Q4 2021 Aritzia Inc Earnings Call
Thank you free standing by and this is the conference operator, welcome and two of Ritchie S fourth quarter and full year fiscal 2021 result, and earnings conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
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And I'll now turn the conference over to Helen Kelly, Vice President of Investor Relations. Please go ahead.
Thank you Sherry and thank you for joining I suppose of Ritchie as fourth quarter and full year fiscal 2021 earnings conference call.
On the call today, I'm joined by Brian Hill, our founder and Chief Executive Officer and Chairman.
Jennifer Wong President and Chief operating Officer, and Todd Ingalls of your Chief Financial Officer.
Following managements discussion and well hope to question and after a period opened to analysts and investors.
Please note that the remarks on this call may include our expectations future plans and intentions. They may constitute forward looking statements.
Yes, certain and dynamic nature of COVID-19, and its ongoing impact of continue to materially alter our performance.
And what we refer you to our most recently filed management's discussion and analysis and our annual information form which include a summary of the material assumptions risks and factors that could affect our future performance and our ability to deliver on these forward looking statements.
Our earnings release, the related financial statements and MD&A at all at the most recently filed yeah. Yeah are available on SEDAR I spoke at the Investor Relations section of our website at are at their dotcom.
I'll now turn the call over to Brian.
Thank you Helen and good afternoon, everybody and thank you for joining us.
Together with Jennifer and Todd I'm pleased to report, our Q4 and year end results, while providing insight into the exciting year ahead.
Q4 ended what was unquestionably the most challenging year and our history.
Incredibly proud of how our team navigated the uncertainty with discipline and resilience and agility and in light of this the exceptional results we delivered.
It was a year, where you remember for not only of what we accomplished but how we accomplished at.
And as we begin fiscal 2022.
We are extremely well positioned to capitalize on the many growth opportunities ahead.
Our focus on both our surging E Commerce and U S businesses.
Todd will provide the financial details of both Q4 and fiscal 'twenty, one 2020 one shortly.
Start by sharing the highlights of our sustained strong performance.
And the fourth quarter, our net revenue decreased by just two 9% from the prior year.
Ironically, the U S actually being up nine 2%.
This is in spite of ongoing occupancy restrictions and reduced operating hours and the re closure of 57% were at 39 of our boutiques and Canada for the majority of the quarter.
Furthermore, our ecommerce business continued to search and growing by an impressive 81% from the fourth quarter last year.
Turning to the full year, our net revenue decreased by just 12, 6% from the prior year, despite the sustained impact of the pandemic.
Importantly, we capitalized on the consumer shift to drive ecommerce growth, 88% and.
Ending up comprising approximately 50% of our net net revenues for the year more than doubled of penetration of 23% fiscal 2020.
Our results enabled us to generate free cash flow and improve our strong liquidity position, which allowed us to continue to invest during this turbulent year.
Okay.
Given the 81% growth and e-commerce over Q4, sustaining what was already of consistently accelerating part of our business over the course of the year.
We continue to invest and new digital features and functions. This included the expanding role out of our client at fit analytic after pay and digital concierge amongst others.
Together, they significantly enhance our online capabilities mirroring the same everyday luxury experience of our clients enjoy and our boutiques with further opportunities underway.
For Q4, and our boutiques, we saw the United States to begin to recover however, it was disappointing that and Canada. We began the quarter with 18 boutique re closures growing to 39 boutiques re close by boxing day right at the start of our holiday sales period.
Despite these ongoing pressures throughout the year, we continued our strategy to expand our boutique network thoughtfully with fastidious location selectivity exceptional financial terms and of downside safeguards in place.
By early Q4, we successfully opened seven new boutiques and expanded three existing boutiques.
And support of both our ecommerce and retail businesses, we advanced the kickoff of our omni capabilities initiative designed to grow our multichannel client relationship.
We expect the launch of the various initiatives throughout the year.
Turning to product we are extremely pleased with the performance of our fall Winter collection. However, we had the high class problem of chasing inventory throughout the period.
On the backdrop of what was going on at the time, we thought having lower inventory was of why is positioned to take although in hindsight, we were too conservative.
Therefore, given our continued growth and e-commerce, and accelerating business and the United States we.
We intentionally ended the quarter at a meaningfully higher inventory position in order to fuel the potential of these channels.
We are very pleased with this decision as we are already seeing positive results and our first quarter revenue.
At the end of Q4, we launched our spring summer product assortment expanded choices and almost every category.
Our clients immediately responded with excitement for both the welcome change of seasons and the prospect of a gradual return to more normal activities with the rollout of the vaccination programs led by the United States.
