yet I do know, it's being slightly warmer once again in the east as well and we think that.

Bringing on some cold weather will help us as well through holiday so.

And we're well positioned Chris in cold weather so.

You know I think there's there's too many variables out there to be able to estimate where we're going to net out here, but we're feeling pretty positive about our business not just in this quarter in holiday, but and then some pass there.

Okay.

Thank you and then maybe one last quick one for me on the marketing front.

Sounds like you're doing some innovative things just with respect to your influence your strategy and CRP program could you elaborate a bit on how that's evolving maybe how you're thinking about your the role of paid Influencers in your overall marketing program and how you're leaning into that moving forward.

Yes, I mean, I think the landscape is changing on a daily basis almost.

No I think two three years ago, there wasn't a huge market out there for these paid influencers now some of them are running really really great businesses for themselves.

I think there's there's certainly a lot of talk out in the markets as far as.

Some of the businesses in industries.

Capitalizing on this influencer market.

Obviously, Instagram and people like that are trying to monetize this for themselves and to some degree have a win win for the Influencers.

I think we've done a great job with May influence is included on the great job with the VIP I think we still have lots of runway to go on the.

On the so called micro Influencers and so we're working on a strategy around that right now.

So I think we've done a good job I don't think we were particularly early but I think we've done a good job and but I think we have lots opportunity ahead with influencers as well, but once again the the landscape is changing and so we have to be flexible on how those changes and what some of those changes.

Great. Thanks for all the detail and best of luck this fall.

Thank you.

The next question comes from Irene the tell of RBC capital markets. Please go ahead.

Thanks, and good afternoon, everyone.

Just listening to your tone and the commentary it seems that yet again everything is just is getting even that little bit better. The E. Commerce pace of growth is accelerating then you start paybacks are accelerating.

And now you can be rolling out new tools can you talk a little bit about what you think is behind that and how you think it plays out over the next gen. Two to three years as we move past and certainly the current five year growth.

Period.

No I a after 34 years, we've kind of started to figure out on the 30 50 or here.

But a more serious you know I think as we run a bigger business or there's benefits and challenges running a bigger business Irene and I think that we certainly.

As we are running a bigger business as we have more experience and I'm joke about 35 years, but more experience in in implementing these projects and initiatives I think is super important and we seem to get better with it every time.

We're better at managing inventory of managing sort of corrections in our inventory I think will be as mentioned in my.

In the I mentioned earlier I think we did have the team did a magnificent job in executing our inventory overbuy.

And our store openings and.

ER, our Smith smooth in getting smoother and our E Commerce, we're really starting to capitalize on that.

That said, we're running a big business now and and leadership team can be everywhere all the time and so we do have some challenges and opportunities here in there and so is that balance and that's one of the reasons why we like the pace of growth. We've always had and we continue to grow at that sustained rate and hopefully we'll continue to get.

We will continue to see some leverage from that too, but it's a combination of driving our revenues building infrastructure and making sure from a fashion perspective are staying on trend and giving the customers what they want.

That's great. Thank you and on the E. Commerce is it safe to assume that you continue to be at or slightly ahead of plan.

Yes, Thats correct.

That's great and then one more if I might add than some of things that you alluded to some of the key initiative as part of the S&P partnership, but also the social media that I'm very impressed by the way they can be rolling them out. This quickly so how should we see this manifest.

For the customers so you'll find the customer how am I going to experience. This differently around the key holiday season, and what you know how should that play out in terms of sales and margin.

Well the too high I mean, the two projects to me Sep suite that have gone live on more on the I'm on the backend so the digital selling tool, which will be most customer facing will not be monsanto claim 21, but in terms of customers, we think the and the.

Marketing automation platform those will manifest itself in terms of more personalization in terms of our patient.

So MDP go live as scheduled for holiday, we will tailor make our communication to the customer and a more personalized manner. So that hopefully will be more precision a with tumor targeting and that ultimately for I should lead to improved conversion.

That's great. Thank you.

The next question comes from Darren delay of Canaccord Genuity. Please go ahead.

Yes, hi, there.

A question related to the the excess inventory that you were carrying into the quarter. I mean, how long did that did that last were able to sell through a relatively quickly early early on in the quarter.

No I mean, where the objective isn't to sell it relatively quickly because then you're tapings, taking steeper markdowns.

The objective is to feather it out and a nice consistent manner. So you end up in zero at the end.

And not rush, you don't want to end up with.

Making corrections too hard to sooner it affects your margin and as you can see.

We managed to get through at all with fairly healthy margins and certainly better than we predicted so.

