Q3 2021 Aritzia Inc Earnings Call
[music].
Thank you for standing by this is the conference operator.
Welcome to of Ritchie <unk> third quarter Twentytwenty, one earnings call other.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be at opportunity to ask questions.
To join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal and operator by pressing star and zero and.
I'd now like to turn the conference over to Hell, and Kelly <unk>, Vice President of Investor Relations. Please go ahead.
Thank you Anastasia and thank you all for joining a replay of third quarter 2021 earnings conference call on the call today I'm joined here by Hill, our founder and Chief Executive Officer, and Charlotte, Jennifer Wall of President Chief Operating Officer, and Todd and they'll do our Chief Financial Officer.
Following management's discussion, we'll host a question and answer period opened to Atlas.
<unk>.
Please note that the remarks on this call may include our expectation and your plans and and pension may constitute forward looking statements.
Yes, certainly and dynamic nature of cope with my team and at ongoing impact of continued to materially alter up on that.
We will refer you to and most recently filed management's discussion and and then also and I really for mission for which and could have some way up and material assumption as most of the material risks and factors that could affect our future of apartment and our ability to deliver on these forward looking statements.
Our earnings release, So were later for and that's one thing with it and DNA of the liver investor presentation are available on SEDAR at all at the Investor Relations section of our website at <unk> Dot com.
And we'll now turn the call over to Brian.
Thank you Hello, and thank you everyone for joining us this afternoon.
2020 has there been a year. Unlike any other weve experienced at about 37 year history at a red seal.
And the team I'm proud of what we've accomplished so far despite the many challenges along the way.
Looking beyond this pandemic, we're well positioned for meaningful growth capitalizing on the unprecedented opportunities ahead.
Well, we believe our results during fiscal 2021 have been impressive.
Given the circumstances, but is far more important however is what they say go about a ritziest post pandemic.
Throughout this year, we progressed simply adjusted and adapted to that Pandemics vast challenges.
Notwithstanding restrictions as a result of the virus. This impact we continue to grow our revenue.
And a much stronger financial position and have accelerated our strategic investments in infrastructure across people processes and technology.
Our for growth leavers digital innovation of E commerce, retail and omni channel capabilities.
Secondly, geographic expansion across the United States.
Third development throughout all our product of Ism divisions.
And for brand awareness and both the United States and international drilling.
Drove our growth free pandemic has ensured our success mid pandemic and will fuel our growth post pandemic.
We will emerge from COVID-19 quite used to elevate our much loved the elevator every day luxury experience consisting of our engaging service provided by our outstanding boutique and concierge teams.
Beautiful and expanding multi dimensional product for.
Our aspiration of environments throughout our E commerce and retail channels.
And our captivating communications share by World class marketing campaigns.
Together with Jennifer and Todd I'm pleased.
To report on our Q3 results.
And the third quarter of fiscal 2021 in the midst of this pandemic we grew our revenue.
We delivered meaningful EBITDA.
And we strengthened our balance sheet.
Todd will discuss the details shortly.
At the start of quarter of the quarter 93 of our 97 boutiques rope and however.
However, we ended the quarter with 83 of our now 101 boutiques opened.
We had to close 18 boutiques and the heart of Toronto for the last week of the quarter.
Unfortunately this many of these boutiques were closed during our busiest week of the year.
For health and safety reasons.
Capacity restrictions and in anticipation of further boutique closures, we made the decision to pull forward at the start of our Black Friday event to the week prior sales.
Matching of demand and our boutiques.
In hindsight, it's what's referred to at this decision as we should as we shortly thereafter received 48 hours notice of the boutique closures and Toronto.
In spite of these closures our decision to pull forward on Black Friday, we start resulted in a record EBIT performance.
For all our boutique employees impacted by these temporary closures we.
We have once again continued to ensure they have income continuity. This.
This is proven and valuable and our ability to quickly reopened once the restrictions lift and continues to build loyalty within our team.
I remain thankful for the commitment of our people during these times of uncertainty.
Notwithstanding the impact of these closures had on our business are opened boutiques. Despite severe restrictions performed beyond our expectations.
On average at 81% of last year's productivity.
And the increase from the 70% productivity of Q2.
Regional variation and performance and jurors depending on both the impact of co of it and the severity of government restrictions by geography and environment.
Operating as are most effective yet profitable marketing tool, we continue to expand our boutique network thoughtfully with for studious location selectivity and.
Exceptional business terms and with downside safeguards in place.
During the quarter, we successfully opened five new boutiques comprised of for Ritzy boutiques and most excitingly, our first Super World boutique and so old and New York and the iconic former flagship Dean and the Lukas space.
In addition, we expand at two of our existing boutiques, increasing our footprint and these highly successful locations.
Appreciating the every day luxury experience they've come to love and expect from US our clients continually continue to enjoy our existing and new boutiques, well also showing a growing affinity to shop with us on line.
Claim and there was he at them for our E Commerce channel sustained accelerated momentum and the third quarter with revenue up 78.5%, despite and most of our boutiques being opened.
Ongoing investments on line continued throughout the quarter as Jennifer will speak to shortly.
The ability to deliver a new features and functions on a digital platform allows us to thoughtfully expand our online capabilities replicating the same every day like your experience our clients enjoy it and our boutiques.
Our boutiques and E Commerce channel complement one another and our clients have grown affinity to have a a growing affinity to flexibly shop with us whenever wherever or.
Our omni channel client spend of three times more at the end, both our retail exclusive and our ecommerce exclusive clients due.
