Q4 2020 Earnings Call
Thank you for standing by this is the conference operator, welcome to the <unk> Ritchie <unk> fourth quarter 2020 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask a question.
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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 Anastasia and thank you for joining us the riskiest fourth quarter fiscal 2020 earnings conference call on the call today, we have great Hill, our founder CEO and Chairman, Jennifer Wall, President and Chief operating Officer, [laughter], and Todd angle do our Chief Financial Officer.
Following management's discussion we will host a question and answer period will be the analyst.
Please note that remark on this call me include our expectation future plans unintentionally they may constitute forward looking statements.
In particular cobot 19 countries had a significant impact on our sales and operations.
In certain dynamic nature current conditions and its ongoing impact continued to materially alter performance.
We would refer you to our most recently filed management's discussion and out analysis and <unk> annual information form which includes a summary of the assumptions as long as certain material risks and factors that could affect our future performance and our ability to deliver on these forward looking statements.
Our earnings release related financial statements and DNA are available on SEDAR as well at the Investor Relations section of our website at <unk> Dot com.
One or the downturn the fall over to Brian.
[laughter].
Thank you Hello, and thank you very much for joining us this afternoon.
Like all of you reiterate t. extend our deepest sympathy to the many people who have been directly or indirectly affected I called midnight.
As you all know the impact to the economy and the retail industry is without precedent.
While there is great uncertainty as to how this crisis will unfold Richie a strong financial position and the affinity for our brand provides a firm foundation from which we are weathering the storm.
Looking way back to the fourth quarter net revenue grew 6.3% to 275 million.
Excluding the extra week in the prior year normalize fourth revenue fourth quarter net revenue increased by 11.6%.
Revenue growth was driven by an 8.9% increasing comparable sales are 22nd consecutive quarter of positive comparable sales growth.
Included also the contribution from our five new and for reposition boutiques.
Our performance reflected strong momentum in our ecommerce business with double digit growth across both Canada and the United States.
In line with a five year plan, we set out for ourselves at the time of the IPO ecommerce penetration for fiscal 2020 was 23% of net revenues.
[laughter] toward the end of February we began to see the impact of Kobin 19 on our business.
Over the past few months our teams have worked tirelessly in response to that I had a dynamic nature of the pandemic.
Our strategy from the beginning of this crisis has been to both <unk> be responsive and a responsible as we prioritize the health safety and financial continuity of our people and our business.
While supporting our communities.
We made the decision to temporarily closed all 96.
Of our retail locations on March 16th.
With weak retail comparably comprising 77% of our almost 1 billion dollar business in fiscal 2020.
This financial impact was significant.
Throughout this period, we work to keep our E commerce channel operational and optimize.
This was critical to maintain our financial viability as we continued to provide our clients with beautiful products and exceptional shopping experience online.
Accompanying the shift to work from home.
We re orientated our merchandise on a richer dot com to lead with product that was relevant to the new stay at home measures.
This resulted in a meaningful increase to our sales online.
In addition removed our minimum for free shipping.
Relaxed our return policy.
Launched are incredibly successful thanks to you sale in late March and extended the duration of our spring sale in April.
Overall, we are encouraged by the exceptional response from our loyal clients.
Even though our overall business was down significantly as the results of our boutique closures.
Our E commerce revenue growth has been in excess of 150% compared to last year.
Importantly, the strength of our E Commerce business has enabled us to support our people.
While maintaining our solid financial position.
Up to this point in time, we have not laid off or furloughed any of our team due to covert 19.
To date, we have paid out more than $14 million through our Richie a community really fun.
Which was established to provide financial continuity.
We are proud that we were able to support our people many of whom of being with us for years and had been instrumental to our past and will be to our future success.
The loyalty, we have built with our teams and our clients through this initiative will be invaluable as we go forward.
Everything is leveraging the strength of our brand and our people initiatives. Our style advisors quickly became highly effective brand ambassadors through their own social media channels.
Well, it's driving their clients to a Richie dot com.
Due to the closure of our photo studio, we modified our photography strategy to ensure all our new items are posted online in a timely manner.
Relevancy of this strategy to our customers had an overwhelming response as evidenced by a strong E commerce sales.
Furthermore.
We wanted to do our part to support our frontline health care heroes.
Hi, it's the spending most of our planned marketing spend.
We were able to create and launch the Ritchie RIDEA community care program in early May.
The initiative in collaboration with the medical community.
I guess over 100000, frontline healthcare workers with custom design clothing packages.
There has been an overwhelming response from the healthcare community and to date, we had gifted over 60000 relief packages.
The challenging Kobin 19 environment has truly brought out the very best and our team.
Including some of the most creative and engaging marketing we have done to date.
Our efforts were rewarded with deepen customer loyalty meaningful growth in our E Commerce channel as well as broad positive coverage from the global Mail financial post global CNN and other news media outlets.
Turning to inventory we were in an optimal position at the end of the fourth quarter.
[noise], which saar inventory down 16.2% compared to last year.
After the closure of or boutiques, we took immediate action to calibrate our existing inventory and planned deliveries to maximize sales opportunities, while minimizing any future exposure.
To date, we've been successful in our efforts to mitigate the impact of delays in disruptions to our supply chain.
Since early April all of our partner factories have largely returned to normal business operations.
We will continue to collaborate with our supply chain partners to maximize our agility, while mitigating potential disruptions.
Well, we entered this period of uncertainty with a reasonably strong cash position.