We canceled our traditional spring sale and have pushed back the launch of our summer sale of event in United States by four weeks to align with the Canadian event.
And we're confident we will finish the season with a clean inventory position as usual.
Throughout Q4, our marketing efforts continued to propel our everyday luxury offering with captivating communications. Please seamlessly spanning our ecommerce site social media platforms and in our boutiques.
From a holiday campaign to our spring summer brand launches.
We also continued to pay our paid media pilot evaluating our results and developing a go forward strategy.
I can say with confidence that in our history. Our brand has never been stronger and our creative never more engaging and resonating with our existing clients online through our social channels and and our boutiques, while attracting new clients to our red sea at particularly throughout the United States.
COVID-19 impact made at more important than ever that we uphold our commitment to our people and our planet.
And Jennifer will speak to and greater detail, we've made encouraging progress this past year and in the most recent quarter to advance our strategic initiatives and support of a risky as communities.
Cultivate diversity and enhance sustainability.
In summary, our fourth quarter and full year performance reflects a remarkable resilience of our team at.
Our clients affinity to our brand of everyday luxury and the strength of our multichannel business.
And even under the most difficult circumstances.
As we begin to hear and North America, hopefully put the pandemic behind us.
Insightful and bold decisions, we made together with our continued strategic investments have already served as well as evidenced by incredibly successful start to fiscal 2020 two.
I will now turn the call over to Jennifer to provide some perspective on our operations.
Thanks, Brian and good afternoon, everyone, echoing Brian's comments I am so proud of what our team has achieved together at this past year.
Our fiscal 2020, one results demonstrate our resiliency as we successfully adapted to the changing environment, while still driving auryxia far work today.
Today I touch on four areas of focus within operation I'll reflect on a quarter of what we've accomplished in the past year as well as our path forward.
First I'll provide some color on the continued agility demonstrated by our distribution and logistics team and the face of ongoing supply chain disruption.
And update on the digital investments, we're making to drive continued ecommerce growth.
Third and update on our ongoing investments and talent and finally, our progress on ESG.
Throughout the year, our D C and logistics team have responded quickly to the global supply chain disruptions brought on by the pandemic, while maintaining efficient daily operation and the fourth quarter was no exception as we employed resorts full solutions to mitigate the interruptions caused by inbound logistics.
For instance, and response to delays caused by limited vessels and failing we ramped up the use of airfreight and this is share of delays to our reorders were minimized and sales maximized.
And respond to the congestion at the Port of Los Angeles, our teams acted quickly to redirect freight to Canada, transferring our goods and bond directly to our D C and Ohio. These.
Decisions reduce potential delays by 30% to 50%.
And in response to the transformative growth in our ecommerce business. This past year, we are analyzing our distribution network to inform our strategic investments going forward and included in our capital expenditures for fiscal 2020. Two is the expansion of our Vancouver and D C.
This will add 50% more usable space to further support our product expansion initiatives and e-commerce growth.
We're also planning and expansion of our Toronto area of D. C and I look forward to sharing more with you on this in the coming months.
Turning now to dig at all and reflecting on our performance in fiscal 2021 as Brian noted, we capitalized on meaningful increases in traffic and conversion and accelerating the shift online with impressive results.
88% revenue growth and our E Commerce channel.
We made significant improvements to or we'd see a dot com to make our clients shopping experience more seamless convenient and enjoyable we launched over 400 and site enhancements during the year with particular focus on navigation and size and fit and evaluation and transactional E. All while.
Maintaining the web site at a 99.96% uptime.
Specifically during Q4 the e-commerce team supported various efforts related to our ongoing product expansion initiatives, including making it easier for our clients to shop by adding three searchable sustainability attributes clients can now search for product by there.
Organic recycled and responsible forestry content.
And lastly, enhancing omni channel capabilities remains one of our top priority.
Noted on our last earnings call, we plan to launch store inventory visibility this year and pilot buy online ship from store and buy online pick up and stores prior to fiscal 2020. Three we expect these initiatives to drive sales and conversion and sharing our clients can shop precisely when we.
Where and how they perform prefer.
As we unlock the value of the inventory across our network.
To fuel our growth and support the execution of our four strategic growth initiatives, we continue to invest and developing our people and recruiting top talent and Q4, the red Sea of team grew across our product E Commerce U S retail.
Our marketing and technology Division.
To lead out the build out to lead the build out of a centralized data and analytics function. We recruited a new vice President This department will be pivotal in driving our digital growth and personalization.