Due to this we will continue to both opened boutiques and invest in our E Commerce channel deepening our clients loyalty.
Across our boutiques and online our fall winter assortment is arguably the best product season, Weve had ever at at Red Seal.
We have multiple programs across categories driving our business is right.
Resonating with our clients evolving lifestyle.
But the stronger than expected season and.
At a purposefully conservative initial buy we experienced sellouts across all our key programs to.
To capitalize on the demand we did our best to mitigate these product shortages, however, with global transportation compromise due to the pandemic, whereas somewhat inhibited and our ability to do so.
Our wide assortment of coupled with our product strategy of testing reacting to highly productive programs has always served us well and we will continue to do so into the future.
And marketing, we continued to produce katz of bidding campaigns, including our well received holiday gift at it.
What's reflected and embrace our client's current stay at home lifestyle. This.
This is mirrored at our product catalog, where we continue to feature models at home.
With great efficiencies gained as we learn and adjust with each new season.
Not only is this unique approach grounded and our prioritization of health and safety it resonates with our clients reality.
During the quarter, we also introduced our with loved brand campaign Rudy.
Rooted and celebrating fearless individuality and I diverse of ritzy, a community a reflection of our ongoing investment and diversity and inclusion.
In short I'm proud of our entire team's achievements as we close another challenging yet successful of corridor.
I will now turn the call over to Jennifer to give you an update on some of the key areas of our operations. However, before I do I would like to congratulate Jennifer on the November cover story and the global Mail reported on business, where she was duly recognized as one of US one of Canadas best executives.
Thanks, Brian of for the very kind introduction and good afternoon, everyone. I Trust you had a peaceful holiday season with your family and a chance to reflect and take a moment at least step into the new year low.
Looking back we knew this holiday would be far from normal due to the pressure conditions imposed by code at 19.
I continue to be proud of what our team has achieved two tremendous adaptability focus and resilient.
We successfully executed another strong holiday season, while making considerable progress to advance our long term strategies and.
And we achieved all of this while continuing to uphold our industry, leading health and safety standard and ensuring our people whose jobs were affected by mandate and Colgate measures had income continuity.
I want to touch on three areas of focus within operations. This quarter first the efficient and effective management of our distribution center and concierge team to support our peak holiday period.
At getting the continued investment and digital capabilities to elevate our omni channel offering.
And finally this is still net of our responsibility other corporate citizen by giving back to the communities, where we live and work.
We began prepping for our peak holiday period at mid fall with the hiring and training of nearly 800 seasonal associates across our distribution centers and expanded our consignors team with the addition of almost 180 permanent and seasonal stuff and redeploying 100.
Retail style advisers from temporarily closed boutique.
Hi, all standard it wasn't a store black Friday for but yeah, we achieved record of breaking performance on several fronts.
On Black Friday alone, we recorded nearly 1 million visits on average <unk> dot com.
And over the entire that our distribution centers picked packed and shipped more than 1 million units forging new all time record at two of our DC and well.
Well, our concierge team facilitated more than 120000 client interaction over email and chat and phone.
And in particular, I'm proud of the manner in which our DC and logistics operations pivoted and response to industry wide carrier delays.
Above and beyond our efficient daily operations, our teams acted with Swift operational dexterity, making real time adjustments to mitigate these carrier delays.
Our omni channel experience with another point of pride in the quarter.
And our boutiques warmly welcomed our clients with exceptional service our E commerce team seamlessly mirrored that experience on line within rich functionality, well, our concierge team engaged our clients with quality care across both channels.
Our content of function was established in 2012 with the start up of our E. Commerce website. It has grown over the years alongside her with the other dot com, including the migration to and New case management system and are the FTP platform.
And and new integrated and vastly expanded phone system early this year.
We also hired a seasoned vice president of Concierge, just in time to lead through and exceptionally busy holiday period talk about hitting the ground running.
And while our team has done a phenomenal job to date, we're further investing to take every aspect of this growing operation to the next level, we will evolve and integrate our people processes and technology in this critical area to support accelerated ecommerce growth and elevator omnichannel offering to delight.
Our customer.
During the quarter, we continue to invest and our digital capabilities to enrich our multichannel client relationship.
We made enhancements to site navigation and invested in personalization.
This included the opportunity for clients to customize their superpower.
And and AI tool for size and fit which is already being used by hundreds of thousands of clients.
In addition, we introduced free shipping and free returns to support our continued U.S. expansion.
And as I mentioned on the last call, we launched our after pay partnership and November.
Well the concept of buy now pay later is relatively new and Canada. This payment option share of ecommerce transactions is growing globally, particularly among jazzy and millennial.
With limited marketing to date, we've already seen higher average order values and after pay is proving to be and attractive choice for clients to transact with us.
Our investments in our digital selling tool at clientele at is also continuing to drive higher average order values and conversion.
We remain excited about the other potential and expect to roll it out across all of our boutiques and the coming months.
And finally, we're planning additional omni capabilities to integrate our boutiques with our E Commerce channel as a result of the recently closure of our boutiques, and Ontario, and Quebec, We introduced a new call and collect service whereby our clients may purchase online through our concierge and pick up curbside at.
To close boutique and starting in fiscal 2002, we will introduce functionalities such as store inventories visibility by on line from store ship from store and buy online pick up and store.
These initiatives allow our clients to shop precisely where when and how they prefer well driving sales and conversion as we optimize inventory across our network.