The idea is not to knee jerk.

I think I tried to get that across from the last call that although we were over bought and had a lot of inventory that we weren't panicking on our and our end and that we were fairly confident we could get through the inventory and as it turned out we did and that didnt affect our margin to too much. There. So we're really happy with.

Not only how the team for farm, but.

How we were certainly the affected had on our financials.

Okay, that's great and.

Digital again looking at your margins I mean Q2 other things that you kind of called out was when the inventory and then too is just the impact of the of the warehouse sale I think you're saying you're mdna that it marginally impacted your gross margin can you quantify like with a 10 basis points the warehouse sale or how should we think about that in terms of magnitude.

Yes, we haven't disclosed the specific impacts of the warehouse sale, but it did marginally impact.

The margins in the quarter and and will.

Therefore benefit.

Q3, marginally and as well as be a headwind from a revenue perspective.

In the third quarter as well.

Okay understood and just on the you called out in the last couple of quarters of raw material impact I mean, what are the main sort of raw materials, where you're seeing that inflation on the cost side and then on the pricing side have you have you seen any inflation in the channel.

We've we've seen.

Initially it was wool prices and theyve actually stabilized and they become down just a little they haven't come down a lot, but they've come down a little.

Theres, certainly raw materials and down and down prices have been increasing.

And then of course is the trade.

And duty issues that were.

Where were a bit of a headwind here, but once again, there's uncertainty around there and Fortunately for us we.

We we don't do a majority of our business in the United States right now and because of our.

Hi, e-commerce shipping patterns and.

Sourcing global sourcing initiatives, which is less and less relied on China, although it's still meaningful for us.

We were able to.

It's not a huge impact on us Todd and anything you want to add there.

Yes, we were.

We are expecting that it could be approximately 30 basis points in the back half, but that's our estimate.

For the tariffs.

Okay, that's right as for tariffs not run the Joe got it.

Okay. Thank you very much.

Okay.

Your next question comes from marked decrease of CNBC. Please go ahead.

Hi, Good afternoon, I, just wanted to ask a bit more.

More both performance in the U.S. and Brian you called it the strong performance in the new stores in the store economics, but it looks like the absolute growth rate has decelerated modestly from the last few quarters. So you were lapping a really strong results in Q2 last year. So I guess that was a factor, but could you just talked about sort of the overall revenue dollar growth and the drivers.

Hi, not.

Yes, hi markets Todd.

The 22% increase in the quarter.

This this quarter is really being driven by the comp and and and buy or some new store, though we only have opened one new store.

Since the end of the second quarter last year and so as we opened the two stores. We just got the Mccall plus two more in the back half, we expect that that growth to reaccelerate. So what you're seeing there is really a predominately made up of comp sales.

Okay. Okay. That's helpful and I guess, maybe related to that Brian you called it the strong performance in the new stores and the boost to the ecommerce traffic that you saw in those markets, where you open the new stores I'm curious to know broadly how has that ramp up in online response sort of deferred in the most recent openings versus other openings.

Over the last couple of years.

I think as as a channels have become stronger and stronger as ecommerce become a stronger and stronger it's affecting I mean, we're getting a higher profile in the U.S. in general So we're seeing.

Increased.

Revenue an increase growth from our ecommerce channels.

Right.

Already so it's not entirely scientific on how we are able to break those things down we can just compare those markets have reason to to the ones in the past it kind of varies by store really.

If it's a new store in a new market.

We fine we've we've just experienced almost doubling I think as Todd mentioned, whereas.

When when we're already in a mark when we're nowhere near new market that we're already quite well known for instance, we just opened in Cologne other pop up store, we don't expect to see any increases in E. Commerce revenue. So it really depends on a market by market base.

The good news is Ed Minneapolis, Minneapolis and.

Minneapolis and.

Colorado.

Creek are both new markets as our Houston, and Austin that are coming up and.

Is it so so we and then as well what's interesting is when then when we when we opened in more tourist based markets, which I think Minimill America kind of is what we're not able to calculate is how much all the different people traveling from Chicago in Detroit and various places within the Midwest that go to mall of America and go to many.

Yes, so us.

Well the effect they have and we can see that affects so all we're looking at is Minneapolis in general we actually think Theres also a halo effect as well and some of the other markets, particularly with the tourists. So we're thinking for instance, like American Dream, we're not going to be able to calculate exactly what happens there because.

New Jersey, but.

Vast majority of the people when that shopping center opens.

Are not going to be from new Jersey, they're going to be from Manhattan that there will be tourism and we already have stores in those markets. So we're not going to be able to sort of quantify exactly what happened. So.