And with the resurgence of our U S business, we recently hired a president retail USA to support ongoing geographic expansion.
Finally, we fully recognize the responsibility we have to take care of our people and our planet Auryxia is committed to driving responsible practices across every aspect of our operation and accelerating the positive impact we have on the wider value chain we.
We made encouraging progress on this commitment in the past year and we have outlined of last of our ESG achievements in our annual disclosure and here I'd like to share some highlights of our sustainability effort in fiscal 2021.
We've continue to uphold our positive impact on our supply chain through the annual audit of all of our tier one supplier.
And then as I noted earlier, we've adopted more sustainable fabrics across a full 40 per cent of our spring summer of 'twenty, 'twenty, one and collection, including organic and recycled cotton and recycled polyester and nylon.
And we became operationally and carbon neutral through renewable energy credits and certified off that covering both our scope one and scope two emissions.
And we're especially proud of the initiatives to further our social commitments to our people and to our communities. We insured income continuity for all of our people impacted by boutique closures paying $25 million from our Ritchie of community relief Fund.
We conducted our inaugural D E and I employee survey and committed $1 million to develop our D E and I program.
And we continue to support women and girls and need by gifting superpowers through the Ywca and donating the full proceeds from our first ever International Women's day capsule collection.
And last but not least through the Auryxia community care program, we gifted 110000 of health care heroes with custom clothing packages and tomorrow well at gift our final 10000 packages to those who continue to work tirelessly on the.
COVID-19 frontline.
And I hear would just like to add my personal thanks to all of you working and health care out there.
In closing our results are a testament to our values and the strength of our underlying operational foundation.
<unk> ongoing disruption and uncertainty, we continue to invest heavily and people process and infrastructure to enable our growth.
I am confident the initiatives, we're undertaking will further strengthen our business and have a meaningful positive impact on our long term success.
Now I'll turn the call over to Todd to discuss our financial results.
Thanks, Jennifer and good afternoon, everyone.
The fourth quarter was not without its challenges.
However, given the environment, we are extremely pleased with the performance of our business we.
We generated net revenue of $268 million.
A decrease of just 3% from last year.
This was despite of $57 million shortfall and revenue from the closure of 39 boutiques and Canada for the majority of the quarter as well as another $18 million related to severe pressure from occupancy restrictions and reduced operating hours and are opened boutiques.
Notably our e-commerce business delivered an 81% or $67 million increase in revenue almost completely offsetting the shortfall from our retail boutiques.
Lastly, our business and the United States had positive revenue growth of 9% or $8 $7 million over last year signaling the start of the recovery.
Gross profit was $103 million and the fourth quarter.
On a dollar basis with last year.
Gross profit margin was 38, 5% up 120 basis points from last year, driven by a number of puts and takes.
We had meaningfully lower markdowns and the result of stronger than expected sell through during the regular fall winter season, which left us with less and less sale of product.
And gross profit also benefited from $3 million and rent abatements and government wage subsidies.
These improvements were partially offset by three factors.
Higher warehousing and distribution center costs, resulting from the growth and our ecommerce business deleverage from lower retail revenue and.
And continued investment and talent to support our product expansion strategy.
SG&A expenses were $72 million.
$8 million or 13% from last year.
The increase was driven by continued investment and talent across E Commerce U S retail marketing and it.
To support the future growth of our business.
SG&A also included $3 million of expenses related to health and safety protocols.
Overall, we generated $35 million of adjusted EBITDA, and the fourth quarter or 13% of net revenue compared to $42 million last year.
Turning to the full year as Brian mentioned fiscal 2021 was without a doubt the most challenging year and a ritchie of history.
Despite the difficulties created by the global pandemic, we are extremely pleased with the performance of our business.
Net revenue for the year was $857 million.
Down only 13%.
Right boutiques being effectively closed for 33% of the year and opened boutiques being impacted by severe occupancy restrictions.
Importantly, we took swift action to drive our E Commerce business, which delivered revenue growth of 88% to comprise 50% of net revenues in fiscal 2021.
More than double the 23% revenue penetration of last year.
While gross profit margin for the year declined due to higher warehousing and distribution costs and pressure from the deleverage associated with lower retail revenue the underlying product margins were flat for the year.
Despite the promotional environment and the first and second quarter.
We also saw deleverage from SG&A and the year. However, this was driven by the decision to keep all of our people employed throughout the pandemic and our decision to continue investing in talent processes and technology throughout the year to fuel our growth post pandemic.
Adjusted EBITDA.
EBITDA was $77 million far higher than our expectations when the pandemic started.