And with the impact of Coke at 19 reduce and many companies ability to give during the holiday season, we were grateful to be able to sustain our corporate giving program with the support of our people and our loyal clientele. We continued to give back to our communities, where we live and work.
You are with your community and giving program, we donated holiday backpacks filled with come pretty central to use experiencing homelessness in Vancouver downtown Eastside and partnered with local agencies to GAAP, a thousand Super Pos to women and girls and need.
Across Canada.
And lastly, with Covance number escalating in many parts of Canada as the year drew to a close we extended our auryxia to many of you care program to even more people on the virus is front line and.
And Twentytwenty, we gifted a total of 110000 clothing packages to health care heroes with our heart felt appreciation.
And despite the massive disruptive nature of COVID-19. This past year, we continued to successfully navigate the uncertainty with agility.
We redoubled our focus on managing through the virus resurgence.
And it's been tremendously rewarding to see all that we've accomplished what we could not have imagined this kind of constrain pre pandemic. It's made at all that much wiser and stronger and.
As Brian noted earlier, our performance under the weight of coal that is a compelling indicator of just what we can and will do once it's over I will now turn the call over to Todd to discuss our financial results.
Thanks, Jennifer and good afternoon, everyone.
Extremely pleased to of delivered positive revenue growth and the third quarter.
At this sustained strength and our E commerce channel and the higher than expected demand in our reopened boutiques demonstrated our clients' enthusiasm for our fall winter product.
Our revenue growth contributed to a meaningful cash flow generation, leaving us and a solid cash position at the end of the quarter.
And the third quarter, we generated net revenue of $278 million up 4.1% from $267 million last year.
As Brian noted earlier, we are pleased with the sustained momentum and our ecommerce channel, which delivered 78.5% revenue growth year over year, driven by meaningful increases in both traffic and conversion.
We had reopened all of our boutiques by September nine at the start of the third quarter.
Despite severe capacity restrictions and reduce operating hours opened boutiques in the quarter trended on average at 81% of last year's sales productivity levels up from an average of 70% and the second quarter.
We ended the quarter with a record Black Friday event, despite the resurgence of Coke and 19 and the mandated re closure of 18 boutiques and Ontario, just five days before Black Friday.
Gross profit and the third quarter was $126 million and our gross profit margin was 45.3% up 60 basis points from 44.7 per cent last year.
The improvement in gross profit margin is largely the result of higher than expected rental payments and lower product costs.
These benefits were partially offset by the de leverage from reduced retail revenue and higher warehousing and distribution center costs that were given driven by the growth and our E Commerce business.
SG and expenses were $75 million of $11 million at 26.8% of net revenue compared to 24% last year.
The increase is driven by $5 million for health and safety protocols related to COVID-19, as well as continued investment and world class talent across key areas of the business.
Adjusted EBITDA was $55 million for the third quarter compared to $58 million last year.
Despite the ongoing impact of Koby 19, we generated free cash flow of $68 million in the quarter, reflecting our strong revenue performance as well as prudent inventory expense and working capital management.
We ended the quarter with a cash balance of $174 million and access to the $100 million under our revolving credit facility, which was repaid in full during the quarter.
Inventory at the end of the third quarter was $138 million up 12.3% from the end of the third quarter last year.
The increase year over year reflects higher inventory in transit associated with Reorders of highly productive styles to meet demand in the fourth quarter.
Due to the strength of our performance in the third quarter, we have less seasonal sale inventory compared to last year there.
Therefore, we are well positioned with clean inventory as we head into the end of the fall winter season, and the launch of spring.
Overall, the third quarter was indicative of the strength and resilience of our business.
Given the uncertainty and the operating environment will be not be providing specific guidance for the fourth quarter. Instead, I will share some recent trends and our business performance.
Driven by our product offering which is resonating with our clients evolving lifestyle and our effective marketing strategies. Our E. Commerce channel has sustained at strong momentum.
Productivity levels quarter to date, and our opened boutiques are trending similar.
Similarly, with those we saw and the third quarter.
However, this severe capacity restrictions and evolving nature of Coke and 19 makes it difficult to know at this trend will continue.
Combining these factors with the Mandy the closure of 39, boutiques, and Ontario, and Quebec, We expect significant pressure on our retail performance.
Well the closures are expected to extend through the end of the fourth quarter. We believe our ecommerce business is well positioned to moderate the impact of these measures.
Turning to gross profit, we expect continued at higher warehousing and distribution center costs from growth in our E Commerce channel and we have not factored in any benefit from further rent abatements.
We also expect to incur higher air freight costs as we chased demand of highly productive styles.
All putting pressure on gross profit year over year and the fourth quarter.
Further fourth quarter EPS DNA expenses are expected to see a similar year over year increase as compared to the third quarter.
The increases are driven by our ongoing operating expenses of approximately $5 million per quarter related to our health and safety protocols as well as continued investment and talent.
These increases will be slightly offset by some variable cost savings from boutique closures.
In addition to these puts and takes we expect deleverage from reduced retail revenue in the fourth quarter will impact gross profit margin and asked for you now as a percentage of net revenue.
Our strong financial position with $274 million of liquidity in place at the end of the third quarter enables us to whether further uncertainty while continuing to take advantage of unparalleled opportunities and strategically invest and critical infrastructure across our business.
Despite near term headwinds our business model continues to prove resilient throughout the pandemic.
Momentum behind our ecommerce channel remains strong and we're optimistic of recovery his insight and.