Focused on carefully managing our costs.
In addition to inventory management, we conducted a thorough review of all our expenditures.
Where possible, we minimize our expenses reduced or canceled services.
<unk> advantage of government business support programs and have continued negotiations with their suppliers vendors and landlords price concessions.
With the end of our first quarter only three days away, we want to provide you with an overview our preliminary figures.
Given the material impact covert 19 has had on our business performance.
We currently expect the first quarter fiscal 2021 that revenues in the range of 105 to 110 million.
Our reduction of approximately 45% from the first quarter of last year.
This reflects two weeks of decelerating retail revenues in March prior to our boutique closures.
And this is all offset by strong E commerce revenues for the quarter.
While navigating the past few months has then question and be unquestionably been challenging it has highlighted the strength of our operating model and demonstrated that our approach to business sets us apart and can sustain us through the worst of times.
I'm incredibly proud of the team I've had the privilege to work with throughout this crisis. Our team has acted with courage and art.
I'm grateful for their impression impressive resilience and creative solutions to unconventional challenges as they invest some countless hours of tireless work to safeguard our business.
I'm confident the steps, we have undertaken and continue to take.
Combined with our talented people best in class infrastructure.
Will allow us to emerge from this period, and even stronger and more resilient company ready to capitalize on all the opportunities ahead of us.
I will now turn the call over to Jennifer to give you an update on our operations as well as some of the areas in which we are focusing our efforts as we navigate this period of uncertainty.
Thanks, Brian and good afternoon, everyone.
I would like to Echo Brian's comments, there thoughts in the window was impacted by this pandemic.
To say that Kovac 19 has challenged our business and the last few months is an understatement like Brian I'm incredibly proud of the dedication Brazilian and agility our people have demonstrated in the rapidly changing landscape.
Okay.
During the closure of our boutique we work to keep all three of our distribution centers open to support our E Commerce channel.
Well, we took early and decisive steps to implement precautionary measures across the business, we reengineered, our distribution operation and putting in place industry, leading measures to provide the most confident in ensuring the health and safety of our people.
Our team took on the enormous task of re sequencing the entire workflow of our 223000 square foot distribution center in Vancouver.
Staggered shift and implemented both pod structures and designated work though.
We reorganized almost every aspect of how we sell from the single point of entry into receiving picking and packing.
Our efforts were successful in keeping our people today, and our business running without impacting productivity or efficiency.
I am proud to say that as it was a direct result of these measures.
We have not had a single case of coded 19 to date.
Knock on wood.
And we will continue the strict health and safety protocol for the foreseeable future.
In order to accommodate significant surge in E. Commerce unit, we mobilized nearly 400 of our retail and support office employees in a highly accelerated timeframe to complement our existing.
Trained and under three hour. These employees were held to the same high standard and our 10 year distribution employee.
And they delivered.
Without their health in what is needed challenge to effectively manage the increase in E commerce units, while maintaining delivery time to meet or exceed our clients expectation.
In addition to supporting our distribution operation 175, retail and support office employees were also redeployed across the country to reinforce our quest years team who are experiencing a significant increase in inbound inquiries as a result at the strong.
For me in our E Commerce channel.
In British Columbia, we consider ourselves very fortunate with our health care leadership, and the corresponding relative wellbeing of our community.
As a result, starting June 1st our support office team will largely be working offsite since mid March will gradually return on a voluntary basis to our Vancouver support office under stringent health and safety precaution.
And Brian touched on earlier, we have not laid off for furloughed any of our employees today due to cold Vic 19.
Not only is this the right decision by our people. It is also in keeping with the reality is operating philosophy to manage for the long term.
By keeping our people employed and actively engaged we've retained our key talent and put ourselves in a strategic position to reopen each of our boutique within days notice. Once we have determined the time is right.
Okay.
While we expect to rightsize our infrastructure once clarity on any in normally merges we continue to Opportunistically acquired key talent.
The strength of our business model and the measures we have undertaken to care for our people positions.
As an attractive employer in our pursuit of top candidate in this environment.
Looking beyond the crises, we are positioning ourselves for opportunity.
To support our ecommerce channel and advance our omni channel capabilities, we prioritized our investment in digital selling tool.
Also known as the clientele.
We have been piloting this new selling tools and May 11.
This exciting new tool allows our style advisers to deliver highly personalized service to their clients anywhere anytime.
The initial app launched speeches functionalities, such as the ability to view client profiles and purchase history.
Product catalog and inventory data the means to interact by call test or email and the ability to cure rate luck and share styles with clients, all driving traffic and sales to a Rick dot com.
With an initial pilot group of 25 style is connecting with their top clients through the clientele.
We've already seen some encouraging early result.
It is incredibly impressive that our teams have been able to pivot and get this capability up and running in record the.
Based on the early success, we are in the process of expanding our pilot group.
As we continue to use the tool and gain valuable feedback from our stylists, we will further enriches capability.
We expect the tool to increasingly contribute to topline growth.
With the expansion of the stylists group and as our clients increasingly appreciate both the convenience and the quality of the personalized experience.
Despite the challenging environment, we continue to invest in people and the critical infrastructure to support our business as we have always got throughout our routine history.
Expects these initiatives will strengthen our culture and have a meaningful positive impact on our business and our long term growth strategy.
I'll now turn the call over to talk to discuss our financial results.
Thank you Jennifer good afternoon, everyone I Hope you and your families are staying healthy and managing through these times.
