Q1 2021 Aritzia Inc Earnings Call
Thank you for standing by this is the conference operator welcome to your Ritziest first quarter 2021 earnings call.
As a reminder, all participants are in the listen only mode and the conference is being recorded.
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I will now turn the conference over to Helen Kelly, Vice President of Investor Relations. Please go ahead.
Thank you Anastasia and thank you all for joining or whats, yes, first quarter 2021, earning conference call on the call today I'm joined by Brian Hill, Our founder Chief Executive Officer in Chairman, Jennifer Wall, President and Chief operating Officer.
And taught it'll do our chief financial Officer.
Following management's discussion what hook approach, an answer period open to analysts and investors.
Please note that remarks, when a company called me include or expectation future class unintentionally. They may constitute forward looking statements.
In particular cobot 19 countries have a significant impact on our sales and operations [laughter], she uncertain and dynamic nature of our current care of current condition and it's been going in part the confusion materially alter our performance.
We would prefer you to our most recently filed management discussion and analysis and annual information form which include a summary of the material assumption, that's all that certain material factors that could affect our future performance and our ability to deliver on these forward looking statements.
Our earnings release related financial statements and Mdna are available on SEDAR as well at the Investor Relations section, although upset or what's your dot com.
I'll now turn the call over to buy.
[laughter]. Thank you Hello.
Thank you everyone for joining us this afternoon.
The impact of Cobot 19 to the economy and the retail industry.
And our first quarter was without precedent.
Our measured approach in Q1, affectively mitigated the impact of the virus and while there are some great uncertainty as to how the crisis will evolve we continue to take a similarly measured approach in Q2.
Notably the social Justice and racially quality movement that has arisen since our last call also deserves our attention our support and significant action.
Jennifer is heading up our initiative on diversity and inclusion for Richard Ellis speak more to this in a few moments.
The first quarter was certainly a difficult period that being said it was also a period of learning and one that is presenting us with new opportunities.
As covert 19 spread across North America, we experience a meaningful decline in our sales in the first two weeks of March before temporary closing all 96 of our boutiques.
It wasn't easy seeing all the boutiques close for the most for most part of the corridor and the corresponding decline in our revenues and our profitability.
In addition, our initial concerns that regulations would shut down or E commerce business, where worrisome.
We were leaved when we were able to continue to operate online and our thankful to our entire team.
In particular, our E Commerce marketing distribution center and common shares teams, who worked tirelessly to ensure our E commerce operations ran seamlessly.
On our last earnings call, we shared our expectations for first quarter net revenue in the range of $105 million to $110 million.
Q1 resulted in a net revenue of $111 million a reduction of 43% from the first quarter last year.
[noise] with retail comprising 80% of our business in Q1 last year, the financial impact of our closures was significant.
I Trust you all appreciate the irony that with all our store shuttered this was technically or 23rd and likely last quarter and our streak of positive same store sales.
Upon our upon closure of our boutiques, we took immediate action to drive ecommerce revenue, we pivoted quickly and re merchandise to Ritchie <unk> dot com to lead the product and marketing that was relevant to new stay at home measures.
Repositioned our store merchandise back into our distribution centers to be sold online.
[noise] remove minimums for free shipping.
Relaxed our return policy.
And launched two successful online sales events.
These measures together with a beautiful product assortment best in class distribution center aspiration of web site and loyal clientele that do ecommerce <unk> E commerce growth in excess of 150% through to the ended the quarter.
We began a phase reopening of our boutiques on may the seven west 30 boutiques reopened at the ended the quarter.
Since we began reopening we've seen our client show excitement to sharpen our boutiques reconnecting with their style advisers and enjoying the everyday luxury experience they have come to love and expect from us.
That said, we aren't yet able to maximize our clients enthusiasm due to some of the following health and safety measures we have put in place.
Notably reduced boutique capacity.
Physical distancing protocols, including every second fitting room closed.
Sanitation standards for our people and our product.
Upgraded cleaning program and dedicated health and safety advisors on site.
Turning to product by immediately calibrating existing inventory and plan to liberties deliveries. After we closed our stores, we successfully capitalize on the shift in demand, while minimizing our inventory exposure.
We were strategically underbought going into the season, and while markdowns were higher than usual given their promotional environment, the strength or E commerce business allowed us to sell through the majority of our inventory.
Notwithstanding pressure on our gross margins this left us in a healthy inventory position with less than half of the seasonal inventory than we typically have at this time of year.
We continue to be proud of our creative efforts throughout the Sun certain period.
Quickly pivoting our models to shoot product from their own homes immediately following the closure of effect photography studio mentor online product catalog did not Miss a beat.
This strategy also presented our product in an environment that resonated with our clients stay at home reality.
In addition, our marketing team launched a number of catch Bhavan campaigns that resonated with our clients.
From our Cobot Nineteena response, Salem product launches continued Influencer program.
And sustainable packaging campaigns are online engaging with our clients grew meaningfully.
We also wanted to contribute to our health care community and show our heart and gratitude for those on the front line.
We launched our community care program gifting 100000, frontline healthcare workers with custom clothing packages in both Canada and the United States.
All these efforts have deepened our relationship with our clients further.
They further their loyalty and connection to our bread and grown our clientele base.
Looking at Q2 to date were viewing the quarter with cautious optimism as we prepare for a period of recovery.
Ecommerce, although not at the same level as when our stores were closed continues to show extraordinary growth.
Throughout this journey, we are encouraged that our customers of seamlessly migrated to our E Commerce channel, what's sort of stores were closed.