It's a lot easier for us just to quantify what happened in those more recent markets in Colorado and Denver, just because we presently had no stores and market there, particularly Colorado at this time of year isn't a huge tourist destination that will I think as ski season in summer, but we opened in the fall and so it's hard to kind of.

Look at each one and compare all we can do is look at the local market in both Denver in Minneapolis, we saw our business more or less double from an ecommerce perspective, which was actually I mean, I wouldn't say, we're totally surprised but it was a really positive endorsement on both our stores and their ability to driver.

Commerce sales and our ecommerce channel how successful it's become.

Yes, Okay. That's helpful. And then just last I guess this is now sort of the second season for denim and the second fall winter for leather could you just give us a sense of how you've adjusted the offer from last year and how you expect that to impact sales productivity and profitability at a high level.

Yeah, I think I think they're both quite different I think the leather market has become fairly saturated and.

And from a fashion perspective, we've seen a sort of the FFO leather and pleather become more of a factor with the sustainability and all that in the in on the planet that said I'm not sure some of the materials going into Pleather and things if it's even any more sustainable so we're doing research into that actually on which which.

Is actually better for the environment right now, but we've certainly seen a pullback on just at the top level just because of that.

Denim is a different matter, we wanted to establish a key fits and it's not about newness necessarily it's about establishing key fits and repeat customers and fits of people become comfortable with.

So right now what we're doing is where in the embarking on them.

Rounding out our team and hiring and putting more resources behind denim as we continue to grow it we still think we have a big opportunity to increases.

Increase this market share within or its yet on the denim. So we're doing so by hiring key personnel into the departure.

Okay I appreciate all the color. Thanks.

The next question comes from Steven Leon of BMO Capital markets. Please go ahead.

Thank you good evening good afternoon.

I just wanted to turn back to the U.S., Brian talk a little bit in your prepared remarks about accelerating.

Gross pace.

And also I guess expanding.

Yes, that's underway gets you more locations as well can you just talk a little bit about how you see that pace accelerating and sort of some of the other new markets you expect to enter into with an accelerated pace.

Yes, I think that you just use the additive slightly accelerated so I don't want everybody gets you excited here and as we continue to grow this.

For us to continue to open up stores.

Particularly whereas we are focusing on new markets, because we feel that's what part of the real estate strategy is not necessarily filling in existing markets, but opening in new markets, we're going to have a mix of.

Of markets.

That that are.

The climate is more approachable for our existing.

Product mix and then we're going to have other markets that we're going to have to make some adjustments to our product mix and as we open up more and more stores.

There's great shopping center in Hawaii, there's more shopping centers in southern California.

There's a lot in Florida and in places like that we have to be cognizant of our merchandise mix and we're working on that right now continue to work on that but.

The.

We're always going to be a little bit more challenged with with that merchandise mix. We can take a warm parka and all of sudden figure out how we're going to engineer this for Florida, because they just don't need park is there so.

That said, we think theres a tourist market there from South American various places like that where they do need to outerwear. So.

As we as we go into these markets, we have to be cognizant of the climate and things but.

We we still think we have some opportunities and we think with sort of some of the timing and things. Some things are looking quite positive. So we were we think we're going to see a slight increase in their store openings that said you know our E. Commerce channel is continuing to drive our growth and so that doesn't change and so we have to.

Be cognizant of the factor.

The majority of this growth will come from our ecommerce channels.

Okay. Okay. That's on its helpful. And then and then just turning to the inventory I mean is it fair to say that the elevated inventory sort of none of that it's kind of excess related at this point.

Yes at the end of the second quarter. The the inventory is reflective of the investment we made in outerwear and tightly of you. We just closed piece that then and we're now I'll add directly in line with revenue growth our inventory growth is directly in line. So yes, Q2 s, just reflecting additional outerwear.

Okay, Okay, and and some of the some of the the ongoing discounting that that I've seen in the marketplace is that sort of the normal season with this company. We would expect a you know one out of your on a year to year basis.

Yes, we just had our layered on sale.

Over the weekend and that is we do that every Canadian Thanksgiving, there's nothing new with it.

And it's an online only sale and what it does that allows us to some of the slower sellers from fall, we get rid of them. So we don't have to figure out how to deal with them that retail and so we just license.

Really is layered on but we kind of internally and realizing the load on internally so, but that's something we've been running for quite some time as Todd mentioned.

Right. Okay. Okay. That's a that's great. Thank you very much.

Okay.

Our next question comes from Patricia Baker of Scotiabank. Please go ahead.

