Q3 2020 Earnings Call
Thank you for standing by this is the conference operator, welcome to a Ritziest third quarter 2020, <unk> earnings Conference call.
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I would now like to turn the conference over to Helen Kelly Vice President.
Of Investor Relations. Please go ahead.
Thank you aerial and thank you all for joining us for what's your third quarter 2020 earnings conference call well. That's today are bright Hill.
Their CEO and chairman.
Jennifer Wall, our President and Chief operating Officer, and Todd angle do our Chief Financial Officer.
We will begin today's call with management's discussion followed by a question and answer period open to analysts and investors. Please note that remarks on the corporate called they provide information regarding our expectation future plants and intentions that may constitute forward looking statements.
We will refer you to our most recently filed management's discussion and analysis, which includes a summary of the material assumptions. It's all a certain material risk so doctors that could affect upbeat chip apartments, and our ability to deliver all these forward looking statements.
The third quarter 2020 earnings release related financial statements and the Mdna 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 Alan Thank you for joining us this morning happy new year, I hope everybody enjoyed the holidays.
As 2019 draws to a close we celebrate another decade that has been exceptional growth for our company I'm proud of the results. We continue to accomplish year after year I'd like to thank the entire Richard came across our boutiques concierge distribution centers and support offices for their hard work towards it.
Great third quarter, a strong start to the holiday season.
We ended the third quarter with the strong November and our best Black Friday event today, despite slightly lower markdowns. We're pleased that sales continued to trend higher since we embrace introduction over black Friday.
In Canada that five years ago.
Accompanied by a record surge in ecommerce penetration and notably stronger revenue contribution from the United States. The week of Black Friday now represents our single biggest me to the year.
Overall revenue in the quarter grew 10% from last year, and we delivered a comparable sales increase of 5.1%, marking our 20 consecutive quarter of positive comparable sales growth.
This comes back or comes on the back of double digit increases last year, resulting in a two year cold stack of 18%.
These results.
Reflect meaningful contribution from our new and reposition boutiques and the ongoing momentum in E Commerce.
As noted last quarter are accelerating U.S. E Commerce channel continues to lead our growth.
I think sales in third quarter was our expanded fall winter outerwear offerings. In addition to our signature Park is a beautiful workloads are puffers performed exceedingly well and generated significant attention online and on social media.
The made a first for away in the men's.
Mr. Superpower in late October while we are optimistic with initial order sales of far exceeded our expectations to the point, we have fallen sent them purposes sold out.
Given the strong sales performance in positive clinical responses, we have received well continue to build out our mens apparel assortment next fall, although it's premature to protect at this point, whether we'll expand further in a mentor.
The team also did an excellent job with our holiday collection in the third quarter, we launched our second collection and by the Avatar comprised of sleek evening, where foreign sitting silhouettes. We're pleased with the success of the brand to date and are excited about it sounds essential as we build on the collection and future seasons.
Shifting to channels strong double digit revenue growth in E. Commerce continued into the third quarter supported by Mark sales in both online traffic in number of transactions, particularly in the United States.
Overall, we're confident that he called us would be a significant drive that growth going forward.
At the same time boutique expansion and maintenance essential component of our strategy, our boutiques have proven to be powerful tools and building brand awareness.
Try new customers, Tourettes, Ya and delivering consistent revenue and earnings growth.
During the third quarter, we opened a boutique and Cherry Creek, Denver and completed the Repositions the retail auto wall equipment Centerbank Hoover.
Hey back on our investments in new boutiques continues to accelerate and we are thrilled with the strong reception to the Brad open boutiques and online as we enter these new markets.
We attribute our growing brand awareness and part of the success, we have seen in our marketing efforts to date.
And that's the paid an unpaid influencers continues to grow to reflect highly relevant celebrities personalities.
You had notable earned media hits in the quarter, including publications and Forbes and people as well as other significant influence opposed to propel that bad, particularly in the United States.
Finally, we continue to make important investments across technology infrastructure and talent to propel our growth.
We completed our first milestones for the customer at 360 project during the quarter and launched our new marketing Communications platform just in time for Black Friday.
These exciting developments go down our world class infrastructure and are expected to drive meaningful revenue opportunities.
We are confident that our partnership with the safety and our ability to leverage best in class systems for advanced data and analytics position us well for the growth ahead.
Jennifer will elaborate on these in a moment.
Overall, we're pleased with our performance this quarter and the continued strength in both our accelerating ecommerce business and our success in the United States.
Before discussing our business outlook I will turn the call. The Jennifer will give you an update on operational investments in detail.