Our now enthusiastically returning to our stores upon their reopening.
This shows us that the loyal ritzy, a clientele desires, the omni experience and we are well positioned as anyone in the market to deliver on our clients preference to shop seamlessly between the two channels.
I will share my excitement and how we'll capitalize in this opportunity in a few minutes.
We are encouraged by the momentum behind our boutique reopenings, which have exceeded our expectations to date.
With the exception of seven of our locations, including four in Manhattan.
All their boutiques are reopened as of today and we receiving consistent feedback that our approach to health and safety is among the best in the industry.
In the first five weeks of the second quarter, our reopen boutiques are performing on average at approximately 55% to 65% of the revenue levels from last year, well above our initial expectations.
However.
We won't want what the new we we don't know what the new normal will hold until sometime next year, assuming our health care communities progress, but the virus.
As we prepare for our new fall winter season product launch, we have taken a methodical and consider it approach to ensure we have the appropriate levels of inventory and a balanced product assortment.
The last several weeks as customers are venturing out of their homes and socializing, there's excitement around all our products and the real sense of anticipation for our fall collection is launching in mid August.
As our model provides depending on Tibet demand, we have the flexibility either defer some of our product into future seasons or chase, our strongest sellers within season orders.
I'll now turn the call over to Jennifer to give you an update on some of the key areas of our operations.
Thanks, Brian and good afternoon, everyone.
My remarks today I'll touch on highlights from our distribution center operation.
Update on our infrastructure investment.
Our continued investment in key talent and lastly, the work we are undertaking to effect change through our diversity and inclusion effort.
As mentioned on our last call. We worked very hard to keep all three of our distribution centers open to support the E Com channel after we closed our boutique.
To ensure the health and safety of our people well still maximizing productivity and efficiency, we reengineered the entire work flow of our Vancouver distribution Center. Our team did an incredible job of fulfilling the three fold increase in E commerce units, while maintaining delivery time to meet or exceed our clients expectation.
And then in preparation for the boutique reopening toward the end of the corner, we hired and trained 250, new D.C. associates to transition from the people. We had previously mobilized from retail and the support office when the boutiques club.
During this time, we also quickly shifted our clients years platform online.
This enabled our team who were experiencing a significant increase in client inquiries as a result, and increasing commerce to work safely and remotely while continuing to support the needs of our client.
These are yet more examples of the indomitable spirit of our team.
And a testament to their agility during a very challenging period.
Upon closure of our boutiques, we briefly pod non essential project, while we work through the crises and mobilized for maximizing critical business priority.
We have now since resumed a number of strategic infrastructure project and business initiative one of these projects.
Product lifecycle management.
From a taste.
This team is now fully reengaged and we anticipate a revised launch date for the core functionality of the platform in late fall.
You May recall, we launched the pilot of our clientele in May with encouraging result.
The pilot with with an initial group of 25 of our top stylists to offer a highly personalized service to our clients and drive traffic in sales to a rich dot com wild boutiques were closed.
We're using the pilot to pass all of the features and functionality of the out to create an exceptional omnichannel experience for our clients across both retail and E Commerce channel and ultimately maximizing our sale.
And while it is in the early stages, we are kicking off in omni capabilities project that will also include store inventory visibility store inventories fulfillment and buy online pickup in store.
Lastly, with the Cert E commerce.
And plans to meaningfully expand our product assortment, we have kicked off and evaluation of our distribution network.
We anticipate investing in the expansion of our warehousing and fulfillment capability to enable future growth of the business.
Turning now to people.
With our boutique largely reopened and our employees back to their usual work. We recently closed via RIDEA community relief Fund.
Paying out a total of $20 million.
We're very proud that we were able to support all are people who were impacted by boutique closures.
We are forever thankful to our loyal clients, who continue to purchase with us during this time.
And with its fun in combination with government payroll subsidies support we did not lay off or furlough any of our employees due to coated 19.
The current environment offers an exceptional and possibly even on precedented opportunity to add talent due to several unique circumstances.
First the retail industry is contracting however, our international brand awareness is growing.
We continue to offer exciting career growth.
As we expand our operation.
We have recently and publicly committed to diversity and inclusion across all levels of our business, which I'll expand on in a moment.
We've also demonstrated a strong commitment to our people through continued employment during the cold and crises.
And last.
As far as acquiring talent for our support office.
Thank Hoover offers a safe working environment as a result of strong local and provincial health leadership to date.
We're very excited to be moving forward and augmenting our high performing team with additional world class talent.
And finally, it has always been our vision to champion a workforce that reflects the diversity in our community and we are and equal opportunity employer.
Well, we celebrate the fact that women make up 85% of our team today, we recognize that there is more we can do to help dismantle systemic racism and any quality.
We have made a commitment to listen.
Sure and take action as real change starts from within.
And as part of our commitment, we're investing $1 million in ourselves to strengthen diversity and inclusion at her it's yeah.
We recently launched a companywide survey to collect confidential feedback and weve mandated training on conscious and unconscious bias.
Mike Ruen equity workplace harassment and stereotype.
We're also establishing an advisory group a voices across all levels workplaces and geography to provide first hand perspective.
And advice.
And with the health of the and I expert.
We are conducting a thorough review of our entire business with a critical eye on philosophies practices and policy.
Going forward, we will continue to use our platform as a call to action and ensure we are part of the solution.
In summary, we continue to invest in the future of Auryxia.
Despite the current environment.
We're building on our world class infrastructure and capitalizing on opportunities to invest in our people and refine our operation.
I'll now turn the call over to Todd to discuss our financial results.