We ended the year with a cash balance of $149 million of 26% increase compared to $118 million last year, reflecting the strength of our operating cash flow and the extension of our inventory of payment terms.
Including full access to the $100 million.
Under our revolving credit facility, we ended the year with $249 million of liquidity.
Importantly, we improved our strong liquidity position throughout the year, enabling us to continue investing and our strategic initiatives to capitalize on the opportunities ahead.
Tori was $172 million at the end of the fiscal year up 83% from last year.
As Brian commented, we are confident we have an optimal mix of product assortment and inventory levels for the remainder of the spring summer season.
To capitalize on the momentum and our business and maximize sales.
Shifting now to our outlook for Q1, and the full fiscal year for 'twenty two.
We are extremely pleased with the acceleration and our business and the first quarter to date, which reflects the enthusiastic client response to our spring summer collections.
We are on track to deliver first quarter net revenue growth of approximately of 110% compared to fiscal 2021, implying of revenue target of approximately $234 million for the quarter.
Fueled by the acceleration of sales and the United States and the continued growth and our e-commerce business across North America.
These results are exceptional, especially given the fact that 50% or <unk> 34 of our boutiques and Canada were mandated to re close starting on April eight.
And are expected to remain close for the remainder of the quarter.
I will now provide some perspective on our financial outlook for the full fiscal year.
Fiscal 2022 outlook anticipates, a continued recovery in the retail environment and assumes no further deterioration from COVID-19 and related shutdowns.
Net revenue growth is expected to be 30% to 35%.
Imperatives fiscal 2021, this reflects acceleration of our sales and the United States and continued growth and our ecommerce business.
And the ongoing recovery of our retail performance and Canada as well as the contribution from our retail expansion with six to eight new boutique openings in the United States and six boutique Repositions Foreign Canada and two in the United States.
Gross profit margin is expected to be relatively flat compared to pre COVID-19 levels in fiscal 2020, reflecting leverage on fixed costs and the strengthening of the Canadian dollar.
Offset by continued investment and talent to drive our ongoing product expansion strategy.
SG&A as a percent of net revenue is expected to modestly increase relative to fiscal 2020 as accelerated investments in people processes and technology more than offset the leverage on fixed costs.
In addition, we expect to incur approximately $10 million and operating expenses related to COVID-19 protocols weighted to the first half of the year.
Finally, we're planning net capital expenditures in the range of $55 million to $60 million. This amount is comprised of boutique build cost net of tenant improvement allowances and ongoing investments and technology and infrastructure.
Over the past year are people of demonstrated remarkable resilience and our business has delivered better than anticipated results as we adapted to this difficult environment.
The investments we continue to make throughout the pandemic.
And it positioned us well to take full advantage of the post pandemic environment.
There is no doubt we are emerging from this period of stronger organization.
The exceptional acceleration of sales and the United States and continued growth and our E Commerce channel in the first quarter is evidence of the growing strength of our multi channel business.
We are excited about all of the opportunities ahead and are looking forward to the day not too far from now when we have all of our boutiques reopened.
With that I'll now turn the call back to Brian.
Thank you Todd.
As Todd touched on his outlook for Q1 and fiscal 2022, we're excited by our strong start to the year and are energized by our bright future.
Okay.
While the uncertainty of the pandemic remains.
With the ongoing closure of 50% or 34, boutiques and Canada and.
Economic conditions vary widely.
Well positioned.
Our ecommerce business is continuing to surge our U S business is flourishing and we're optimistic that with the vaccine rollout accelerating we'll see similar business recovery in Canada in due course.
As such we're expediting our investments in the force strategic levers that drove our pre growth.
Our growth pre pandemic.
Ensured our success mid pandemic and with a few of our growth post pandemic.
First digital innovation of e-commerce retail and Omnichannel capabilities.
Capitalizing on our accelerated multichannel client relationship as discussed we have a full team in place to launch later this year, our omni capabilities project.
We will continue to invest and new digital capabilities, both online and and our boutiques, including ongoing personalization of development enhancements to our international sites and the continued rollout of our digital selling tools.
Second geographical retail expansion with a focus on the United States.
And we will continue to grow our boutique network across North America capitalizing on the availability of Premier real estate locations and fiscal 2022, we plan to opened six to eight new boutiques and the United States, including the Grove, and Los Angeles, Woodbury, Commons, and New York and to Panga in California.
At your slated to open late Q1 and early Q2.
We're also planning six expansions this year with foreign Canada, and too and the United States.
Third development through all product divisions.
We will continue to expand our beautiful and multi dimensional product lines. This year.