Following our comments Todd will provide key highlights of our third quarter financial results I will now turn the call over to your Jonathan.
Thank you, Brian and good morning, everyone from the launch of the customer program and our PLM implementation to the talent, we are seeking to add to our incredible team, we're continuing to invest in technology and people to support our long term growth objectives.
I'm pleased to give you an update on where we are today, beginning with our customer program.
With the launch of customer Threesixty in November we successfully migrated our central customer data repository to a new cloud based system containing dozens of client attributes the new repositories facilitates the flow of information across our front facing system to give us an inheritance view of our clients in real time.
This milestone achievement is the foundation for the other three pillars of our customer program.
I'm also proud of the effort the team put into the completion of the first phase of the marketing communications platform, which we used to sand or black Friday and holiday email.
Leveraging the data from customer Threesixty, the marketing communications platform is a powerful engine that will enable us to generate and personalized marketing campaigns based on the preferences of each of our clients, while ensuring a consistent omnichannel experience for example for the client who was a dedicated babytree on shopper we will.
To be able to tailor specific communications regarding new babich on collection.
Alternatively, if we opened in a brand new market, we can identify an invite clients who live in the area to check out our new boutique.
Without this tool this type of outreach would be a very high effort and now we will be able to personalize emails for our clients with the click of a few buttons.
Needless to say, we are excited to rule out the second phase with enhance campaign capability in the coming months.
Looking forward. We are excited about what is to come in fiscal 2021 with regards to the launch of the remaining projects within our customer program.
Responsible for over 1.3 million interactions annually.
Our clients concierge represents a revenue generating opportunity in addition to replacing our old case management system that overseas client support to the lifecycle of their purchases. We're also looking forward to be added capability for multiple communication channels with our clients in the future, including E Mail live chat.
Text or phone, we've just started testing and expect to have the first phase of concierge completed by the first quarter fiscal 2021.
Lastly, the cornerstone of the customer program is the digital selling tool in the form of them mobile App. The tool will further empower our style advisers and elevate the clients retail experience. This digital black book will provide or style advisers with a wealth of information on client preference and purchase history and.
Enable personalized one on one communications appointment scheduling and inventory look up capability.
We are near completion of the planning phase and are targeting phase one to go live in the second quarter.
Oh, no we are thrilled with the progress we are making on each of the projects within our customer program. We are aiming to delight, our client by providing a seamless consistent and personalized approach towards how we engage and service their needs.
Turning now to our product lifecycle management system. We continue to advance is foundational technology, which provides visibility to the materials and processes that enabled bringing our products to market.
We are on track for phase one in the first quarter.
We are excited about the opportunities with PLM from product innovation to supporting sustainability to streamlining our operations.
Finally, we continue to invest in talent across our business to support our growth during the quarter. We added key leadership positions across e-commerce supply chain logistics and retail management in the U.S. and we will continue to build on the incredible breadth and depth of talent across your with your team.
In the coming here.
I am confident our best years lie ahead of us and it is our team a remarkable individuals who allow us to set our sights on new opportunities and continued success.
I will now turn the call over to Todd to discuss our financial results and our outlook for the fiscal year.
Thank you Jennifer and good morning, everyone.
We're pleased with our results in the third quarter and encouraged by the momentum leading into Q4.
As a reminder, we began reporting into life rest 16, the new leasing standard in the first quarter of our fiscal 2020.
And that impacted by for 16, and third quarter was a reduction of only $16000 to net income.
We do not expect the standard to have a material impact on net income in the fourth quarter.
In my review of our financial results I will focus my commentary on the comparative figures, which exclude the impact of life for us 16.
Turning to our results.
Revenue grew 10% to $267.3 million in the third quarter. This was driven by strength in our ecommerce business three new and for reposition Beach, which opened since the end to the third quarter last year.
As well as comparable sales growth and I'll be cheeks.
Our annual where wholesale shifted to the second quarter. This year from the third quarter last year negatively impacting third quarter net revenue growth in the low single digits.
For the third quarter, we delivered a 5.1 comparable sales increase.
While warmer weather contributed to a slower start growth accelerated in the back half of the quarter and we ended the period with a record Black Friday.
These results follow a 12.9% increase in third in the third quarter of last year, resulting in a two year stack comp of 18%.
Our ecommerce business continues to lead comp sales growth.
Our need our Navy cheats are performing above expectations and are exceeding our targeted payback periods.
Gross profit margin, excluding the impact of life for 16 was 42.6% down 50 basis points.
We benefited from the shift in our warehouse sale. In addition to improvements from our sourcing initiatives.