Thank you Jennifer and good afternoon, everyone.
We continue to be encouraged by the resilience of our business as we navigate through this uncertain environment.
We remain focused in the short term on them and maintaining our strong liquidity position as we invest to capitalize on the opportunities ahead over the long term.
Turning to the first quarter net revenue decreased 43.4% to $111 million. This reflects two weeks of decelerating boutique revenue at the beginning of the quarter prior to our temporary boutique closure closures on March 16.
We began a phase reopening on may seven and by the ended the quarter had reopened 30 boutiques.
From the beginning of our boutique orders our E. Commerce performance was extraordinary with E com revenue up in excess of 150%.
The strength in our E commerce business, partially offset the loss of revenue from our clothes boutique, which contributed 80% of total net revenue in the first quarter last year.
Gross profit margin in the first quarter was 11.7% down from 43.5% last year.
The decrease in gross margin was primarily due to occupancy warehousing and distribution center cost de leverage from the significantly reduce retail revenue.
Along with higher markdowns from our successful sales event that drove E commerce.
Well, we suspended rent payments for a vast majority of our boutique starting in April for accounting purposes, we accrued for all occupancy costs.
We remain active negotiations with our landlords regarding payments and we will provide an update once these negotiations have been finalized.
Yes, DNA expenses were $44 million, a decrease of 20.1% or $11 million compared to the first quarter last year.
The decrease in F. DNA expenses was driven by government subsidies and savings in operating expenses that were partially offset by our investment in talent year over year as well as continued investment in our customer program.
Adjusted EBITDA in the quarter was negative $25 million compared to $35 million last year.
In line with our expectations provided on our last call.
We ended the quarter in a solid liquidity position with a cash balance of $224 million.
Excluding a 100 million dollar draw on our revolver cash increased $88 million from the first quarter last year and was up $6 million from the end of the fourth quarter.
Despite the significant revenue decline associated with the T. closures, we were able to manage our liquidity through extraordinary ecommerce revenue as well as prudent inventory and expense management.
Inventory at the end of the first quarter was $115 million, a 5.1% increase compared to the first quarter last year.
Our current inventories and a healthy position as we have had substantial sell through of our spring summer seasonal product with $11 million remaining this year compared to $26 million remaining last year at this time.
The balance over inventory is comprised of proven sellers that will also be carried in future seasons.
We therefore expect to begin a clean inventory position heading into the fall season.
For fall, we've lowered our initial buys and we'll reorder product in season to meet client demand.
Given the continued uncertainty related to the pandemic, we're not providing a detailed outlook for the second quarter or full year fiscal 2021 at this time.
However, I will provide some color on revenue trends in the second quarter to date and some perspective on our financial outlook for the full year.
Assuming we do not have experienced further closures related to covert 19.
Net revenue for the first five weeks of the second quarter was down approximately 25% to 30% compared to last year.
As of today 89 over 96 boutiques have reopened and on average are tracking at approximately 55% to 65% of last year's productivity levels.
As our clients returned to shop in our boutiques, we're pleased with the volume of traffic. We are experiencing however, ongoing store productivity is impacted by the social distancing measures, we put in place, including limitations on boutique and fitting room capacity.
We expect this performance of our boutiques to improve sequentially. However, we continue to anticipate an extended ramp do a new normal.
Our second quarter ecommerce revenue to date remains strong although girls has moderated with the reopening of the majority of our boutiques. It is currently trending 50% to 100% higher than last year varying by region based on boutique Reopenings and the extent of the impact of Coven 19.
We anticipate our gross profit margin will continue to be impacted by occupancy warehousing and distribution center costs de leverage as our boutique revenue continues an extended ramp.
Further STN $8 remain relatively consistent with last year, excluding government subsidies as we continue to make investments in our digital and customer programs and talent to support our growth.
In addition, we've implemented stringent health and safety protocols for our boutiques and across all other workplaces. These protocols will add additional labor and operating expenses of approximately $4 million per quarter.
We will continue to monitor the need for these measures as the situation evolves.
Based on their criteria for government subsidies, we anticipate that we'll continue to qualify in the month of June However, the qualification criteria for July and August has not been released.
We expect capital expenditures in the range of $30 million to $35 million, including the new boutiques opened at Mcarthur, Glenn in British Columbia in the first quarter, we plan to open an additional five to six new boutiques and reposition three existing locations.
Primarily in the second half of the fiscal year.
Pending on when we gain access to start construction that each of these locations. Some of the timing may shift into next year.
Of the new leases, we have signed about half of them were negotiated pose the arrival of the pandemic and reflect compelling post cobot financial terms.
As we announced earlier today, we're opening two exclusive pop up would you use later this fall in New York in Los Angeles centered on one of a risky as most important and recognize franchises. The super pop. This marks the first time this franchise will be available in a standalone experience outside of our received boutique and.
Online at arrhythmia Dot com.
Well, we see this first foray of the task we expect it will create brand excitement that will drive sales not only at these two locations, but at our boutiques and online.
In conclusion, our financial performance and strong liquidity position is reflective of the resilience of our business and we remain confident in our ability to continue to successfully navigate the crisis. We're energized by the opportunities that lie ahead as we continue to invest in our long term growth.
With that I'll now turn it back to Brian.
Thank you Todd.
In recent weeks I've been asked on a number of occasions, what my perspective on the future fashion retail and specifically whether its use opportunities are in the polls pandemic environment.
But the closures of our boutiques our E Commerce channel search.
Our clients immediately and seamlessly shifted from retail to online.