As we look ahead, we remain confident that we are well positioned to capitalize on the opportunities to deliver profitable growth and create long term value.
With that I'll now turn it back for Brian.
Thanks Todd.
As Todd mentioned the resurgence of COVID-19 has led to the temporary re closure of 39 boutiques across Ontario, Quebec during the fourth quarter, thus far.
We're working closely with our landlords for further rent abatements and light at the current closures. Recognizing this is a difficult time for both parties for thankful for their ongoing support and their partnership.
There is no playbook for managing through a global pandemic and the last few months of proven yet to gain the viruses on predictability.
Effectively managing the ever changing impacts of COVID-19 remains our number one priority as we continue to progress with the many exciting opportunities ahead.
With our E commerce business significantly expanding its footprint does not only a meaningful sales contributor at drive significant and boutique traffic and in turn our boutiques drive traffic on line.
As we expand on <unk> product offering and omni channel capabilities, the seamless relationship between our online business and ever Utica is essential to our growth there.
They work together to service our clients whenever and wherever.
To capitalize on this multichannel client relationship and addition to continued digital investments online and in our boutiques.
We are developing and even broader suite of omni channel capabilities and further investing and our concierge services together these contribute to an elevated every day luxury experience.
We're also continuing to opened new boutiques across North America and increasingly.
Available premier locations capitalizing on the extraordinary financial terms being presented.
By the end of the fiscal year, we will have opened a second super World boutique and Los Angeles, and opening a new market Honolulu and for fiscal 2022, we already have a healthy pipeline of new boutique openings with additional opportunities under consideration.
We will continue to expand our product lines from new categories, such as intimates and swim.
Two extended debt, including sizes colors, and lengths and Brad more new styles building on our highly productive programs.
All of this contributing to our five year plan to double our current style count.
And as always we will invest and infrastructure.
For the nuke availed of availability of World class talent, we will continue to grow our high performance team at all levels evolve our processes for even greater efficiency and expand our technology suite as required as Jennifer share.
Now that we have reached the end of our previous five year plan, we are building and refresh plan, which we hope to share with you in the foreseeable future. This understandably.
The fluid process given the current uncertainty.
We are confident however that fundamentally our strategic growth levers as previously discussed are on point and we have the foundation in place to capitalize on our potential post pandemic.
Close I would like to thank our people and our clients.
Our results over the past several months are testimony to the talent of our world class team and our clients and during loyalty.
I'm also very grateful that through the enormous effort of our ritzy community health and safety team our people our clients to date there continues to be no confirm community spread of COVID-19 virus within any of a ritzy is workplaces.
Finally, I would like to thank our investors and everyone on the call your patience support and commitment to a ritzy at through this on certain period are deeply appreciated.
I look forward to continuing to share our exciting story with you.
Hello.
We will now begin the question and answer session to join of question queue. You May Press Star then one on your telephone keypad and.
I will share a tone acknowledging your request.
You are using of speakerphone, please pick up your handset before pressing and keys.
To withdraw your question. Please press Star then too.
We will pause for a moment of callers join the queue.
The first question comes from Mark Altschwager with Baird. Please go ahead.
Good afternoon, and really nice performance through this challenging time.
To start out I was wondering if you could just give us a bit more detail on the revenue trends you're seeing quarter to date, you know where are you able to sustain positive revenue growth through the holiday period.
Like response of the product has been great. So I'm, just trying to get a better sense of the ability to offset those re closures with the digital business through December.
Yeah. Thanks for that question you know it.
His devastating that unfortunately.
Unfortunately, they day time, the closures with our Where's the highest volume as they are going to occur and I don't think thats an accident. Unfortunately, the same way there's a lot of places GAAP shutdown on new years. So for us. They did at we had a bunch of stores 18, and believe Todd close just before our bid.
He is weak black Friday.
And then they closed and other all the rest of Ontario, and the rest of Kodak just in time for on December 25th There was an early on Christmas present for us.
On December 25th just in time for boxing day, and boxing week. So you know, Ontario sort of big biggest market and go back is a very solid market for us as well and so we're going to we're going to feel that I'll, let todd getting on the specifics and it over to him but.
Hurts I mean, we have a great ecommerce channel, but we.
For an omnichannel retailer and we think that's our competitive edge and we think our customers like shopping and all channels as I suggested so the minute we shut down a one of our main channels and our best markets. It's at the end we feel at that's for sure of Todd Yes.
Yeah, Mark obviously, we had as Brian was just saying that 39 boutiques closed a rate as we started our holiday sales season, and those closures are expected to continue at.
Through the end of the quarter of but we do have we have seen that the productivity levels in our opened stores.
Is that trend is continuing and as it did and the third quarter. So right around 80% and then our ecommerce channel has also continued.
With the with the strong momentum.
We ended the fourth quarter. So we're pleased with that and we do expect that again.
The ecommerce channel will be able to moderate the impact of the boutique closures and end of frankly, the severe restrictions that were and are in our opened boutiques and when what's encouraging though is how our boutiques bounce back when they did opened after the initial closure back in the spring and how.
They bounced back and how they grew even with these severe restrictions as Todd mentioned I mean, we're at 81% some of our stores have 25% capacity limitations on them. So a lot of them do and they all have most all of them at capacity limitations and that coupled with.
Reluctance of a lot of customers to go out and leave their house and lock down orders and different places and and discouragement from the leadership governments and political politicians for people to go out. So you know against all of that and that backdrop, it's given us even more confidence that after these stores reopened and.