And leverage on occupancy costs.
However, these benefits were offset by higher distribution center costs, as we proactively ramped up stopping earlier for the holiday.
We continued headwinds from the Canadian dollar U.S. tariffs as well as ongoing higher raw material costs.
As DNA expenses, excluding the impact of library 16 increased by 13.4% to $64.1 million.
SGN a expenses were 24% of net revenue compared to 23.3% last year.
SGN expenses in the quarter included $2.5 million I mean investments in our customer program.
Excluding these investments as DNA as a percentage of revenue was 30 basis points better than last year.
Adjusted EBITDA, excluding the impact of life of 16 increased by 2.4% to $58.4 million.
21.9% of net revenue.
Compared to 23.5% last year.
Adjusted EBITDA was impacted by the 2.5 million dollar investments in our customer program as was the 1.8 million dollar reduction in other income year over year.
Adjusted net income was effectively flat at $35.7 million.
Adjusted net income per diluted share increased to 32 cents. Some 31 cents in the third quarter last year.
Our balance sheet remains exceptionally strong where the cash balance of $95.7 million.
With zero drawn on our revolving credit facility at the end of the quarter.
Which puts us back in a positive net debt position.
This compares to a cash balance of $123 million at the end of third quarter last year.
The primary use of our cash flow from operations in the third quarter last year was both the $107 million share repurchase as well as the 39.4 million dollar dollars of capital investments.
We also ended the third quarter in a strong inventory position.
Inventory was up 15.5% since third quarter last year in line with the growth of our business.
Turning to our outlook, we're particularly pleased that the sales momentum from the ended the third quarter has continued into the fourth quarter.
We expect positive comparable sales growth in the high single digits in the fourth quarter.
For the full year fiscal 2020, we continue to expect net revenue growth in the low double digits.
Removing revenue from the additional week in fiscal 2019 net revenue in fiscal 2020 is expected to grow in the low to mid teens.
Including the two store openings planned for the fourth quarter, we remain on track to jump in five new boutiques, all in United States. This year.
Our outlook for gross profit margin will maintain flat to slightly lower than fiscal 2019, due to ongoing higher raw material costs and the impact of increased tariffs on goods coming from China.
We continue to expect SGN nature go faster than revenue in fiscal 2020, as we make strategic investments in technology and infrastructure.
These investments are predominately cloud based and our expense.
Incremental SGN a expenses related to these initiatives in the fourth quarter are expected to be $2 million to $3 million with total project spend so the year to be approximately $7 million to $8 million.
We reduced our expected net capital expenditures to 40 to 40 to 45 million.
Including costs related to new and reposition boutiques in addition to infrastructure investments.
The reduction in expenditure for the year are primarily related to timing of infrastructure projects.
In closing we are pleased with the momentum that carried into the fourth quarter and remain confident about the outlook for our business.
Our strong performance and solid balance sheet keeps us firmly on track to meet or exceed our stated 2021 financial targets and positions us to deliver on our future growth.
With that ill now turn it back to Brian to discuss our business outlook.
Thanks Todd.
As we head into 2020 remain focused on the development of beautiful high quality products from fabric that fit.
The unique personalized service we offer clients.
Our aspiration will shopping environments captivating communications.
And of course of people, who support these clients interactions.
They all touch up brand and collectively and ingredients of everyday luxury.
In an industry, where no details too small.
Its decision, we make third thoughtfully contributes to our unique positioning.
I truly believe our ability to delight our clients on all these funds will continue to set us apart.
Looking into the fourth quarter sales momentum for the back half with the third quarter continued the holiday season, and the start of the fall winter sale.
We're pleased with the balance assortment in our product offering and I feel we are well positioned with our inventory to capitalize on the revenue opportunities for the balance of the season.
Longer term, we continue to evaluate our opportunities in both product categories and Brian expansions.
Progressing with.
Our work on warm weather strategy as well as an extended sizing initiative that we expect to launch this spring summer.
Shifting again to our channels our e-commerce business remains a top priority.
We're encouraged by acceleration of our e-commerce business and continued to invest in marketing infrastructure and talent to capitalize on these opportunities.
In the near term, we are advancing a number of initiatives to enhance and personalize our call clients online experience, including the addition of a fit module to better SR and site selection.
In fiscal 2021, we will continue with site optimizations improve our international site and expand our omni channel fulfillment capability by putting in place.
Actualize view over inventory enable cross channel fulfillment, such as buy online fulfillment store.
We expect ecommerce to drive an ever increasing component of our topline growth.