This was reassuring on several fronts as it became even clear that our truck clients are truly omni customers. Our E commerce experience its world class and our infrastructure is built to handle on limited volumes.
Now that our boutiques have reopened we've seen our clients enthusiastically return while also continuing to shop online.
This multi channel client relationship present boundless opportunities.
[noise] with our clients returning to sharpen our boutiques. In addition to online we're progressing with our pre Kobe boutique opus opening class.
Our boutiques continue to be highly profitable as well as are most effective marketing tool to grow up brand awareness.
As we are currently and restored and many in North America Shuttering boutiques, the real estate opportunity for us is unprecedented.
More premier locations are becoming available and under increasingly compelling financial terms. So much. So it's hard to determine at this point if our stores are more profitable prior to covert team will be our new stores will be more profitable as result of new economics post cobot team.
Prior to covert 19, our stores made up approximately 77% of ourselves and our entire product strategy is based around the physical and merchandising limitations of our four wall retail four walls.
However, now our E Commerce channel has achieved a critical mass such that our product strategies can be based on the unlimited opportunity does it online provides.
Specifically, we are in that unprecedented position to expand our product lines in depth.
Which include sizes Lang colors.
Brad.
New style developments and of course, new categories, such as swim intimate bags shoes and beauty.
We have started to build infrastructure of people processes and technology to capitalize on this incredibly exciting product expansion opportunity.
It's hard to describe just how energize the team and I are working on this expansion of our beautiful product.
Broadening our everyday luxury offering a new ways, we'll be able to even further delight our loyal clients.
In closing as I mentioned at the start.
This is certainly being a difficult period. It has also been a period of learning and in creating opportunities that weren't there for us previous to the pandemic.
I remain grateful and humbled by the entire it team working diligently to serve our clients and drive our strategies for what they are without a doubt some of the best in the business.
Whether it be product expansion opportunities.
Through a rapidly growing E commerce channel.
Deepening our omni channel capabilities.
Or opening new boutiques and premier locations with extremely compelling financial terms or building on our world class team with top talent hiring there's much to look forward to.
Thank you very much.
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 will hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys.
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Well, we'll pause for a moment of colors join the queue.
Our first question comes from Mark Altschwager with Baird. Please go ahead.
Oh, good afternoon, everybody congratulations on the progress with the reopening.
It's like south of get richer community really fun and thanks for all the details on quarter to date trends really helpful. Here.
Brian can you give us some perspective on how the business performed during the last economic downturn I know the business was smaller than but were revenues more resilience in the broader industry at some consumers, perhaps traded down from luxury brands.
You know we've always looked at we've always said it's difficult. If you look pack the past 35 years, and our sales and and if you had mapped on a graph our sales revenues in same store sales when you plotted that on top of the economic downturn.
But I used to say that quite a bit and then in 2007.
It was it was an interesting period because for the first six months, we weren't affected at all and I'm sort of the sinking Helfferich who were immune to this we weren't really exposed in the U.S. with stores at the time and so I thought maybe Canada is gonna be okay. So for six months seven months eight months, we're going along and everything is fine and all of sudden.
Hit US you know I don't recall exactly what happened to our revenues and the fact, our same store sales did decrease meaningfully and I would also add that our EBITDA decreased meaningfully.
I think at the time, we're around $80 million EBITDA, we dropped down to 50 million in the following year. So it had a meaningful effect to us that said, we run on an incredible run shortly thereafter and.
You know so like anything else I think it comes down to.
We're all going to see hiccups the elevator doesn't always go up and it's how we're going to recover and.
We myself and the team are incredibly excited at that the environment here and I think really is particularly.
The competitive environment.
That we're going to see after Colby, it's going to be a lot more appealing that committed the competitive environment. We saw after the financial crisis. So.
You know maybe I'm, a little optimistic here, but we're pretty excited about things right now.
Thank you and the public expansion strategy sounds very exciting you've mentioned the unprecedented opportunity to add talent and presumably that can help accelerate those efforts, but can you just give us a sense of what the road map looks like here over the next couple of years.
Yeah. That's a good question. So I mean, there's sort of low hanging fruit medium hanging fruit.
Sure the low hanging fruit is no one other things that's come out of this is that glimmer online and we've been discontinuing colors and door sitting in meetings and deciding whether we're going to have display where that blue or the other blue we have to make those decisions because we couldn't in the past.
Put those in the stores because then we we added twice as many colors, we tapped out half as many styles and so now we're in a position us well do we like all three blues well, we'd like to the three well. This run the two of the three and we found that we've found with pant legs and length of our Pant Lakes I mean.
We've been carrying one pant leg and that the the issue wasn't the idea was was if we carry twice as many parent legs, we'd have half as many styles of pads in the stores, but now we're in a bill ability to carry both legs in some cases three likes apparently so we think we're appeal will be even broader than it already is we've we've always had a a very broad appeal from an age category.
We're in a fashion category for sure, but we really think we'll be able to have a.
Hey broad.
Ill not just with the.
The fashion category and age category, but also we think body shaping as well so that's sort of the low hanging fruit sort of the more.
Mid level hanging fruit, we think we have opportunities around adding new styles, and adding whereas the stores had limitations on size and and there wasn't idea that okay. Do you know what if I could if I wrote back the clock 10 years ago, all our product needed to be in the stores, we couldn't have any access products over the maximum amount of pro.
Got it carried in the store was X. We can only produce acts over the last sort of 10 years that acts the stores have gotten bigger so the axis gotten bigger but the same time. What's happened is we've been producing more it sort of being 1.1 X 1.2, X. 1.3 X, but I still found ourselves in meetings, where we'd love both these which one.