In response to the covert 19 outbreak, we acted quickly to safeguard our business by enhancing liquidity managing expenses and protecting cash.
Before I provide more details on the actions we've taken I will share a few highlights from the fourth quarter and for the full year fiscal 2020.
My financial review will be focused on the comparative figures, which exclude the impact of IRS 16.
The strong momentum in our business continued into the fourth quarter with comparable sales growth of 8.9%, excluding the extra week last year net revenue grew 11.6%.
Gross profit margin in the fourth quarter was 35.3% down 90 basis points from last year, primarily from the expected higher raw material costs and the impact from the new U.S. tariffs.
Well as slightly higher markdowns and increase warehousing and distribution center costs.
These impacts were partially offset by the appreciation appreciation of the Canadian dollar in the fourth quarter versus last year.
SGN, a expenses increased by 8.6% to $64 million.
See any expenses were 23.4% of net revenue compared to 22.9% last year.
The increase was primarily attributable to $2 million of investment in our new customer program.
Excluding this investment has seen a would have seen a 20 basis point improvement over last year.
These factors resulted in adjusted EBITDA that was essentially flat to the fourth quarter last year.
[noise] benefited from the extra week.
Inventory at the end of the fourth quarter was $94 million, a 16.2% decrease compared to $112.2 million at the end of the fourth quarter last year.
The decrease reflects a lower initial by for the spring summer season, as well as early receipt of inventory in the same period last year.
As Brian touched on earlier fiscal 2020 reflected continued momentum for its yeah.
We delivered net revenue growth of 12.2% to $981 million for the full year.
Normalizing for the 50 Threerd week in the prior year net revenue increased 13.7%.
In particular, we're pleased with the acceleration of our business in the United States with revenue growth of 29.4% driven by both strong E commerce and boutique performance.
Adjusted EBITDA grew 7.2% to $173 million or 17.6% of net revenue.
Compared to 18.4% last year.
Adjusted EBITDA was impacted by the 7.3 million dollar investment in our customer program as well as a 4.8 million dollar reduction in other income year over year.
Excluding these amounts adjusted EBITDA would have increased by 14.7%.
Overall, we ended the year in a solid financial position with a cash balance of $118 million.
Turning to our performance in the first quarter fiscal 2021, we saw rapid deceleration of our business in the first two weeks of March as the pandemic spread across North America.
But the closure of our boutiques on March 16th we immediately directed our efforts to drive ecommerce revenue.
In addition to generating cash this enabled us to continue to sell through our inventory.
Furthermore, we took swift action to enhance liquidity manage expenditures and preserve our solid cash position.
Some of the initiatives included.
Drawing down $100 million from our revolving credit facility.
Spending share repurchases under NCB.
Leveraging applicable government business support programs for covert 19.
The lane capital expenditures related to boutique construction.
Accelerating infrastructure investments related to E commerce and Omnichannel projects.
Reducing and or eliminating any outstanding spring summer orders.
Driving cost reductions by minimizing non essential operating costs as well as ongoing negotiations with our suppliers vendors and landlords for concessions.
Sending that payment terms, where possible and temporarily reducing pay for the senior leadership team by 25% and the forfeiture by the board of directors of the cash portion of their fees.
Looking forward, we expect first quarter fiscal 2021 net revenues to be in the range of $105 million to $110 million compared to 196.7 million in the first quarter last year.
Again. This reflects two weeks of decelerating boutique revenue in March prior typically closures and exceptional ecommerce revenues.
For contact in the first quarter last year, our booties contributed nearly 80% of our total net revenue.
We anticipate an adjusted EBITDA loss in the range of negative 24 to negative $28 million compared to positive adjusted EBITDA of 34 million in the first quarter last year.
This reflects the closure over boat boutiques for the majority of the quarter and the associated deleverage from occupancy and other fixed costs.
In addition, higher markdowns from the promotional environment and increased warehouse and distribution costs due to the significant growth in E. Commerce are impacting our results.
We're pleased with our current inventory position due to the strength of our E commerce business and the substantial sell through of markdown product in the first quarter.
We initiated our spring summer sales event in the third we can may which has helped us continue to work through inventory as our boutiques begin to reopen.
In addition, our ability to carry forward, our non seasonal proven sellers into the fall season enabled us to reduce our initial fall winter orders.
Despite despite plans to enter the fall season with a lower initial by we're confident in our abilities in season to replenish our products to meet client demand.
Our measures to protect cash have resulted in a cash balance that has remained relatively stable since our boutique closures.
As of May 27, our net cash totaled $102 million, excluding the 100 million drawn from our revolving credit facility.
Prior to covert 19, we were on track to exceed our fiscal 2021 targets related to the five year plan, we set out at the time of our IPO.
Due to the dynamic nature of our of Coven 19, and as short to medium term effects on the consumer landscape. We are withdrawing our performance targets for fiscal 2021 and will not be providing annual guidance at this time.
Despite the challenging backdrop, we were able to accelerate our E commerce revenues manage expenditures and preserve our strong cash position in the first quarter to successfully safeguard our business. We expect to end the first quarter in a solid inventory and cash position as we continue.
Due to navigate the current environment.
With that I'll turn the call back to Brian.
Thank you Todd.
Throughout these highly uncertain times, we remain true to our commitment to everyday luxury through our beautiful high quality products, our unique personalized services to clients.
An aspiration of shopping environment, whether that be online or in our boutiques.
And engage in communications captivate, our customers imaginations.