Augmenting our online growth as a premier real estate portfolio I think it's fair to say, we have never been in a better position as we are now with regards to pipeline of opportunities inside of US we have access to some of the best real estate available with increasingly attractive financial terms.
We are on track to opened two new locations in the fourth quarter, the Houston Galleria and the domain in Austin, Texas.
Both are located in Texas and represent new markets for its yet.
While we're still finalizing our pipeline for fiscal 2021. Our plans include locations such as American Dream, and New Jersey, which is already complete and waiting for the center opening.
On the production Philadelphia, and finally deeper question to Los Angeles.
As I said before our boutiques are the number one driver brand awareness, particularly as we expand into the United States.
Our intention is to accelerate the cadence of new boutique openings going forward. However, we will not compromised site selection or sacrifice our business requirements.
In conclusion, we're extremely pleased with yet another strong quarter and the sustained momentum in our business as we drive growth across products channels and marketing.
With investments in infrastructure to enable back growth remain on track to meet or exceed the growth and profitability targets. We set out ourselves five years ago, and we look forward to sharing with you. Our version for the next three years in the upcoming months.
With that will now welcome questions I turn the back call back to the Alfred.
Thank you.
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Our first question come from Mark Swagger of Baird.
Good morning, happy new year, and congrats on the continued momentum.
My first question just with respect to the revenue performance in the third quarter curious how the leader Thanksgiving holiday may have impacted the growth in the third quarter versus what you're expecting in the fourth quarter.
Yes.
Todd you on join me take the sure.
We whether it was warm earlier in the third quarter and I think we felt that a little bit amenities.
As the weather.
Got a little colder sales picked up meaningfully.
We had an extremely good.
Holiday.
Good the start of the holiday period to the ended the quarter and but those are big numbers and where companies are busy as weak as the year. We've always found that it's harder to comp on a big big weeks than it is on the on.
More typical weeks.
You mentioned played well and stayed strong rates through the start of the.
Of the.
Andrew the holiday season in PV 10.
That raises the question, yes. It does that's helpful.
Also holiday strategy and be curious if there's any change in in your sales strategy. It looks like you may have actually had a slightly shorter sale around the black Friday period that maybe confirm if that's right or not and and any implications on merchandise margin. There and then just looking ahead I know you're reaffirming their gross margin guidance for the full year.
No that leaves open a pretty wide range of outcomes for the fourth quarter. So just curious if you get a little bit more specific and how you're thinking about that gross margin trajectory in the fourth quarter relative to the third quarter.
So I'll take the first two to two parts of that until it'll take a third part of that our strategy, we put in place or probably about three four years ago, when we recognize that particularly in Canada that.
The Black Friday was going to be a meaningful sales driver.
So for the last few years, what we've done is this really tweaked a little bit and we've aligned that a little bit more with the United States, obviously, because they have a actual holiday on Thursday, and we built in Canada. This some slight variances between the two countries, but generally we're trying to align that we're trying to align our business in general.
When we first moved in the United States, We spent.
Quite a bit of time.
Analyzing the market, we tried to be have our various sales strategies and merchandising strategies along strategies reflect the market in United States because.
Canada, what we've found leads of converged quite a bit and so we are making an effort to Hawaii as much as we possibly can.
As far as the period wins, so nothing really notably changes for the sale period, we weren't quite as deep with their markdowns. This season.
We just wasnt there is several reasons that went into that but we didnt go quite as deep and it turned out to be a great strategy for us, it's not that meaningful but it was certainly a little bit of a.
Switch for us.
Great.
Mark score for the fourth quarter, we expect to continue to see pressure some ongoing raw material price increases as well is slightly elevated pressure some the new U.S. tariffs on goods coming in from China.
Just as more of our inventory that we're selling in Q4 has come in since the tariff has been in place so.
So we do expect to continue to see pressure that.
We'll be.
Similar to what we saw in Q3.
And can I can I add something to that.
As we continue to.
Aspire for everyday luxury, we're making decisions on our product developments as well but.
We think elevates our product and.
Whether that be trends are fabrications, or construction and sewing and things like that so.
A little bit of the pressure Todd's speaking of is it a little self inflicted as we continue to elevate our product for our customers and try to delay some more and more.
Thank you for all that detail and maybe one last one Brian it sounds like we're going to be hearing more in the coming months on a refreshed three year plan, but any high level thoughts you are able to share today just in terms of how you're thinking about the revenue growth and EBITDA margin trajectory for fiscal 2021.
You know Jennifer is going to share that and right. Now we were we the numbers are quite Rob so not really prepared to show the numbers specifically with you.