Should we do and now where it because E. Commerce is hit this critical mass and we can sell this product or a secondary style or tertiary style. We say, we've said to ourselves hey, why not just carrying why not make manufacture them. Both we've already done the patterns, we already have the fabric.
We've already done the styling we've done all the heavy lifting let's carry them. Both are let's carry all three of these styles and our critical mass and our ecommerce can can carry that now based on what we've seen so we're super excited about that and then we're also looking at product expansion as we open more stores in the southern United States and.
We continue to look at opportunities and swim.
We see Victoria's secret some other retailers are struggling when it comes into it we have an opportunity and intimates. So we're looking at other categories as well now shoes and and things as well. So we just we've been super excited and this wasn't possible before our stores what set up for shoes, our stores, where it's set up to sell intimates our stores.
Our not it's still aren't set up to sell swim, we just can't do it we don't have them years.
Sitting room configurations, and things in order to execute that but we can do that online and now that our online business has become so robust. It's all that said we can may have made minimums, we can rationalize a business and now we think we have a huge opportunity and if you actually look at our line and our collections compared to say net a porter.
You know, we we have.
I don't know what we have 2000 to 3000 styles in our store at any given year net of poor dance thousands brands on their website. So our website is actually.
Quite small nodes in the breadth and depth carrying at our website is quite small myskina things. We just have a huge opportunity to two exponentially build that and so we're super excited about that and then what that does to the stores is it allows us to cure rate products for the different stores, because they're now basing their selection based on a harbor.
Broader range to choose from and if we see one store doing really well with blouses or a certain color certain sizes. We can now explore and build on that for that particular stores. So we think it's a win win for E commerce, and our stores or Super excited about it.
That's a very helpful. Thanks for all the detail and maybe just one last quick one on margin for retired.
As we think about gross margin or maybe just specifically merchandise margin can you help us think through the puts and takes over the next few quarters and is there a scenario where merchandise margin could be up year over year in the back half given your inventory plans in the plans to chase. Thanks.
Yeah. Thanks, Mark we we've now returned to a more normalized promotional calendar. So we do not expect markdowns to two pressure our gross profit in the in the back half of the year. There is there is potentially some pressure from.
The weakness in the Canadian dollar However, you know we're feeling.
Good about where our merchandise margins are going to be again from now through the rest of the year. It's really from a gross profit perspective, the impact from de leverage associated with occupancy and warehousing costs. That's cool that will be though the largest impact or on our gross profit and will.
Continued impact that as the stores ramp through the rest of the year.
And can already let me take the second half of that as far as inventory levels.
Well I mean, we're certainly going to see inventory levels increase as we continue to expand our product lines, but in the scheme of things because our margins because for a vertical retailer and.
That coupled with our American dollar.
Uh huh.
Benefit that we we have producing and operating in Canada.
We don't see of being an interest rates being so low we're certainly going to be starting to carry more inventory, we're not going to see that for awhile, but we don't think it'll have any effect on on where you know we were going to our cash flow or anything else. It won't be that meeting close. So we think we're going to be in good shape there.
Great Thanks, and best of luck.
Our next question comes from Patricia Baker with Scotia Bank. Please go ahead.
Thank you and good afternoon, everyone and thank you for taking my question, Brian I was quite intrigued this morning, and with your press release, a that you are launching the pop up of the Super Puff, which I guess.
Sounds interesting and makes sense given the success you had with the introduction of the men cipro.
Last year.
But typically about three questions around this now typically when retailers talk about pop up they usually short term locations, but in your release you indicate you're taking a long term lease.
And in Manhattan location were formally I'd I'd been into Luca So I find that particularly interesting would love to hear your thoughts on the strategy there and what you think the longer term role of pop up are and then secondly did this strategy to get to do the standalone up superpower pop up come from.
The success you had last year or is it born out of some opportunity that's coming with Covance 19, and then thirdly or do you see in other markets, where we where we could see the Oh Super pop stand stand.
<unk> Super Hot pop up you know go to other markets and you're looking at maybe other opportunities where they might it might be a viable concept.
Yeah. Thank you and you might have to remind me on the questions, but why don't I started on the first one which is the opportunity at the real estate in Manhattan as that does that where you will likely to start yes. Please.
Okay. So.
I've always said, we have one of the best locations and all of that hot or so whole location I always said it was one of the best because I always felt that.
Space and the corner one block up was the best location in Manhattan.
And I would argue that is delays and not that opportunity came up it came to us and.
You know when someone comes I know cold it is uncertain, what's going to happen and everything else go that opportunity comes to us at about 25 or 30 cents on the dollar compared to what would it be two three years ago. We went to lease it that that was an opportunity but couldn't pass up.
No can we have one [laughter] yeah. So we have one store in Soho and Oh, we have four stores in the Toronto Center in three stores in Yorkdale in three stores and Pacific centers. So it was a no brainer for us that okay. We can get this thing at 25 30 cents on the dollar we need to take this down and then once we took the real estate it was.
Okay. What are we going to use it for I mean were professional so that's what we do or a retail where E. Commerce and this is extremely high profile location I mean, I don't know most you on the call probably know where this location just by saying that needed to Luca corridor.
Store on the corner on Broadway in Soho, everybody knows where that is so.
To then came do we want to open a wilford story do on open about atone store and everything else and hopefully this last year second or third question, which is.
No. We have this franchise and superpower, that's doing extremely well it's been growing exponentially year. After year. After year, we haven't been able to keep up with the demand that we went into men's last year with it we sold out of our men's product we want to the dogs.