The challenging environment and corresponding boutique closures have had and will continue to have a material adverse impact on our fiscal 2021 performance.
However, what gives us tremendous confidence.
Is the strength of our business model and in particular, the strong momentum in our E Commerce channel.
We fully expect that a portion of our retail business will permanently shipped offline.
In line.
As Jennifer outlined earlier, we continue to invest and digital selling tools and expanding our omnichannel capabilities to better position to return to serve our clients in this evolving retail landscape.
As of May 7th we began a phase three opening of our boutiques.
As of this coming Sunday, which marks the end of our first quarter. We expect to have reopened approximately 30 of our 96 boutiques.
Well initial results from the reopening process are encouraging in light of the current environment.
We expect an extended ramp.
To a new normal.
Our decisions on reopening our based on a number of criteria, including the guidance of local health authorities reopening status of shopping centers.
And most importantly, our own state of readiness to provide the highest standards of health and safety.
To that end, we've put in place comprehensive measures designed to protect and instill confidence with our people and our clients.
Our teams are anxiously awaiting to welcome back our loyal and passionate ritzy a client.
For the reopening of the remainder of the our boutiques over the coming weeks.
Due to the crisis, we paused are imminent and future boutique opening schedule.
However, we've since resumed having a surprisingly success successful new boutique openings in British Columbia yesterday.
We currently have five to six.
Additional new boutiques and three to four Repositionings and our pipeline. However, due to ongoing disruptions, we could potentially see some delays.
Given our measured approach and the status of the various lease negotiations we have managed to mitigate most all of the risk of the after mentioned commitments.
Although it's too early to predict when and how much traffic will return to retail.
We continue to be presented with premier locations at financially attractive business terms.
We are evaluating these on a case by case basis as this crisis continues.
Notwithstanding my prior comments regarding our inventory levels, our product team has been operating both in the office and remotely to support our seasonal design and production lifecycle minimizing any tax to fuel future seasons.
As mentioned, we've taken a methodical approach to ensure our fall winter inventory levels and assortment, our well balanced.
Well, we have reduced the breadth of our assortment the offering is being carefully curated to provide freshness to our customers as they emerge from a long period of isolation.
Well I expect lingering effects of an elevated promotional environment to last through the remainder of the spring summer season will be reverting to our successful full price calendar for fall winter.
And we'll take a disciplined approach to how we manage promotions in the future.
This marks our fourth year end reported to the public company.
Almost 40 years ago, we set out some five year targets around ecommerce penetration store openings revenue and EBITDA growth.
It is particularly disappointing as we're well on our way to exceeding these targets prior to covert 19.
[noise], although the retail landscape for the remainder of the year and possibly the beginning of next is uncertain.
The recent acceleration of our E commerce growth.
Our boutiques in the midst of reopening.
Building on our existing world class team with top talent hiring opportunities.
And our ability to deepen our relationship with our clients makes for an exciting future.
I can't think of no better team than the one we have at Irets yet to capitalize on the opportunities ahead.
Look forward to sharing our new long term out with you outlook with you once the new normal has been established.
Thank you.
We will now begin the question and answer session.
To join the question Q you May Press Star then one on your telephone keypad you most your tone acknowledging your request.
Thank you are using a speakerphone please pick up your handset before pressing any teeth.
To withdraw your question. Please press Star then too, we'll we'll pause for a moment as colors join the queue.
Our first question comes from Mark Altschwager with Baird. Please go ahead.
Mark we can't hear you if you're talking.
Operator, why don't you go to then the next person in the Q.
I apologies for our next question is from Mark Altschwager with Baird. Please go ahead.
I think Thats, who we were just trying to.
Yet today can you can you hear me okay, Yes, we can now.
Okay, I don't know what was going on there.
Great well I was wanting to ask about the reopening process and just any further detail you can provide on the level of productivity you're seeing in your stores as the first wave has opened and any more detail on how many stores do you expect to have opened by the end of June and July respectively, and also what that digital.
Has looked like as stores have reopen has that moderated at all thanks.
Yeah, Mark it's Brian.
We've.
We've put a very high bar in all the cautions we are an opening up our stores and I think the customers itself.
Really comfortable in our stores.
We have limited the amount of people in the stores.
We have the criteria that we rule to across all our stores some of the stores, we've had more or less continue align upside since weve.
Open.
You know like everything we've seen with this.
Pandemic it didn't seem to be affecting everybody places differently than others and so.
Because of that.
We're we're expecting to see different.
Responses from our customers, depending on where they are where we where we're situated in British Columbia. We've had very we've we've had very little effects of this disease compared to commit compared to places like New York and.
Secondly, eastern Canada, specifically qubec, so we've only really opened up.
Pockets of stores, primarily western Canada at this point in time, which has not been affected them. So the response has been very very surprisingly really great opening stores.
But we're still we still don't know and we'll be able to open up bulk of our stores in Ontario huge obviously business.
New York, We don't know when those are open. So we don't know when they're going to be opening but all I can assure you is that we will be opening them and were very quickly once we get the green light and that they will be opened under the most stringent health and safety precautions when they do when they are open.
That's very helpful. Thank you and if I could follow up.
How did the store level economics change if the new normal is a step function lower in store productivity, a step function higher in digital and along those lines wondering if there's any color you can provide on the conversations you're having with landlords relative or whether respective renegotiating some of your existing leases or how you're looking to.
Approach rent terms on the new boutique openings moving forward.
Yeah, there's lot of questions there I'll try and answer a few of them no particular order.