As I mentioned.
We're going to look at increasing the.
Cadence of the new boutique openings I know, we have a few more.
Positions this year than we had originally planned as well, but we just.
Our business continues to accelerate in the United States and our E. Commerce continues to outperform from where we had initially planned. So we're really going to focus on those two two areas for the for the three year plan is really driving our U.S. business, we're still grossly under side or Canadian business, and our customers seem to love our product.
And so and the services and everything else that we are teams offer and so we're going to continue to drive that and then he is I mentioned we continue.
Continues to exceed or expect.
Obviously, the landscape is changing for everybody, but we seem to be Oh, our pace of expansion in E Commerce seems to.
Continue to surprise and delight us as well so.
We're gonna be it's going to be big focus in both those areas United States in ecommerce growth and of course, we have an incredible base.
Business in Canada that we're not going to forget that that's what we've built organization on it as we're still industry leaders here in Canada continue to continue the for a long time.
That's great. Thanks for taking my questions.
Our next question comes from Irene Mattel of RBC capital markets.
Thanks, and good morning, everyone and happy New year, obviously, great quarter really intrigued by some of the commentary around the success of.
If you will extend product offering and I think in your closing remarks, Brian you mentioned something by the sizing initiative.
So I'm wondering if you could kind of talk a little bit about what might be coming proxy upsizing men's warm weather the evening collection and what what's behind that thinking.
And it's going to make a note a few of these same sizing.
Warm weather and warm weather the evening collection of Babbitt, Tom which by the it's all really exciting.
Okay I'm going to go in reverse order here, so one of the opportunities.
Happy New year Irene.
One of the duties we found is that.
Every day, we've had a lot of everyday luxury and we have a bit a joke internally, we need a little bit of every night luxury as well and so we think we have some.
Opportunities here with a little bit more body conscious form fitting.
Clothing for women. So that we're not just supplying all are closed during the day and on the weekends and things, but a little bit more offer than we going out at night. So we launched 10 by babbitt's on it it has been our most successful launch to date, we're super excited about it we're going to be expanding not meaningfully.
As far as the men's though.
Okay.
We are doing such a great job when we're getting so many calls and we started seeing a lot of men, where our ladies super talked last year. So we expanded into it we took a pretty.
Certainly wasn't a conservative position. It was I would argue a bit of an aggressive position and as I mentioned, we sold out for all intents and purposes, we didn't quite get this sizing right fit was excellent, but we didn't get like sizing rightly probably bought a little bit to 2 million. Some larger sizes that we have a few excels in XXL paying around but the small to medium so.
About almost immediately and.
So we're going to expand into that were shocked the response we received.
I don't know Irene if you saw you Didnt mention anything about our dog initiative as well, but we've got a lot of any feel sorry, not a job calendar.
Hey, re launch that we launched the rough tops as the little bit of fun thing to do well were added and send them out to celebrities and people like that and we actually sold out and I think it was our was our highest number two engaged social media post it was a number to engage social media.
This was our rough pop initiatives Megan Mark now can make a marco on the cocoon co last year. So we'll have some fun with out as far as sizing goes I mean, there has been a push into more inclusivity obviously.
This is why the and certainly with launching business and.
That's not lost on us and and one of our designers is quite passionate about it so.
We are launching a Ah initiative presently we do have our core sizes go up to 10, but we obviously do do carry size 12, I believe we're going to upsize 18 with this initiative. It's we're testing at rabbit tongue and see how our customers respond to it. So we're excited about that we're not we're not sure it's going to make.
I.
Meaningful.
Hello sales, but we think it's the right thing to do for our customers.
And then warm weather as we continue to push into the United States, we're pushing into Texas, we're going to be pushing into more southern states, where as I mentioned.
California, and Los Angeles, specifically, we have a bit of a push going on and so these are all warm weather environments, and we need to make sure or collections, particularly or fall and winter collections. Obviously are spring and summer are suitable butter wrongly answer collections, which are typically we laid out by.
Sweaters, and outerwear and things we need to make sure we have the great offering there and I think right now we we don't.
Our offerings are not reflective entirely and I think it's an opportunity for us and.
And to be able to grow the collection such too to appeal to these customer groups in these warmer weather markets in the fall and winter.
That's great and just one more thank you I really appreciate that and one more if I might.
Honestly e-commerce as a word that you guys mentioned a lot in the press release, you mentioned a lot in the call.
Significant growth I think it'll terminology is that you're using would you care to let us know what the current penetration is on e-commerce .
I don't.