[laughter] product, although I think we're just continuing that this year, but.
We had this opportunity to open up it was sort of it wasn't a very long discussion, let's open the supercuts location here. So we think we've opened a we think we secured on the best pieces of real estate in North America period, if not the best piece or real estate North America period, we've done it a 25 30 cents on the dollar where it would have been.
Two three years ago, and it gives us security in Soho as well.
You know having multiple locations always gives you security if you need to expand to move in existing locations. So we're pretty excited about that and then being able to put our and give our or for our flagship franchise right now a superpower a whole bunch in a presence in a market and in the location like that was just is just such an opportunity and so were.
We're really excited about it and the only thing that's a little discouraging as I can't fly down and see it touches feel it right now because of the restrictions but.
Other than that or the teams excited we've been having a lot of fun working on it the design and everything else will be very unique.
Partnered with some.
Some trends in the United States that have done a lot of work for various.
ER shows like.
Great good.
Konya in different people like that so.
Sets beyond saying people. So they are helping us with it and so spin it really really exciting project for us.
Okay and the last question I think I know the answer from the enthusiasm that you're giving in the answer to the first part with I. Just asked whether you think that there's opportunity went back kind of concept to be rolled them elsewhere.
Yes, we do and we'll see what we'll see what tomorrow brings I mean, we were going to see what this happens with the store and like any of our concepts we roll them out.
Our flagship brands or it's yeah, we sell the superpower, often wilfred babbitt tone at TNT and all our different concepts in an under that house and under that flagship and so we want to continue to that's going to be our our flagship we're going to continue to roll out but.
You know you never know what happens and so certainly getting exposure to this we'll see what happens and how how its received this year and we'll go from there.
Thank you and good luck with that.
Thank you very much.
Our next question comes from Irene Nattel with RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone right I think it's pretty clear that we're all quite intrigued by by this idea of extending the offering really appreciate the color can you walk stream serve a timeline, maybe and how we might be how we should be thinking about how all of this and goal.
<unk> over time.
[noise], Yeah, I mean, we have division thanks, Irene and thank you for joining US today, we have division and what we wanted to do here, we actually have there's actually 18 product initiatives. We've identified at this point in time.
We're going to seize them as soon as this fall we had inclusive sizing the spring as you know when it actually is performed better than we initially thought it would perform we're going to see some of these.
Colors and leg length options and things like that so the low hanging fruit, we're gonna see as soon as this fall it might not be as rigorous is it will become next spring and summer in the following fall, but we're going to see quite a bit of this fall.
You know as far as new styling and things go we've secured a a new design or new senior designer to create a yet another line for us. So we're going to continually be doing that new styles and and continue to look for even more designers and then on top of that we're trying to get in these categories I suspect we walk in to see these categories.
I'm guessing soon this we're gonna see in that is if we're if we you know we have an offer out to an employee as soon as a and team.
Probably fall 2021, but a and maybe if we can't do that would probably be a spring 2022. So we're probably 18 months away 12 to 18 months away before we see this and probably 18 months away because were initially when we start the process, we're not going to.
I get to pregnant with a product that inventory until we actually have proof of concept. So we'll probably see it within the next year or two but.
No I'd like to think we've reset as we've said a a five year target as far as styling goes and how many different styles were going to happen. We that's actually a pretty natural progression over the next five years. So it's sorta, whereas X we want to get to two X., We're gonna go 20% year, 120% year to 20% set.
To get up to that and so we're hoping five years from now our product selection is is at least double from where it is today.
Well watch it really interesting. So you know if we're thinking of the evolution over the next three to five years and if you're talking can you talk a little church and E commerce and the offering I can't help but think about certain key international markets and in house, you thinking about flagships and locations on what you're offering.
You know what are you getting from.
Other markets in region.
You know it but the team that's a good question. That's a good question and I'd I'd, probably wouldn't the straight with you. If I told you I've been spending a lot of time Lucky International business lost 3456 months I mean, we've been focused on cold bid, our existing stores and and our E Commerce channel and that's what would be focusing on so.
You know we have such a big opportunity here in North America, and we were we're not actually being heavily pursuing or international business or we have international business and we appreciate it if we think it's meaningful but at the same time, our big opportunities being here in North America, but we're going to start looking.
Little harder at that you know one is you know is it something we want to push at this point in time or is that build that they will come we're not sure that right now we kinda about our heads flawless as most retailers and E commerce people, who because crisis. So we're kind of focusing on our existing business and figure out how we're going to look at take the opportunities from E Commerce.
With respect to so we really haven't been doubling down looking too hard at international but I'm sure. After everything you know we look at the new normal and see what's happening in a world 612 months from now, we'll we'll certainly be looking a little harder it.
Okay. That's very helpful and certainly Gary It makes a lot of sense I now that we've been talking about the future I hate to do that but if we go back to the last five to six weeks a as an boutiques have started opening up can you talk just a little bit of.
The cadence of <unk>, and what you're seeing and how the business Hunter, it's ramping and what you're seeing is different markets open up and also what I mean, you and I talked about that.
Things are people buying now that you're getting a.
A little more how do you how with any and does it make you think about the mix as we head into follow the winter.
[noise] you know that's a good question I mean, the last five or six weeks. Although it's you know from that helps perspective, and this thing certainly social challenges in the world have come to light that's been difficult it's actually been.
Reassuring seeing or stores opened I mean, it was difficult closing them all.
We started off as a retailer and so it's difficult.
Farmers stores, if you know, but once been shocking to us.