And with hopefully this pandemic getting behind us with the vaccinations.
That we will actually come our business will see some pretty meaningful growth.
Almost immediately with our E commerce channels and as we've mentioned on not not going back to former levels, but staying close to where and where it has been so.
We're we're pretty darn excited we're kind of looking past this period and because of and partially because there's nothing we can do about it but and we don't really have a choice but we're.
We're looking past this period and we're super excited about what we see in front of us.
That's really helpful and I guess, along those lines and Brian maybe could you speak to some of the biggest learnings you've had from this massive acceleration and the digital businesses here.
How does that impact the strategy moving forward in terms of stores versus digital and how you're looking to invest in areas like digital marketing.
Well I think that we got a lot of the learnings and the spring because once again when all our stores close we didn't really have of choice. So that was we started and learning and the biggest one and which has fueled all our product initiatives is the fact that one more on line, we don't have limitations.
For the breadth of our product and the types of product mix and and Thats why were out per.
Pursuing these initiatives for us what we think coupled with the world class talent. That's out there is enabling us to do so I mean, even if we wanted to do at three years ago I'm not sure that all of those available they're all at other places, but a little bit the lot of the industry is struggling a lot of retailers.
Either bankrupt or on the verge of bankruptcy, we managed to bring and talent and understand.
And be able to expand our product base. So that that's probably the biggest one is the fact that our ecommerce channel doesn't have the walls and the rigs and those restrictions that our retail has on the other hand on.
It is.
So encouraging for US is how good our retails being I mean to think that with all of these restrictions all of the health of orders and place all the capacity limitations and place that our business and our stores are performing at 81% of their of their capacity of.
Last year, and just shocking to us and if you listed to me a year ago that we were going to have capacity limitations at 15% of 25%, 50% and different places and.
And we're going to have a pandemic, which was kind of keeping people in and everything else and then with all the hassles of health and safety precautions and everything else and we'd be at 81% were just be like no no not at Champs. So you know it's.
It's it's made us recognize that our customers on particular, good customers and we mentioned that spend three times the amount of money of our single channel customers are dual channel customers and multichannel customer spend so much more money than they want they want our best clients want that ability to shop in all our channels and we will continue to do so.
So.
I think initially with a pandemic it was a big on how what the E. Commerce. However, as its essence continued its being more of a big on back with retail, saying, Hey, it's not going anywhere and certainly for Reed ritzy at its not going anywhere and that coupled with the opportunities that we've seen out there and.
With real estate and just even just of the locations that are available to us.
And those that that perfect storm is we think is kind of lay a foundation for.
The next decade plus.
That's great. Thanks for taking my questions and best of luck this year.
The next question comes from Irene Nattel with RBC capital markets. Please go ahead.
Thanks, and good afternoon, and and really congratulations on under her relative performance this quarter.
Well.
Just thinking about something.
And you talked a little bit line at that at some of his for that the changes that you're seeing and ins for pivoting or the learnings of.
For on line, but in terms of how the boutiques operate and held at two of them integrate and how other calls here some of the sort of the increased costs he or she is performing.
How does that make you think about the business on a post pandemic basis, and and maybe any change in sort of or sort of shifting that you'll jail.
You know I. Thanks, Irene I think at first and foremost you know it's.
You know what our clients one is that every day luxury experience and that's not going to change and thats shown and not to change pre pandemic during the pandemic and we think post pandemic, we think our product offering and the value of our offering and customer service levels, and the product and and everything else that we do and environments They shop and.
They still want to be I mean, I think when we opened our Super World store, there's not a lot of exciting things happening in the world and opening and things like that and positivity around so now when we do it.
And we do do some of these things and we've offered incredible new product because we did such a great job of.
Im not treating our own horn so much of what we did such a great job of cleaning out of spring and summer merchandise that we entered fall with of massive position of strength of the brand New collection and no lingering effects of the spring and summer.
Collection of that.
And your customers respond to that so you know this is.
You know people are still going on where clothes people are still going on one exciting new new product people are gonna still one innovation and things and so they're still going to do that and then as on of on a multichannel perspective. They are going to want to have all of this flexibility of buy online pickup in store and C store and visibility and all the different things at Gen.
For for and her team are working on as far as ensuring that we are.
We continue to be flexible and allow customers to enjoy this is richie experience anywhere so you know and.
Chronically I don't you know I think I'm not sure Pete people at some People's habits will certainly change and change forever, but im not sure people will change and I'm not sure people will change how they go about and what excites them and what they want to do and and and what thrills for them and and.
So I don't think people will change I think their habits will change and we've already seen what how they're going to change. So we think we're extremely well positioned here to continue to prosper.
Prosper post cold and.
And and that's that's great. Thank you and and yes football for last will be to get out of the house. Finally, so so you're preparing for the spring and summer and in particular and Lee with what is likely to be case, Dod some reopening how are you positioning the mix.
And order levels et cetera, given all of this uncertainty around timing.
You know it's interesting I mean, we've been fortunate to have our E commerce be so strong so that the dichotomy of our sales.
Between all of our stores and our E Commerce channel functioning and just the E Commerce channel functioning and operating and the stores close the dichotomy of that and that sales revenue isn't that great debt, we can't sort of go in with a more conservative by assuming everything is going to be up and running which will on.
So be perfect amount of inventory of for whatever reason and things are limited. So we're making sure from a product perspective that we're well positioned we're able to chase as I mentioned we.