It's really hard to figure out the exact numbers because we have a lot of on me going on and a lot of products companies.
Brought online and returns of stores.
Have a lot of.
Activity in the stores its purchased online inside this or that figure this out with all our new systems and things were putting in will be allude to get some numbers on wall, but I'm not sure at this point in time, we share those numbers at this point in time, because when we don't even really look at them, specifically like that and and.
But as we continue unfortunately is probably going to get even more confusing as we continue with or an omni initiatives.
Going forward.
All I can suggests is that we're on track.
For all our numbers.
As far as long as goes and if not exceeding them.
That's great. Thank you.
Our next question comes from Derek delay of Canaccord Genuity.
Yes, hi.
Just wondering if you could could help us out in terms of quantifying some of the and the magnitude of 70 impacts on the gross margin Todd you mentioned that you expect.
Raw materials to be up in Q4, and some incremental costs associated with tariffs, but I guess the one that was more confusing to me was just the distribution center costs is that should we think of that is one timing in Q3 or can you kind of just give us a pecking order of what impacted the gross margin the most in Q3.
Yes, I would consider the distribution center one time in Q3 that again those.
In preparation for the holiday season. This year, we hired up our seasonal stop earlier than in the prior year to ensure that everything everybody was trained and that we were running smoothly.
For holiday.
But that will not happen obviously in Q4.
And we don't we don't quantify the particular pressures, but as I said, we expect similar pressure on gross profit.
As we saw in Q3.
Hey, if I could add.
I thought this initiative of hiring early I thought the teams is incredible job, we had our best teams we've ever had.
Leading into the holiday season, and we managed to be able to we saw.
Very effective shipped through and turn rates, even through the busiest periods here through E Commerce Black Friday cyber Monday in phases. So initiative worked out extremely well as you can see for numbers and so we're super excited with initiative. This year that we plan on doing initiatives.
Initiative next year.
Okay, Great. That's that's very helpful.
Just shifting gears a bit just in terms of your your balance sheet, obviously very healthy area and a net cash position can you talk about some of your capital allocation priorities over the next year or two.
No. We obviously, we're very pleased to see the growth in our cash balance again and.
Are the growth in our business is always as we said, though our primary focus.
And the use the prime our use of our cash.
We do have our MCB in place.
We'll be purchasing.
Through that Opportunistically.
And reviewing other alternatives, including paying down.
Our term loan essentially at some point, but we are.
Just now return to a strong cash position and will be reviewing our options over the next several quarters.
And what about the potential implementation of a dividend is that something that you'll be discussing of the board level in the future.
It's obviously one of the things on the menu for capital allocation.
We have not begun discussions on that in particular right now.
Okay, great. Thank you very much.
Our next question comes from Mark Petrie CBC.
Hey, good morning.
Brian just given the importance of the U.S. in terms of current performance, but also future growth and could you just.
You just give us a little bit more detail in terms of the performance in your newer markets versus more established markets and then any metrics or sensitive in terms of.
On just the sales results.
In terms of progression on building the brand and brand awareness.
We see we're seeing strength in both markets last two stores, we opened in Cherry Creek and in Denver and.
Most of American Minneapolis, both exceeded our expectations.
We've seen ecommerce growth and vocals markets double.
More or less double last I checked since we opened in both of them and this is a trend we're seeing states is a store openings.
Being extremely successful and then the Congress growing along with that the meaningful clip.
So we're super excited about that but we continue to see growth I know you us in are you as comps.
Quite frankly are you eskom seem to be.
There are very healthy and so we're seeing in mature markets in the U.S.
We continue momentum as well so we just really excited about it in those states business in the opportunity ahead of us because really are penetrations. So.
Small there right now that we just have a big opportunities will keep us busy for some time here.
And and you've talked about sort of the enhanced social media programs increased use of influencers and celebrities.
Could you please give a bit more detailed just in terms of the response from that from that strategy, how you're sort of looking at the returns from this and.
And then I guess more broadly how you sort of think of a differentiating and increasingly sort of noisy sort of social media marketing space.
You know the social media thanks for that the social media market is not increase just increasing noisy as you mentioned, but the landscape is changing a little bit as well and.
We are.
Obviously, we've done a great job with the macro influencers done a great job with the unpaid influencers, we have some opportunities certainly in the micro Influencers and I don't think we've really done.
Going there yet, but we plan on going there.
But there's some you know there's various data would that would suggest that the landscape changing with the influencers as well and so everything's happening in a lot faster pace and we've kept up and.
The initiatives that we've done to date have been extremely successful is certainly helped drive our outerwear program. This past season, we invested heavier in that.