Very encouraging is the response, we're seeing from our customers and we've had lineups some stores everyday we got line as we never used to have lineups and customers now lineups or self imposed because we have capacities on or on our overall a store count area to people count within their stores have every second to change.
Fitting them open, but you know I was in Toronto about a week ago 10 days ago, and ER I saw you know syncera briefly but I saw the.
You know we had I went to Yorkdale and that was some are team and you know we had a lineup outside the store we had up line up of the fitting rooms, and we had in line up with the cash can.
And you know if you'd asked me two months ago or we have lineups in our stores that are stores I, what I thought you know no way not a whole, but we did and you know weird we at this point in time had almost every store undrawn.
Like we just had one store so.
The response from our customers in our stores is being a little shocking to us because as we mentioned that ER.
The call earlier, you know our customers moved to E commerce, almost seamlessly and our teams pivoted to to meet that demand and then when the stores opened were little bit shocked at how how busy and at what the or whether response was I mean, the good news wasn't Jennifer touched on a we didnt.
Through lower layoff anybody so when we did open up or stores. One of the benefits is that was were up and running with the same teams immediately overnight and.
No in different jurisdictions, we we have very stringent health and safety precautions and and so in neighboring enacting those between.
Physical things procedural processes, and and sort of sort of regulations things like controlling overhead I love to have our cost fitting room doors me. He said that we needed to install a hard doors. So we needed to do that so so there are some groups we added jumped through but the good news was or people are there ready and our customers.
Hi, there. So you are super excited about that and extremely encouraged all things considered.
That's good and and in terms of what types of products in the mix of <unk>.
Right.
You know, we haven't seen a lot of.
Office, where so to speak some offices are not open as you can imagine that said, we don't sell a lot office, where in the spring and summer anywhere at summer anyway, it's probably or the season. We saw the leased up people are buying things to go away to the cottage or or just deal with the heat that's in the city. So we don't see a lot, but we've seen a lot of dresses and we've seen are going out.
There.
As bounce back considerably so it's not just all sweats and athletic wear and comfort. We we've seen a lot of people buying a exciting dresses and prints and bright colors and things like that so you know I think people are out there in our customers certainly the Richie customer.
It's very cautious of of the health concerns out there, but at the same time I think they're pretty enthusiastic connecting both with our people are more friends and getting out there.
Obviously in a safe manner. So we've seen that seem warm and that's that's come across the product is being sold in our stores.
That's great. Thank you.
Our next question comes from Mark Petrea with C.I.B.C. Please go ahead.
Yeah. Thanks, Good afternoon, Brian I'm wondering if you could just sort of elaborate a little bit more in terms of what you're seeing in the real estate market or I know you've talked about it in your prepared remarks and in the queue in it so far but.
You know what are you what are you sort of seeing specifically and how does that affect your thinking in terms of the pace of store openings over the next couple of years.
You know it's interesting everybody on this call and everybody out there, saying every single day it seems there isn't new.
Retail company, that's in trouble or going in a chapter 11, and if they're not they're probably going to be playing hurt for quite some time. So we consider ourselves quite fortunate.
You know I I think is a landlord I feel for the landlords because it's not like retailers are choosing to not pay their rents in some cases and asking for for ran a base minimum rent deferrals you know they they just can't pad. They just don't have the means to pay it so it's not easy being retailer, but I.
You know, it's not easy being alive.
And we feel for them and we've had a lot of great partnerships over the years at the land modes.
That said, where they want to most desired retailers out there certainly from a customer perspective, and then in turn from a landmark perspective and a.
No we don't need to open a ton of stores, we never have opened a ton of stores in any given period and we don't need to have with our E. Commerce channel being so so successful you know the numbers have to be compelling for us and you touched earlier in the questions on why we did the deal and so because the numbers.
Which is so compelling and we took AAA realistic argued won the best locations in North America 25, 30 cents on the dollar.
And I you know, we're seeing we're seeing deals come up and as I think Todd mentioned in his.
During the year that that.
I love the deals we've done this year half from the being negotiated and pre coated.
Terms now these weren't deals that we started right now with pre covert terms. These reviews that we were already in amongst negotiating and then cove it hits and so we've we've since renegotiated these deals and then the landlords recognized this.
I loved your recognizing that Hey, you know, we don't know what it's going to would be just going to hold two so there's different things you know there's some notes are there some retailers rough percentage rent deals.
Well it is our getting less having to pay meaningfully less money into some retailers are getting rebates and beat so certain periods. So there's there's also other creative ways to approach.
The situation I mean.
We've always in good times in bad continued to stay steady and opens doors as they made sense to us that we got the appropriate real estate financially. It made sense that we're going to continue to do so.
You know, we've we've had a massive shift the call mr., we're not going to put the pedal down on stores that said.
Some of these deals are extremely compelling for us and as I mentioned.
Our stores and say reopened a being extremely successful compared to what we predicted so we're pretty a pretty bullish that we're going to continue to be a b or an omni channel retailer customers want us to be in it'll be successful on retail will be part of that in bricks and mortar leases will be part of that so we're going to continue on doing that but.
I don't think we're going to change our pace, we're not going to slow it down because the deals just too compelling but at the same time I don't think it makes a lot of sets the speed. It up so we're just going to do at the same thing we always did when the right real estate deals come up we're going to hit him and hopefully be extremely successful.
Our next question comes from Stephen Macleod, Boyd with BMO capital markets. Please go ahead.
[noise]. Thank you good afternoon.