We had a little bit harder time chasing her product this season and it was not primarily the factories and the mills and it was the transportation and the clogs and transportation that we at challenge you know airfreight there isn't as many airplanes flying so the ones at where were for and so even those were taking longer there wasnt as many share.
EPS going across the Ocean. So you know they were taking longer and everything was taking longer so and it didn't give us the opportunity to respond you know we went in with a conservative by and which I do a thousand times over because who knew what was going to happen and then we had such a great response, we tried to scramble, which we normally do too.
Repeat and and you know as we test and repeat and we tried to facilitate these orders, but it was actually the transportation, which was ended up being more of a challenge the non and prices and everything else and that transportation, where some of the cases, five and 10 times what they normally we're at depending on where it was coming from in house and.
And the timing of it so.
You know, we're going to continue to to buy a from you know from a fashion perspective Weve you know it's a good question of people change how there how they're shopping for clothing and the stay at home kind of wardrobe is where it's at if you read some of the fashion magazines people and also just they've had at with as homes and stay at home product mix and they were.
On something you know on little bit you know certainly women on something a little bit more fashionable and perhaps even sexier and everything else and EPS and slept at least so.
It'll be interesting and see what happens, we're ready for it, though and and Merck going to embrace it and we think what's going to happen. After is going to play right into our sweet spot of what we do and or it's you.
The next question comes from Stephen Macleod, Boyd with BMO capital markets. Please go ahead.
[music].
Thank you and good afternoon, and congrats on a great solid performance.
Just on a couple of questions lots of great color. So far so thank you I just wanted to turn a little bit on the closed stores.
Brian I think in your prepared remarks, you mentioned or maybe was taught I remember, but you mentioned something about curbside pickup and buy online pickup and store.
Are those new offerings for what's your I was I was at an impression that you didnt have a curbside pickup previously.
Yeah, you know we do we Didnt have a previously I mean this is just efforts, we're making here, it's not meaningful enough to our business at this point in time.
And I think partially because our E commerce channel so good and that in our distribution center I can't remember the CPI is but we're getting an order before noon today and I think it's getting shipped out of prepared packed and everything before the end of the day is that pick up I think cut off at for five cut off his blood for five at the end the day of trailer.
Yeah, and so you know our E Commerce I think curbside pickup is is certainly meaningful to sum it hasn't been as meaningful and we are we are offering it.
We think some of the buy online pickup and store and some of these other opportunities that we're going to be working on early in the year are going to be more meaningful but you.
You know I think Jan just share that it's not particularly meaningful to our business at this point in time and I think it's just generally because.
You know, its Ontario, and Qubec, only where our stores are closed and ER and the customer is still like coming into our stores that are opened there's no question with that and and our E commerce, and so effect of and turning and if you're in Toronto and new order something before noon.
Today, you could potentially get of by Tomorrow morning, and so you.
We just found that our E commerce channel and so efficient that other people just prefer that and meaningfully over curbside pickup and things.
Right, Okay, no I see that that's that's great. Thank you.
And then I was just curious if you could give a little bit of color around a rent abatements and the quarter, you able to quantify sort of what that number was.
Well.
Yeah, the rent abatements Steve.
They were approximately 330 basis points of Oh.
Of benefit in the quarter.
Okay. So that's helpful.
And then I just had just wanted to get a little bit of color around Jennifer you mentioned the clientele.
On the capital up and it sounded like it was something that was being rolled out I was wondering from or if you could give an update on where you are in terms of doctors and specific investment.
Yeah, I've been talking about that at for a few quarters now and I just wanted to give an update that we are still rolling it out in effectively phase two I think and maybe it was the last quarter the quarter before I mentioned that we had piloted at with only 25 style advisers. I believe are at is closer to 500 to us at.
Sales and style advisers, and we're working our way towards closer to a thousand style advisers and certainly with the stores closing and re closing its been a really valuable tool for us to continue to connect with the customer and still serve at her so.
I just want to remind everyone that that's still at really important aspect of our omni channel offering and that we continue to roll it out and you know our goal is to be able to roll it out to all at other boutiques eventually.
Right, Okay that sounds great and then maybe just finally total.
<unk> I missed some of your commentary around the gross margin.
Outlook and you had highlighted some of the puts and takes and I was just wondering if you could just quickly a gloss over that.
For.
So maybe I'll start because of Brian Brian has alluded to it but we we did oh, sorry at the quarter and a very healthy inventory position and and have lower seasonal sales products. So well that we do expect that that will drive lower markdowns and improve like continued improved product cost margins in the fourth quarter and so.
There was a positive there and showing the underlying health of the business, but we do expect to continue to have a higher warehousing and distribution center costs from our growth and our E Commerce volume.
And additional air freight from.
The chasing of demand of our highly productive styles.
From from the last few months.
And then obviously the closure of.
The 39 boutiques in Ontario, and Quebec.
That will generate.
Some de leverage.
No I think [laughter], putting it all together.
You know net net we are expecting to see slightly more pressure on gross profit in Q4, and and then we're moving removing the of rent abatements. So we need when you look at it as a whole we will see more pressure than we did with all the puts and takes.
And the third quarter, but again, that's before taking off the rental payments and then we're not anticipating at this point at the same level of rental payments that we got in the third quarter.
Okay. That's that's great color, Okay, and that's it. Thank you. Thank you that's from it.
The next question comes from Derik de layered with Canaccord Genuity. Please go ahead.
Yes, hi, there.