We've had ongoing discussions the landlords. This has been a difficult period for the landlords as well and so certainly understand the.
There there.
During difficult position. So we've been working closely with the landlords, we havent come to any conclusions yet really with any of the big landlord some of the more independent margins being easier but.
Both our parts to come to some kind of.
Resolution on on rent and it's being buried.
But the big landlords in Cat book and Ken in the United States, It's been difficult for them to hook are up for us and we haven't really concluding on where we're getting it out here and so we've just been working closely calls with them almost daily and we're working through those.
As far as his numbers go we have extremely high productive stores and so we're pretty confident that even with some new normal that isn't at the same levels that we had before we will still have extremely profitable stores and and they round up round out the omni experienced.
For us so we don't really see us.
Looking to close any store, they're all extremely profitable high contributing stores and so we look forward to continuing that trend as.
As we've mentioned the call we're going to continue to push our E Commerce where were.
We think we are best in class of this right now.
Our numbers show it in their customers are saying it and so we're going to continue to invest and pushing E. Commerce. So at the end of the day, we think we've got a great future ahead of us.
Regardless of what the store outcome than what's what happens whether returned to normal is retail.
That's great. Thanks for all the color and best of luck with three openings. Thank you.
Our next question is from Marc Bianchi with RBC. Please go ahead.
Hey, good afternoon.
Obviously appreciate that it's very difficult to give an outlook.
Given all of the uncertainty, but wondering if you could just give a bit more granularity in terms of in terms of Q1 since were there.
In that period basically complete just in terms of in terms of gross margin and Opex and then any outlook you can provide in terms of how you expect your operating costs to be able to lacks.
Through the rest of fiscal 2021.
Hi, Mark it's Todd.
We we will continue to see a decline in our gross profit.
In Q1 and for the rest of the year given the promotional environment, we continue to expect pressure from higher than normal markdown levels.
We're also seeing pressure from the weakness in the Canadian dollar and then the continued de leverage from rent. We we have a portion of our boutiques that are open now, but the majority still closed and we do expect lower productivity at the reopened.
At least.
In the short term and then we will we will also continue to see higher warehousing and distribution costs as we're driving more sales through the ecommerce channel. So there are a numerous pressures on gross profit in Q1 is that that are driving the the outlook that we provided and.
And then going forward, we do expect a in the short to medium term the majority of those pressures to continue.
It's a little little early and just.
We aren't.
Position right now to provide an outlook going forward beyond that.
No we're expecting again a ramp.
As we open the stores, but it's too difficult given the environment to predict exactly what the remainder of the year will look like at this point.
So.
Can I add can I add to that a little bit. Thanks for that Todd I'll, just say one thing because I I look after.
The.
The product division so.
We obviously didnt predict covidien and we had purchased.
A lot of product for a normalized.
Spring and summer season that takes us through the first and second quarter.
So we're extremely happy with where we started and we talked about it on the call. We started with less inventory this year at the beginning in the first quarter and in the second and we're extremely pleased with where we're netting out right now we actually have less discontinued merchandise right now.
We did this time last year believe it or not with with 10 weeks clear teams have done such a good job that said we used promotional.
Activity to get ourselves in that position and we've always had the philosophy at a rich year to start new seasons with its clean stock as possible and ideally, 100% clean stock so not having any any inventory left over to start the new season carry them in season over not has not changed so we're doing whatever we can do the dip.
Friends with Q1 in Q2 versus Q3 in Q4 is Q3 in Q4, we've been able to effect not all our Q3 deliveries, but certainly a quite a few of them and we can certainly being able to added our Q4 deliveries. So we think that a majority.
Margin due to all the markdown activities due to the fact, we had so much merchandise purchased in Q1 in Q2 or is it going to be there's not going to be pretty but we believe that Q3, Q4 will actually be better now where it actually nets out we don't know yet at this point time, because it's being so difficult to predict where our businesses.
And how much inventory.
So.
That's being sort of more of an organic situation, whereas Q1 in Q2, which we know exactly what we're dealing with here.
In doing whatever it is to get get through or inventory.
Okay No. That's a that's very helpful commentary for sure.
I guess, maybe just back to DNA.
I don't know if it's possible to sort of quantify some of the elevated cost of operating.
Through the course of the pandemic, maybe specifically with with in terms of E commerce fulfillment or the Dcs and and or if you can quantify the impact of the government support programs that you participated in.
Yeah.
We are expecting too.
To receive approximately $6 million.
For each month that we qualify for the government's from the government support program. That's both in Canada and the U.S. So that is obviously a major.
Contributor to.
Our decline in.
Supporting a decline inexpensive.
In S. DNA, but we have again significant.
Increases in other areas. So if it's we're really too early in the game to exactly know the pressure going forward from the additional measures that were putting in place of the stores. It will be primarily from increased labor and then.
Increased cleaning and and.
Protective equipment, but primarily labor. So again end market apologize that we don't have specific guidance to provide I'd just to say that we have no meaningful pressure from the normal there will be operating under going forward from an M&A perspective.
Yes, I can.
If I, it's Brian here I could add to that to 'em. We are receiving some government support but the purpose of the of the government support was to ensure that people stayed employed and that's exactly what's happening at or its here is it just keeping Nazi ability to keep all our people employed and that's why that was the entire.
And to the government support it's working.
Got the federal government support with with Labor is working as as per at a rate.