[noise] I just wanted to follow up on a couple of comments, Brian Jennifer you guys have <unk> with respect to kinda distribution network and Brian You mentioned E commerce as as sort of hit a critical mass can you just talk a little bit about what kind of volumes your business, what kind of volumes your infrastructure.
Support without.
And assess without the necessity for increased investment in.
Out of ecommerce platform or the distribution network sort of more broadly.
But as far the E Commerce plot, hi, Stephen as Jan as far the E. Commerce platform I think we've mentioned in prior years. It we have chosen demandware, which got acquired by Salesforce Dot Com and is now called Commerce cloud, we feel very comfortable with the ecommerce platform itself.
That is integrated with S.A.P., which as you know as a top tier ERP that said for E. Commerce, it's an ecosystem of technologies and so we're continually enhancing investment in our E. Commerce ecosystem. If you will as it relates to technology.
As it as it pertains to the distribution center, what I would say and when we first put in the D.C. in Vancouver with with that went in maybe two three years ago, we had a seven year horizon.
I will say, we every time, we put in a DC or or kitted out a threepl. We go with the best information and best projections, we have at that time. Unfortunately for us I read see it performed so well over the years. It we generally have performed better in exceeded.
Our that's laid plan and so it's kind of a high class problem. We're in right now is that relooking at our distribution network overall, but specifically what I was speaking about in my prepared remarks, whether Ontario based DC.
Right now we are with a threepl Oh, we have expanded within that Threepl I would type announced on previous calls and they are a fantastic partner of ours, then with them now for 13 or 14 years.
And they are useful service.
Threepl.
That said Oh with the surge in E commerce and with some of these exciting plans Brian has for product. We are anticipating how are we can best enable and support the growth that he has in his vision and so what we're doing right now and we're just exploring.
What we may have to do because one of our big tenants at a rate seemed building infrastructure is strategic agility and so we want to put in infrastructure that is rightsized for today, but has the ability to flat with whatever it is that might come down the pipe or can you know kind of into future years, and so Ah why.
While we are in a very good place with our existing network as it is for the for the next.
I'm going to say two years, a we are planning with them. We know we are planning that we put into new distribution center in Ontario or elsewhere. It is probably it it's 18 to 24 month.
Outlet. So we're starting early we're gathering our fast we're doing our research and putting together a strategy and I'll keep you updated as we go and as we know more.
Okay. That's a that's very helpful. Thank you ever Juniper [laughter] I'm, just trying to follow up just talk a little bit about sort of what you've seen in terms of a your trends with look stores being reopen like I have you just seeing sort of accelerating accelerating growth from the early days.
We are opening through till now or things began to plateaued little bit I'm, just I'm, just curious kind of what you're seeing on that and the cadence about.
[music].
Yeah. Thank you you know it's interesting.
We've actually seen the stores open and we you know you read earlier on in China in places, where as a big surge and then things leveled out a little bit we haven't seen that we've actually seen a stores open and stay consistent where we have seen differentiation is depending on how hard hit from coal bid these regions.
Yeah. So BCEI is his bounced back extremely well and so we've been running I wouldn't say at levels pretty cold, but we've certainly been running a lot closer levels at pretty cold, but then we have for instance in some places states that have been harder hit.
Ontarios mean harder hit the Vancouver, and so we've seen you know we haven't seen the same uptick in Toronto and pick up in Toronto and the stores, we haven't Vancouver. So we've been seeing or you know it's mixed across and it's really could you really could you read on top of how bad these areas like cold and and.
How much they have opened up and and or how little they have opened up and then as well I think there's a bit in the psyche on the consumer out there and some of these places and a cautionary.
Approach to getting out and participating in so it really is depended where we've seen we haven't seen us or the surge and then a leveling out we've seen the stores open we've seen open fairly successfully as I mentioned, we wouldn't be doing higher volume, if we weren't working through some pretty stringent and industry leading.
Health and safety.
Oh precautions that we have in place, but you know its its is as I mentioned has been really encouraging and Ah you know, but unfortunately, there was a lots and lots of parts and North America or we have stores that are still very challenged challenge from a a co get perspective and by the lots of things that doesn't come and anytime.
Soon unfortunately, so you know we're feeling for those people in these areas in these communities and we've seen in their stores as well, whereas other places like British Columbia and to some degree Toronto, Canada in general is rebound back a little bit better. So, it's really been really pockets and depends where and when they start.
As of open.
Right. Okay. That's something that's helpful bottom. Thank you for the color you earlier as well.
And then I just had one final question maybe for Todd here, you talked about S. You never being flat year over year or does that include the $4 million per quarter that you expect to.
You expect to incur from Cobot 19 related health care costs.
No we expect a 4 million to be on top of that we will get as we mentioned a the government subsidy in June.
So that would be a deduct from from flat to last year. However, the the incremental costs from the 4 million or on top of last year. Yeah. I think it's important to note that we're we're we're always investing in our future growth as you know and you can you hear that and we're we have a.
Significant opportunities ahead for us right now and the talent acquisition.
Opportunities that are available and so we are our or.
On the off ends and that obviously requires investing dollars, so whether that again in talent or in infrastructure or in technology. We we we are putting the pedal down and investing and that's why.
The costs are where they are.
Right, Okay. That's a that's great.
Thank you very much.
Thank you.
Thanks, Steve.
This concludes the question and answer session I would like to turn the conference back over to Helen Kelly for any closing remarks.
Thank you in Asia, and thanks again, everyone for joining us. This afternoon, the team and I will be available after the call to answer any questions that you might have have a great summer and we look forward to speaking with you again very well. 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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