Just a couple of quick ones for me. So just in terms of your commentary on on store openings next year, just given me and other really favorable lease rates. You guys are seeing can you sort of help us quantify what you expect should we expect a similar number of store openings and in 22 as we saw on 21.
You know that that's an interesting question. So the fact that we've actually and this year of the pandemic have will have by the end of the year I believe have.
Seven seven new stores and to reposition free Repositionings.
Probably a test more to us doing deals per eco bid I know the first three four months of this year. We you know we didn't do a ton of deals I did a couple of because we signed off on a couple of because of couldn't resist because of deals were so good but.
So we've been sort of a little bit more bullish on the back half of the year as far as signing deals I don't know, where we are once again, we're not going to rush things as well.
And take a secondary locations or or do do deals that we don't feel comfortable with from a financial perspective, nor deals that we're not getting proper protection on language, which has been a bit of a challenge with an ongoing pandemic or a further additional pandemic, we want to make sure we are.
Of language protecting covering US there there were at least if nothing else sharing the burden of of a situation and the future.
That said, we Ah theres them, if we thought previous there wasn't that many people out looking for new locations now there's.
You know even less so.
We're one of the few people out there and were opening as many stores as we can.
No I haven't had a real estate updates and since early November we've talked on some things, but a full full scale ones and we hope to have one and the next week or two on to find at what the team has been working on it and you know I think weve proved a few deals so far but theres a bunch of that are approvable. So we'll see how that shakes out and.
What ends up coming to fruition and not and we'll.
We'll go from there and we'll let you know of of probably a better handle on on the next on our next update.
Okay No that's helpful.
And then just just thinking about the holiday selling season. They that you guys just went through.
Yeah and number of other other retailers kind of pointed to how low is much more of an extended selling season started earlier.
Probably ended earlier as well compared to past years or did you guys see something similar.
For you're talking about off price portion of that season.
Yes, Yeah, I guess I'm talking about the sales portion of the holiday season, and I guess, just incremental when the incremental demand came and was it within a bit yeah. So so as I mentioned in my Uh Huh.
And my commentary that we broke early this year, we were anticipating we and other governments for modeling over shutting things down in Toronto and appeal of.
And also for health and safety reasons, we wanted to spread it out a little bit. So we started at of per week earlier than we had of in the past, it's not something we want to continue to do in the future, but we thought based on the environment, though is out there we thought we'd do that and.
And and so we did that we we haven't really ended things and.
Any sooner, although we did go back to full price on all our all our product that we're carrying over a lot of.
Weeks sooner than we typically do we're cognizant of.
The off price activity, we've had in the last 12 months on.
You see on the when the when the virus hit we were we went off price for a couple of weeks after the stores close down on line.
We had our regular spring summer sales at probably extend a little longer than we normally do because we did have a lot of inventory. We wanted to start at the new season for Ash. We've now started to fall promotional period, a low weeks sooner and so we are cognizant of how much off pricing, we've been doing and.
We want to get back and think we can get back to our normal.
On our normal process, and and calendar off price and calendar.
Sort of from here on and and so.
You know, we have been off price a little bit more.
We saw because of that we saw the the uptake.
Little sooner, but from a sales for sect of from timing and then of course closing those 39 boutiques before boxing week in Canada, which is a big deal you know that hurt a little bit so.
But we hope to be off price next year, and we think the sales channels and the sales periods will pull start reflecting very similarly than they have in the past.
Okay terrific. Thank you.
The next question comes from Megan and that with TD Securities. Please go ahead.
Thank you good afternoon could you talk a bit more about how traffic patterns at cheeks trended through the quarter and at what level of the D C store productivity peak.
Topic, and then store productivity, peaking.
When did at peak.
Well typically we used to have our store productivity and our store traffic and.
Everything we used to peak around boxing week, and the week before Christmas and the week. After Christmas. So the last two weeks of December and with the advent and Canada and but the U.S. was almost so we kind of used to refer to it and onto long ago as a single on camel versus the two hump camel and the U.S., we had the two of them count on because we had the the Christmas last two weeks.
Cash and then we also had the black.
Black Friday event, and then and Canada, when we introduce of Black Friday event, we got weighted Canada now and so we do see this to him.
Which we actually think works a little bit better because it doesn't burn and all our teams out right at a time when they want to be spending time with friends and family and things like that too. So we've we've seen this.
Two hump camel per se with with the.
With with our sales and so from a peaking perspective and that hasn't changed. It's it's kind of the same now are you referring to stores and productivity based on co bid are you talking about a selling periods in general and whereas they change this year.
And it was more so question as to where store productivity was when we saw cases really come down and perhaps people and turning back to stores.
Two you know get get out of the house and whatnot during that period, we see productivity get back up to 100% at any point in time.
Do I see of getting back up to 100% I don't think it will get back up to 100% because I just think people as I say people haven't changed for their habits have and I think people you know a lot more people will be shopping online going forward, so I suspect that.
[noise] day Wong.
We won't see the same numbers, we have although I don't see this catastrophic collapse, either and we've shown that even during cobot were at 81% productivity and our stores. So we think after cove and it could mean on could get up close to 100 and I'd love to see at a 100 and our E Commerce channel stay with its a same.
Same growth at its been on since Cove at but.
Realistically I don't really see at going back to 100 and.
No I don't know of it's going to be at 80 or 70, but I agree there was a little bit after the stores of being close for so long there was little excitement to get back out in the stores on the other half and Cove and was still around and still persisting and people were still getting on there. So I don't know where we're going to net out at this point in time, we run models and 70% of up to 90%, we havent been bullish and running them at all.