Yes. Thank you most of my questions have been asked and well answers, but just wonder if you could talk a little bit more about your pop up strategy. What the thinking is there is that.

Is that a way to go into a market and see what do you want to permanently go into the market. This is a real estate availability.

Yes, you're thinking behind doing the pop up.

Yes, that's a great question.

There's there's multiple reasons.

Reasons, we do these pop ups.

In a lot of cases, they weren't available five years, and 10 years ago for us because there wasn't the real estate opportunities in the centers and on streets that there is now so it's something that we're reacting to based on the availability of real estate and and the kind of deals a short term deals were able to write some cases extend the long term deal.

So you know there's various reasons one sided sometimes for testing the market, sometimes we're waiting for a a AAA location to come available, which might be two or three years, and we want to kind of just start getting a presence there.

Other times or.

Keeping landlords on their toe is as far as although we do have options and other centers that are close by so.

There's a multitude of reasons why we're opening them. All I can really say is are they seem to be working for us right now.

There are cost effective and.

Their net revenue and profitability.

[noise] positive and we're also gaining valuable.

Market presence and ER market intelligence for opening them. So it's something that will probably going to see us doing for some time here and there's not going to be a ton of them, but we're going to continue to explore these because.

They make sense with our strategy right now.

No absolutely that's super Thanks, Brian .

The next question comes from Dillon Carton of William Blair. Please go ahead.

Thank you very much just curious we're trying to the comment that Brian you had on being ahead of the marketing, Canada vis-a-vis sort of U.S. holidays, I'm curious if that's something now that.

The market's caught up to that you're starting to see maybe sort of more of a drag on the business that might be embedded in the third quarter outlook here as Mrs us on it but.

Hello.

Yes, Sir I'm not entirely clear in taas trying to explain to me with question isn't [laughter] I'm not entirely clear I mean, we're not starting our our Thanksgiving sales earlier.

Than we ever have and just Thanksgiving Ryan Lance a week later that are six days later than it did last year. So we actually have an extra week six days of extra week full price sales this year versus last year. What I also made a comment around was.

Three four years ago, we really embraced the the introduction of Black Friday, and the equivalent in Canada and a lot of other real question right, Yeah, and a lot of other retailers hadn't caught on and now we're finding that they have and so.

I think we've maximized has started to maximize the opportunities there I think we've executed extremely well the last two or three years. So we're not going to expect to see huge increases.

One of the things that we found is that.

In between these big events, our sales have been increasing meaningful at these big events. So we do have limitations, we only have so many fitting rooms in our stores.

And so much so monies.

Style advisers, we can weekend employee deploy for stores. So we're finding that during peak periods, it's a little harder to call that sort of valleys. So to speak in between the peak periods are little bit easier comps. So we'll see what happens this year.

As I mentioned in the past past calls that this driving a product into November as well and into Pvthree has affected P for in the softness initially NP four particularly in Canada. So.

The disease effects, but they are starting to mature and now as as this is being embraced for growth and an open three years now in Canada. There may be for I don't know, but but we're seeing these this sort of shopping patterns mature now and there's nothing particularly new novel about it.

Okay.

Thank you and then just curious on the warehouse sale on more apples to apples basis looking at sort of this year versus last year any comments as to sort of performance.

No incremental markdowns and sort of more broadly what you're seeing from price sensitivity for consumers out there on the market.

Yes, I know, we from a warehouse sale that Todd comment on the affected had on our financials, but.

We saw our increase in revenues from our warehouse sale in line with with the increase in revenues at a roots in general just.

Just due to the fact, we have more product to sell and that percent was fairly consistent.

We're not seeing its a pretty big event that we have only hold here and a lot of people come to it so.

We're not seeing any price resistance at all.

And shopping resistance at all we're just seeing the sort of.

Continued shift from retail and bricks and mortar to e-commerce and as I've mentioned that many times in the past were fairly comfortable with that because we think we had some of the best stores out there, but we also think we have some of one of the best ecommerce channels out the market as well so.

We're we're pretty excited about both channels and we're not seeing meaningful pressure on our retail stores and we're just seeing growth in E. Commerce. So it's a bit of a win win for us right now.

Good and I guess last one I have it sounds sort of.

Reading between the lines like Theres. These out there just an added complexity now it's sort of greater scale to jurisdiction. So to speak I take it probably that the answer to the question is sort of how you're going to cope with that longer term will be some of the systems you know the ASCP implementation.

Brian any anything that you can add just sort of how you're thinking about philosophically managing the business, a greater scale, whether or not that takes a different managerial approach or or new systems any any comment that you might be able to provide there.