I don't know if you saw recent posed by Chris Gener, who are posted on her website incredible we do though we do the favorite for them and for the genders and the cost actions and good to created all there Chris is Christmas gift packaging and things.
That we're in large versions of other Ritchie <unk> packaging E Commerce packaging and she was posting on exceeded 33 million followers.
She post.
January December Senators December 31st you want to check that out so.
We we have relationships with.
With various social media and important social media players and.
This is working well for our business and so we're going to continue to pursue that we're not a social media OLED.
Marketing organization like to think we're.
Product and boutique.
Commerce and customer service led.
Organization, but certainly working with social media and social media players certainly enhances.
Recognition that low products or services.
Particularly.
Okay. Thanks, and yes, I did see that post and I think my Instagram algorithm is increasingly confused by all of my.
Yes.
Gen Jason.
You highlighted the recent additions in different sort of areas of the organization.
They sound like areas that you're going to sort of want to continue to invest is that a fair assumption and do you think that that ramps from what we've seen in the last year, so or is this sort of steady state.
We will continue to invest and enabling our growth over the coming years and as you know we always invest with the long term in mind, so certainly across technology and talent and then as I talked about earlier, we will continue on that trend for sure.
Okay, and then I guess just related to that just sort of being more specific Todd you highlighted that excluding the IP platform investment in Q3, you would've seen positive SGN, a leverage of 30 basis points.
We know that continues in Q4, how should we think about that type of spending for fiscal 2021.
We'll be providing our fiscal 2021 plan.
In may.
At that point, we'll get into specifics, but.
As as Jonathan just side, we're continuing to.
And best today, and we'll do so in the future.
Okay. Thanks all of us.
Thanks Mark.
Our next question comes from Brian Morrison of TD Securities.
Hi, Good morning, if I can just go back to the success of the men platform that you were talking about I realize it's a small potatoes at this point in time, but if you could just go through the thought process further expanding that portfolio and potentially is unfair. This time, but maybe your initial thoughts on long term, it's going to be material growth angle for the company.
Yes, I see we kind of joke about it internally because.
When we first when we first did our ER partnership with Berkshire, almost 15 years ago, Kevin Callahan Senior partner, Berkshire mentioned in men's to the press they jumped all over it.
So we've been choosing a little that ever since and so he was the most excited when we actually.
Did launch this.
Is this outerwear program because he said I knew this was going to happen sooner or later so for two years later and so he is finding proven correct.
We had a great product.
Okay.
And.
We decided to leverage that into the men's product I was particularly passionate about it myself I don't know if you have one.
I'd like to get you one if we're not sold out but Tom I'd been wearing mine I, absolutely love It and all the feedback has been extremely positive we're expanding that program specifically within that program, though so next season and ER and maybe look to outerwear I mean, obviously getting into the men's business.
Certainly in our stores.
Change that dynamic in our store and we recognize that we had fitting rooms.
Women feel comfortable in that.
Our primarily.
X men are excluded from typically.
And you know those dynamics they get changed in the stores in retail obviously from the E Commerce perspective, it's easier to get in the mens. We're just we are cognizant that it would change the dynamics in our stores, if we start having tremendous product in there.
When people, particularly product that would have to searching the fitting rooms. In addition to that we have such a great opportunity with our just six just continuing to grow our footprint in the United States, both online and physically and so.
It's really something it's a bit.
Certainly lot simpler business for US is continue to push in where we are obviously these funds. The men's business has been incredibly successful but need to keep their feet on the ground here, we are women's clothing retailer and until further notice we will continue to be a women's clothing retailer.
So the mens shoes.
John and extremely profitable pursue the short term and.
We are certainly discussing the opportunity and perhaps as e-commerce .
Continues to grow we would start with maybe introducing a few more products for men E Commerce and.
And then consider at I guess at some point in time, some more physical stores, but truthfully. This is far off right now with our thinking in the certainly not a priority right now okay. That's I appreciate the detail maybe turn Todd turning back to the balance sheet.
Response.
Okay.
In terms of allocation of capital maybe you can just address on a pre <unk> 16 basis. What you think the appropriate leverage is for your company.
Well right now were.
By about 2.5.
And I think we have always discussed.
Maintaining a low leverage.
Due to.
The flexibility the that provides and.
It's not uncommon so retail companies to have zero debt and so I'm not sure that now obviously, we could manage and will be comfortable with a higher level of debt. If we had requirements for that debt, but we don't have any today. So.