Okay. Thanks, and then just last I'm wondering if you could just provide some additional sort of color commentary about any differences in behavior or sort of consumer patterns, you're seeing in the U.S. versus Canada, and just sort of curious if there is a different just given.
The difference in where you are in terms of brand equity and also sort of new customer potential.
Sorry can you.
Verify that so you're wanting to can you repeat that question. Please.
Yeah, I'm, just wondering if you're seeing sort of any difference in terms of you know how customers are reacting to the different levels of promotion and how you adjusted the assortment between us and Canada understanding that it's just a different level of brand equity different level of brand awareness and.
Obviously in U.S., there's a huge opportunity to build new customers, whereas in Canada, it's more about.
Selling more to the people you already seltzer.
Yeah, we've been we've been.
We've been very encouraged that we're building a lot of new customers in both Canada, and the U.S. and USIS back a few more on U.S., but we've been building new customers previously have not shopped online with us before we'd sure they've shops in our stores in the previous you haven't shopped online with us and as you know that customers that use both channels or multiple multiple channels or better.
Customers and spend more money and are more engaged the ones that just use a singular channel. So that's been.
Extremely encouraging for us.
We haven't noticed as much of the difference in Canada versus the U.S. as we know very seldom do in our business is mostly a east coast to west coast and with this pandemic it depends where people have been hit hardest is where weve.
I found that our sales have been affected differently.
And then really with a product perspective is the products that are being purchase or different people are at home, they're not going out and so all our products that are more lifestyle base comfort based.
Athletic based are being.
Has had a lot more attention the ones that have been dresses and things like that people would have been going out to bid professional where for people going to work in the office. So that's all changed a little bit but how are we are seeing a shift now that some of them.
The.
Isolation is our being relax a little bit we're seeing a little bit we're seeing that change again here, but so we've seen a bit of a mix in our product that we're selling unfortunately through our product mix, we appeal to a lot of different people look a lot of different types of products and and that's done well for us insight into our strengths here.
I appreciate all the comments all the best.
Joe.
Our next question is from Irene Nextel with RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone I don't really really thank you for all of the color around around the performance and congratulate you on performance through that's very challenging period.
I actually wanted wanted just to start if you don't line as a follow up to that last answer Brian.
You do have this very broad offering as you thought to your spring is and fall straight year your fall and winter mix did you make any adjustments for with let me Glenn can be an extended period.
Ah work at home and maybe some different different purchasing patterns.
No I re and thank you for their comments and thank you for joining US you know it's been interesting because.
It it.
On one hand, we think okay, everybody shifted indoors and therefore, we should have more of that product.
Then one could argue that everybody thought all that product and those people want to go outdoors now and start going out.
Being in restaurants, and things like that in the fall as as well as.
Things are being relaxed, we're thinking maybe people because they haven't purchase ending these other products might want to kind of purchase in southern products. So we've been we've been having an internal debate or people are going to be buying more things for it to stay at home because they're spending more time at all or is that all they bought and so they actually won some freshness. So they're clause that ongoing.
So we haven't really draw that conclusion as I mentioned, Unfortunately, we were able to do both so we're continuing on doing both and making sure that were balance there, but as Todd.
Laid out is that we are being very conservative I enjoy purchases for fall and winter, where we can haven't committed and then we're going to scramble as as sales continue to grow and and as a normal as we get closer and closer on the ramp up so.
We're really really comfortable with our inventory positions right now and where we're looking for fall and winter, obviously, the business climates challenging and.
We're not thrilled with that but it is that's the card the hand, we're all being dealt with right now and so we're making the best of it and I'm pretty comfortable but the team's done to get us in a position here.
And as I say I don't have a read right now on whether people are going to be purchasing more in home or not I mean, my sense is that they're ordering online they're going repurchasing more for medical but if they are actually out in the stores.
It means that the confidence are there in areas that that.
Our faring a little bit better my sense is that theyre going to be at shell buying those kinds of clothing. So it's hard to say, what's where the where we're going to net out right now and all I can say as were covered or both scenarios.
That's very helpful. Thank you and.
Yeah, I wish we all had a crystal ball.
As you think through the different ways in which the impacts for had been Calcs does it change at all your thinking around store size, maybe a little bit speakers that you you can accommodate graders.
Just announcing in the stores do you think about it.
Oh versus streetscape, a little bit differently as you now looking at some of these real estate opportunities.
You know that's a great question and we've been discussing the same thing in an office with more people working from home does that mean, we need more office space or less office space because people wall. So want to have a little bit more space for themselves and little bit more room.
The good news with the stores are is that we'd be.
Opening a nice comfortable amount of stores for Atlas chains, and we're not all of a sudden in a position of being over stored I would argue we're still under stored at a rate yeah. We still have lots of opportunities I think with the new retail.
If we thought that that we're in a in an enviable position in an ability to open up stores. Prior to this crisis. We certainly are again more so now going forward because we're going to be one of the few companies that's out still looking at opening stores. So.
But we're going to be taking one data time, we don't know what this new normalizes and we're going to wait to see this before we really commit to anything and working if we're going to start to know here I mean, it seems forever because we've been cooped up in doors, but at the end of the day, it's really only being three months here that.
For on just over two months that we've been operating like this so come the fall and we'll see what's happening with the with the retail landscape as we'll have a far better read as I mentioned, we only have 30 stores.
The majority of those have only been opened in the last week or so 10 days. So we're going to have a fairly good read next time, we speak to everybody three months from now on exactly what would it with what it is that we're dealing with it.