100, and we Havent, we don't see any reason why they'd be below 70 at this point in time, but.
That's where we kind of of predicted and probably be 70 to 90 and and and.
On the average there's 80, which is very close to where we were proud of newer stores closing down.
And that's that's great color. Thank you and then I Wonder if you can give any details on the progress being made maybe more so internally with respect to product expansion is there anything to note that maybe the consumer isn't seeing at can you talk specifically about any new categories, you might be introducing in the near.
<unk>.
Well, the near term and we're not introducing any new categories.
This.
This fiscal year, which six weeks left in this fiscal year per se we.
We hope to be introducing one of our and new categories.
In the end of Q.
Q for just in time for Q4, just to be for Q4 of the next year and the other one late Q for early.
Q1 next year or two main initiatives being swim and and intimates, we've already seen we've already been out and colors and lengths and we hope to have that and full blown.
Hi Fi this spring and our spring launch, we're going to have more colors and more links and our stores and and we've already introduced more sizing last year. So far this year that we're in now so we see some of those and then as far as some of the other categories were expanding just the of expanding styles and existing lines and at.
And.
And things like that.
We will.
We're already doing some of those but not all of those so if you look at the chart and we think we're going to double our breadth of product within five years and and were kind of.
Arguably a year in and were probably 20% of the way to that to that new goal and we hope to be another 20% and maybe even slightly ahead, we've been very successful and putting the teams and the infrastructure together.
And we are right on on a calendar is at what we put in place as far as and these introductions. So we're.
We're pretty optimistic that we'll be able to achieve all of these are.
All of our aspirations on the product side here.
That's great. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Mark Petrie with RBC. Please go ahead.
Yeah, and good afternoon, and just wanted to follow up on a couple of things first just with regards to you know you're sort of purchasing and and planning for spring Summer and would you say your of similarly conservatively positioned as you were heading into fall winter or have you been able to adjust just given sort of the strong.
Thing and demand you've seen.
Particular other than ecommerce even admit the lockdown.
I would say were probably a little less conservative for spring summer than we were for fall winter and.
And we were.
Bullish and some other areas of our business for fall winter, and and conservative and others and now were for or probably a little less conservative.
We're still working through.
Our E commerce, and we still need to be conservative not only because of the virus, but the composition of our E commerce and and retail sales are buys on E commerce look different than our buys and retail as I mentioned earlier for our retail way of living for wall limitations as far as a breadth of product, we can supply and online we don't.
And so we're still sort of a little reticent and committing too much one way or the other because the buys looks slightly different between the two channels. So understanding that and then also understanding co of it but.
We're certainly not conservative when it comes to thinking from a fashion perspective, and and and where we think fashion is going and what a consumer and our customer clients.
Outlook will be and what kind of products are for buying ironically fashion and trends and things although people of how to stay at home.
Colors, and styles and shapes and for.
Fits and things they've been evolving as we've gone along because people of still being posting on Instagram and people are still there's still on new things happening in the world day. They just probably reflect a different reality from a styling perspective, and they would have us of pandemic hadn't hit, but that's certainly hasn't stopped.
And ground to a halt there is still as much innovation and and.
And desire for different new fresh styles and things of there ever was.
Okay, Thanks and and.
How does your success.
And developing the online experience affect how you think about international growth opportunities I think the last time, you talked about it and its understandably falling down the pecking order of priorities just given the magnitude of the opportunity in the U.S., but I'm just curious how you're thinking about international today.
And can you accelerate brand building without stores or do you need that physical presence in order to launch that more material and.
Oh, I I mean, I think the world is proven and E. Commerce only players of proven that they don't need stores to do that that said, we are believing that and if you actually company things with with stores. It actually has a better experience and at a faster uptick.
We're picking off.
Oh on as much of the low hanging fruit on our international ecommerce.
Opportunity now we've always identified all of the low hanging fruit and I would say were probably 20% of the way through at a we had a discussion for higher too.
For the holiday season that we just we're still at wasn't growing to the rate. We think at we wanted and nor the rate you think it should of been growing so weve identified we had a full.
Audit of what we're doing and non doing and doing well and not doing well and we've we've put some of those measures in place, but we think over the next three four months were going to put all of those measures of the low hanging fruit and place at which point in time, then comes a little bit more of the work out if we need to want to continue to expand we're going to need to be doing certain things and we're.
On to have to make shipping at low hanging fruit and things like making shipping and duties and things like that easier and making currencies easier and things like that.
You know a little bit of that higher hanging fruit and heavier lifting is is creating localized websites with content and at.
And changing product mixes and things for different markets and things like that and so we think there's a on.
Meaningful opportunity with the low hanging fruit and we'll see where the end nets out and then we'll decide along with everything else, we do and plan what makes and most sense as far as at a little bit more of the workout staff high hanging fruit that we're going to need to chase and put a bit more effort into at and whether things get and that pecking order of other initiatives are not low hanging fruit, we're just going on.
And that other stuff is there's a little bit different.
Understood I appreciate all of the comments today and all of the bust.
Okay. Thanks, Mark you from Q.
[noise]. This concludes the question and answer session I would like to turn the conference back over to Hell and Kelly for any closing remarks.
Thank you Anastasia and thanks again to everyone for joining at this afternoon, we will be available after the call to answer any questions. You may have as usual please take care and we look forward to speaking with you again very soon thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
[noise] [noise].
[music].
[noise] [noise].
[music].