Sorry, I would I be delighted to but earlier you mentioned.

The two luisa.

Two jurisdictions what are you referring to there are you talking about U.S. and guys. There yet yeah exactly saw yeah. There's just no. That's a that's okay. I mean really more of a dual business.

Yeah, we actually think we have some more synergies now we've been opened in the U.S. Since 2007. So is 12 years, we've been opened in United States for so we're not new down there and I think a lot of our learning was came in the first sort of three at two to three years and some in five years. So we're actually finding it or.

We havent really great team of people in the U.S. now Americans working for us in the U.S. its own being with US for 810, 12 years and they kind of know the drill now. So we're we're we actually think that our expansion, particularly from a retail perspective and bricks and mortar perspective is actually smoother than it was.

345 years ago. So we're finding that is actually one of the positive the synergies of getting bigger.

Ecommerce really isn't changing at all and at some point in time, we may need to distribution center on the west coast as well.

We have one on the east coast now.

And but we also ship out of Canada as well so.

We're finding mostly as synergies and ER with our us in Canada Canadian business right now.

And so we don't find that challenging whatsoever, we have a lot of Americans working for us up here in Canada as well so.

And then Canadians working for us in the U.S., So we're pretty comfortable with how that how this.

The this opportunity and we don't see any challenges based purely on the jurisdictions at this point in time.

And as far as sort of scale is concerned I guess, you kind of answered it but I guess, maybe speaking of the merchandising difficulties of sort of being in warmer climates at this point.

I guess, you're sort of feel your prepared for that as far as new system implementation and sort of what you've already been able to accomplish in these markets.

Yeah, it's not really more so much new systems implementations just having another collection. We think we may have to go from four to six collections here, we're going to need to warm weather collection for fall in a warmer weather collection for winter and and so.

So we're good at.

And execute and warmer weather collections, we do right across our whole organization for spring and summer, we're just going to need to have two springs and to some busy year and one fall in one wintery years. So it's not lost on us that we have some.

Some.

Work, we need to do on on the collections and things to to be able to execute on that but it's all.

It's all opportunities that we've done in the past and it's just really timing in coordination more than anything else.

Excellent. Thank you very much for taking my question.

The next question comes from Mars B Cree of <unk>. Please go ahead.

Yeah, I, just I points, you've talked about the success you've had with more luxury stores sort of as neighbors I guess, just Samir new stores and also with some small offers you've had at higher price points.

I'm just curious could you talk about how you're approaching sort of that upper price point opportunity today for fall winter and into holiday or just more broadly.

Yeah. We're you know I think I think as a real estate opportunities come up we certainly look at them and sometimes these real estate opportunities come up in more luxury.

Uh huh.

Based.

Shopping locations you know, we're looking at something right now in Beverly Hills.

Certainly as you know complete luxury and then as I just mentioned, we opened up in Cologne, and we're probably the highest price point in the shopping center. So.

It really depends on the real estate and real estate Thats available and where we think we have a market in what so great. As we feel we are confident and that was sort of the so we can operate in both.

Hi end luxury locations as well as high traffic.

[noise] sort of.

Now look high traffic locations that might not be as high price. So.

We're pretty confident operating in both in historically.

Prior to opening a rush street, we felt that we needed to be just in high traffic locations I think the the ER.

What Rush Street showed us in Chicago as we can operate successfully in both these markets and so we're pretty excited about that so so that just opens up the opportunities in the United States, particularly because there's different types of centers down the United States that we can open in both these kind of successors confidently and do well with us.

And then that and just in terms of the product off or are you.

Sort of adjusting the product offer either one way or or another way in terms of just slightly higher price points or just slightly higher or lower price points are you is that sort of just status quo.

Yeah, we are we for sure operate.

The merchandise mix differently on each store it limits I mentioned in the past we.

Our stores in our merchandise mix could fill stores much larger than we actually have so we take.

Snapshots from our product mix, depending on the store.

On location and who that customer is and so.

Store on Rush Street will have a completely different.

Profile and product profile and.

Other stores, we have in the United States is more suburban locations. So.

One of the beauties of what we have and with all the different brands and different products as we can cater.

The that brand and cure rate that that product mix to that customer that's out that shopping at that location, it's pretty simple process for us do so.

Thank you very much.

Okay.

This concludes the question and answer session I would now like to turn the conference back over to Helen Kelly, Vice President of Investor Relations for any closing remarks.

Thank you Carl and thanks, again to everyone for joining us this afternoon and team and I will be around later, if you have any additional questions. We look forward to speaking to you again soon thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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