We have a for fall far more so the pipeline at that time.
That's great. Thank you.
Our next question is from Barrington, Lee with Canaccord Genuity. Please go ahead.
Thanks. This is Luke on for Derek.
One thing I was curious about.
As you sort of work through.
Getting a Q1 year.
Obviously, you ecommerce is at 23% of all of sales.
In fiscal 2000, I'm, just curious where that sort of penetration has trended through the quarter to date.
Yes, obviously, our stores have been closed for the majority of the quarter. This quarter Q1 started at the beginning in March and is ending on Sunday. So the.
The majority of our sales in the quarter, our are coming from ecommerce.
Right.
As you.
Where are your distribution centers.
Where they're at now and as you think about maybe that that permanent shift towards having customers who are.
Buying online as opposed to in store or you sort of comfortable with the capacity the throughput that you're able to put through those distribution centers or are you thinking that there might need to be some sort of expansions or.
Something about like.
Moving forward.
Hi limited Jennifer on some of the previous calls I have spoken to add distribution center expansion. We recently expanded the square footage in Columbus distribution center as well as a the saga distribution center as you know we moved into spring.
Just a couple of years ago. So when we were doing our numbers then we were anticipating growth and business until at least for them at time being we believe that we have enough space, but I do think we will be let me add as I mentioned, we reengineered I pretty much iworkflow in our processes is that.
We will have to make some redesign tweaks and changes within the building to accommodate for for what we're putting through the buildings as well as for the new norm Miller so to.
Selling and so forth.
Understood.
And then so last one for me.
Just I guess thinking about.
E Commerce as far as maybe some metrics as Rick as regarding maybe new.
Customer.
Conversions or retention or any metrics like dot to maybe show.
The performance of E commerce sort of pre covert related.
Shutdowns versus sort of where that performance and E. Commerce is as of today.
Well I think you as Brian mentioned in his prepared remarks, we have seen a significant acceleration in our ecommerce business since the store closures are up.
Over 150%. So we're very pleased with where that's been pacing and a and also extremely pleased with the teams and the way that our distribution center and our call Center staff, we've been able to handle the additional volume. So we went from.
In beginning of March period that is somewhat.
[noise] us a slower period, let's call it for E commerce to effectively the playoffs and.
Black Friday type.
Revenue at worse or sales season type revenue and and our teams managed it flawlessly. So we that's what's been happening with ecommerce I mean, it's increased dramatically.
Since the store closures.
Okay. Thanks appreciate the color.
Our next question is from Stephen Macleod with BMO capital markets. Please go ahead.
Thank you good evening good afternoon.
I just wanted to talk a little bit about the the store openings you mentioned that could you just some color your merchandise. The initial results were and I've been encouraging so that would be the first question and maybe maybe how that's trending and depth and then you talked about planning for an extended ramp.
And I'm just wondering if you can give us a little bit or color on how you're kind of in terms of that ramps to work.
Thank you.
Even [noise].
When I go in reverse order so.
We don't know what this ramps going to look like we're just we're just preparing for a long slow ramp and.
There's two portions of that ramp one is how slow the ramp is and over what period of time. So you know is this going to be.
Are we going to see this ramping up right through to September October and some people are you know in various places in North America are obviously and deserving. They so a pretty shook up by this so are they going to be jumping and going out to stores at the same level. They were before probably not and will they eventually I don't know and so.
So we're going to see this ramp.
We were predicting this ramp to the end of this year and as I mentioned in his remarks, probably in the first quarter of next year as well. So we're preparing for a long slow ramp to new normal and then the second part of that is a new normal and what that's going to look like and and we don't know what that's going to look like either I mean are we going to ramp to 70% or previous sale.
As in stores 8900, I don't know and so were going up or prepared in whatever scenario, we see and we'll go from there.
The good news is as mentioned with the last question is that.
You have a robust ecommerce business that we think if regardless of whether that equilibrium is tilt in one way or the other we we have a very good presence in both those scenarios.
It was the second part of your question.
The second part was just with respect to what you're seeing in terms of initial results from from new reopening.
You know, it's hard to see hard to tell a we found our store front Street front stores are probably being a little bit busier than a shopping center or mall stores, we've found that.
The places that have been affected last have had a little bit more pick up an uptick than the ones that have been affected more.
And.
Huh.
And then we were there is obviously limitations in the stores themselves as far as capacity goes in line ups in fits and things like that so so it's been it's going to take us a while the figure this out as I say some of the stores are being only being opened 10 days and and because the the.
The outdoor stores have had a little bit more pick up and then not otherwise.
They've been weather dependent so on a bright sunny day, our odour Robson Street.
Some of other outdoors outdoor stores have been extremely busy and then the days, it's raining moved impacted by them since a lot of those are the ones that are open how we've seen a little bit of next year in there. So all I'm, saying overall, we've been very encouraged by the response, both from our customers and our teams as far as stepping up and then make.
Sure that everybody say from the stores and we've been pleased with the sales in reaction to date.
We'll continue to monitor that and as I mentioned on the next call, we'll probably have far better idea on how that's what that's going to look like.
Yeah. Okay. That's great. Thank you and then a and then maybe I just wanted to clarify almost fall winter orders can you just talked about kind of where you are in terms of your selling season and you're ordering season.
[noise], specifically well or selling season, we consider fall just started at the beginning of August it has a slow uptick because parts of Canada in places like starting to get warm in some cases, but that's what our false starts and.