I don't know if that answers your question, but I would say on a steady state basis business as usual that we would likely look at paying the debt down.
Some point in the future just as opposed to having its sitting on the balance sheet.
In cash.
So.
Again, if we if we have requirements for for debt at some point in the future we feel like our business could manage.
It's higher turn than we have today.
But we don't have any need for it at this point.
Okay, I think that seems.
Very conservative Okay last question.
I apologize.
Good question, but at the 70 million strategic spend.
You have going on this year.
Steven maybe just elaborate what you think we as recurring for next year.
So the seven to eight at the beginning of the the first part of all four of those projects and the digital selling tools is really getting kicked off in a list right. Now so that will continue into next year as new spend on that project as well.
Well as the future phases.
Of the waived the other three as we ramp them up we don't expect the spend to be in the magnitude of seven to eight for next year, but theres still there there will be.
Somewhat material spendable investment they will continue into next year.
Thank you very much.
Once again, if you have a question. Please press Star then one.
Our next question comes from Stephen Macleod of BMO capital markets.
Thank you good morning, and happy new year.
Lots of great color on the call so far and many of my questions have been answered, but I just wanted to follow up on two things.
Specifically on the gross margin I know you've talked about the raw material pressure that crept into the back half of your Q3, Q Q3 Q4 fiscal year.
Historically, you've had pretty good visibility into your raw material costs and I'm. Just curious when do you expect to sort of cycle through that escalating or inflated raw material portion on the gross margin side.
You know we.
Yes, I don't have a crystal ball and so we don't can't really predict what's going to happen with raw material prices at this point.
We do know that we continued to.
Provide high quality fabrics and and.
Construction on our products and so we are a little bit at the mercy too to some of these Uh huh.
Pressures external pressures, we have no idea when some of these pressures, particularly in some things are going to subside.
No I can't recall, but a large percentage comes from Australia, and what's going on down there is certainly of concern.
Beyond the far beyond our industry for sure.
But.
We will also has had a little bit of pressure on.
Initiatives that we're taking to improve various trends in construction with things like that and so a little bit of is as I mentioned majorities external but a little bit of it is self imposed.
We just we want to continue due to to grow and and improve our product and so we're going to come to do that.
Your apprehensive to certainly a lot of our carryover products to pass on any of these increases to our customers. We want to customers used to pay certain places where things. So we want it continues to do so.
We have an extremely successful unprofitable business. So at this point in time.
We don't see any need to to increase the prices of our products to reflect these.
We're hesitant because we don't want to lose a momentum and the great momentum in opportunities going forward. So.
We're pretty.
Unfortunately, a as these things happen.
We have to rule with it but as we mentioned we knew this was coming we saw this happening and.
We're going to continue to.
And make sure that.
First and foremost our product and product price inter consumer makes sense to them.
Well to the to reconcile customer, they're excited about or product pricing and then we'll we'll figure out what's happening externally.
[laughter], Okay. That's helpful. Thank you.
I don't know if you mentioned that if you did I apologize, but did you mentioned a total U.S. revenue growth number and if not as a is that a number that you can provide it's a number you've provided in past calls.
Yes, it's in the statements its 20, 27.6% in the quarter was our U.S. gross.
Exceptionally good.
Some.
The second quarter.
Okay, great. Thank you.
And then maybe just finally.
Jennifer you provided some color around.
The the new customer program implementation and the PLM the PLM program.
Can you just remind us where that sits in terms of the broader sort of Sps Sep initiatives that you announced in Q1.
The PLM is not part of the S&P partnership the PLM as a standalone.
Got it solution that supports the product processes.
So so that's not part of it the as they partnership that we had announced a couple of quarters ago.
Involve the customer program, which is a program for specific projects two of which went live last quarter into one of which should go live in Q1 as 2021, and then additional selling tool which is.
The one we're very excited about because it will leverage all of what we've put in the three before that we've put in that first the first phase was actually go live in the.
This summer.
Yeah in the summer of calendar 2020.
Okay.
That's great Okay.
Okay. Thank you very much.
Thanks, Steve.
This concludes the question and answer session I'd like to turn the conference back over to MS. Kelly for any closing remarks.
Thank you aerial and thanks again to everyone for joining us. This morning, the King and I will be available later to answer any additional questions. You may have we look forward to speaking with you again. 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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Good luck.
Gotcha.
Yes.
Thanks Bye bye.
Thank you all JV and way.
Hey.
Yes.
Rob.
No.
I have no.
Thoughts.
Yeah.
Good.
Hey, John .
Thank you.
Yes.
Youre welcome.
Not Ghana, but.