But that ordering seasons, what's happening we had already committed just fabrications and raw materials and things like that prior to covidien he'd been hitting here. So.
We were able to probably effect, 50%, maybe somewhere between 25, 50% of our hall orders, but we are fully in effect for winter. So.
Hi, we're going to probably you know if we can do this all over again, we probably slightly tweak our orders on where we're at right now, but the end of the day, we're pretty confident will fall to winter. They mentioned, we started ordering falling raw materials back in February January February and Oh, we were able to catch a lot of them because it.
Is fairly clear what was happening to us in March going back to extremely quickly to adjusting those orders as best we can set new sales targets and but at that time, we still don't even know for stores will be open then we didn't know at that point in time beginning in March was a two month three months six month closure, we were running.
We are running or even how to closure, but assuming a 12 month closures stores. So.
We are we're running all those so it's pretty difficult we put a hold on those March orders from the ones, we weren't able to affect PRT radar to committed to where we're stuck with them than the ones.
We just had holds on that until we got a bit of nuclear picture, which we've been getting over the last almost on a daily basis, but particularly over the last three four weeks.
Right and then in terms of in terms of winter use you have do you have had had time or you have you will have time to adjust your wonder orders as necessary.
We've got we've kind of adjusted them now we're pretty replaced most a lot of our winter orders now and so were adjusted them and so we're being quite very conservative on those buys and then we're going to scramble businesses meaningfully better, which we hope it is.
And then we predicted so.
We're not going to go and get stuck being overstock for sort of fall winter heating spring summer, we have a legitimate reasons all winter I'm not sure. We do so we're making sure that.
Fall winter, we have a nice base of inventory.
Both mixture between core carryover inventory as well as our new items to delight our customers.
New trends and things like that and so we're doing that and then.
We will adjust as we need see over you know on a weekly monthly basis as time goes on here.
Okay. That's a that's great. That's a trend. Thank you for all the color you've provided them best of luck.
Thank you.
Our next question is from Brian Morrison with TD Securities. Please go ahead.
Hi, Thank you I sort of follow a few housekeeping items here just in terms of the stores the new stores that you're gonna be opening in fiscal 21 or the remainder of those in the U.S. any of your current shore base. How many of those are in enclosed malls.
Oh.
We're planning to open a again five to six new stores or through the rest of the air So that will be six to seven in total new stores for the year five of those are in the U.S.
Two of them are in the first half of the year. We just opened one yesterday and then the remainder of the new stores are all in the back half of the year from a an expansion perspective, we're planning to open for a expanded locations one in the U.S. and.
Three in Canada and.
One to two of those will be in the first half and then the remainder in the back half.
And if you could yeah and its sorry as far as indoor outdoor I think was kind of where you're driving there was not yes. So so.
The one we opened yesterday is an outdoor shopping center.
I believe.
We have a Todd do you have account on indoor outdoor I know, we have one on the east coast, that's outdoor as well.
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Right right, Yeah, I'm talking about your current store days.
Sorry.
Of the existing store base, how many are shopping centers versus outdoor.
Correct.
I believe it's about 15 that are a street based and the rest are no I think we're I think were a lot higher than that Todd because our store in L.A. is I. We can we don't have that number at this point in time.
But if you want we can share it offline with you.
No problem, yeah, because some of those some of them our street base, but we have a lot of we have a bunch of malls or stores in shopping centers that are outdoor.
Shopping centers as well there just part of a shopping center, but their full open air shopping centers.
Okay, and then Todd just in terms of the government assistance that you mentioned how are you recognizing that in your Q1 financials is that a contra expense.
How does that yeah, yeah, we've we've accrued for it in our projections.
So that would be an offset to your SGN, yeah, it'll be an off that to our labor.
Okay. Thank you and then last question, maybe maybe for Gen. I'm wondering if there's any sort of breakdown you guys have internally of as a percentage of your sales you know how you break it down by segments, how much might be athleisure versus denim versus evening, where do you have any color on that you can share with us.
I'm going to have Brian answer that he actually I run product, that's better if I had him after that.
Sure.
Yeah, I mean, we don't.
No we have.
And just have sort of two or three buckets, we have like 15 or 20 buckets of product some would fall into.
Various categories.
Others, casual clothing, which probably isn't necessarily athleisure than we have denim than we actually have athleisure product.
Going out at night, but maybe not so pheno sun dress, something like that which isn't necessarily formal so.
No we're pretty balanced right across the board and you can imagine things are being skewing, a little bit more Uh huh.
From a stay at home comfort perspective.
And we've had obviously a lot of success with that product to the plane.
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Found some inventory pressure running onto some of the products and then some of the other products for more going out at night, and and and dressing to go to work and things like that is we've had less demand for that.
That said I think what's important to recognize is that a lot of our product that we sell is test and react and so we've had a lot of product that over the.
That is in our product that is test react and therefore, we're we're not committed to any high inventory levels, any particular product and we'd be able to adjust and as I mentioned earlier.
Have less product that we think we have to move the ended the season.
Right now than we did the exact same time last year. So.
We think our inventories and where they really great shape, and we're adjusting and making moves as quickly as we possibly can to reflect.
The demand of the certain types of product that we've been getting.
Okay. Thank you very much.
This concludes the question answer session I would like to turn the conference back over to Alan Kelly for any closing remarks.
Thank you Anastasia. Thank you. Thanks again, everyone for joining us this out to him and I will be available after the call to answer any questions anyhow, we look forward to see.
Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and had a pleasant day.
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