We will launch new categories, including our swim line later this fall and our intimates line for summer 2022.
Our clients will also enjoy extended depth, including color lengths and more inclusive sizing range for our top selling items and breadth, including warm and hot weather product as well as expanded denim assortment and the introduction of our Super Rural collection.
All of those contributing to our on track five year plan to double our style accounts.
And fourth <unk>.
And awareness and both the United States and internationally.
We have a comprehensive strategy and development to further capitalize on our exciting growth opportunities and the United States.
Complementing our boutique openings and expansion plans.
And doing so we expect to significantly increase our brand awareness, while also growing our bench strength and digital marketing and this flourishing market.
To support these four growth drivers will continue to invest and infrastructure.
This includes adding to our high performance team are of strategic targeted rules at all levels.
Consistently enhancing the efficiency of our processes.
Enriching our technology suite and thoughtfully expanding our distribution center network to support our growth.
While the past year has been the most challenging and our history through the hard work of our team and the resilience and adaptability of our operations, where and extremely exciting position.
With our surge in e-commerce, and the United States businesses, we're investing strategically capitalizing on the balance of opportunities ahead, and elevating our clients much loved and everyday luxury experience.
As we close out fiscal 2021, I would like to thank our investors and analysts on this call and thank our almost 5000 extraordinary team members.
And humbled and privileged to continue to lead our dedicated team and of Red's here out of the pandemic and into a bright future ahead.
Thank you.
Okay.
But that share is going to open the lineup for questions.
We will now begin the question and answer session.
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We'll hear of tone acknowledging your request.
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We will pause for a moment as callers join the queue.
The first question comes from Mark at Swagger with Baird.
Please go ahead.
Good afternoon, and thanks for taking my question.
First just with respect to the revenue guidance can you talk about how youre thinking about the trajectory of the recovery.
Through the year relative to the pre COVID-19 levels, if the guidance seems to imply deceleration of the growth versus pre COVID-19 levels. After Q1, now I know you at.
And is benefiting from stimulus and Q1, but you're still dealing with some significant restrictions and Canadian stores, I guess I'm trying to understand how youre thinking about some of the puts and takes there and as we move through the year.
Yeah.
Hi, Mark.
The 110% they were growing off of FY 'twenty, one if you.
Project and calculate the growth off of FY 'twenty.
The growth is actually consistent and.
Effectively consistent.
From Q1 through through for the rest of the year.
It's just because in Q1 and obviously our revenue was much more depressed than the.
The rest of.
The year last year, because all of the stores were closed for the majority of the quarter and so therefore, we're going from 110% over FY 'twenty, one compared to 30% to 35 over.
For the full year, but if you compare against FY 'twenty.
The ranges are relatively consistent.
Okay.
Fair enough.
That's helpful. And then just maybe a bigger picture perfect, Brian and now that we've kind of concluded the.
Original sort of five year plan, obviously, the final youre being a little bit different and we all are.
We're anticipating but just any broad perspective, and how youre thinking about the revenue and earnings growth algorithm.
Over the next several years.
Yeah, and he says it's really too bad because we are on track with everything and we actually should be using this called and announce our next three or four of five year plan whenever we decided to do.
As far as algorithms go I actually haven't thought of lot of that algorithm.
Statistics and calculus inherit so can.
Can you just explain to me what do you mean by the algorithm and you're talking about leverage or what are you talking about here.
And I, just mean and how we should be thinking about kind of at.
And the top line growth rates over the next few years, and where you think the margin structure.
We will go.
You know I don't see our margins changing too much other than we're going to be doing more and more business and the U S and our margins are better and the U S. So I think our gross margins will improve is that fair Todd as and that's just purely from a mix perspective, I don't see our margins expanding on a product perspective as far as you know we have a pretty consistent margin.
We know what our customers expect from a value proposition and I'm not sure from a.
And I think due to sustainability and things like that we don't want and chase, we've never been one to chase of lowest producer and everything else and for our product. So we're comfortable with our supply chain, we're comfortable with the margins, we're pretty comfortable with everything that we have and.
And the sustainability aspect of our product, although we are continuing to try and to improve at but we're pretty comfortable with all of our suppliers. So we're not out chasing different countries and <unk>.
Current exchange rates and things so I don't see our margin changing much per se I see from our cost of goods I do see at from the mix as I mentioned, but I do see our business accelerating and the U S. I mean, if Q1 is any and I know businesses in general at pretty good right now in Q1.
And the retail business and the U S but.
Canada is harder to say, it's a little bit more challenging and Canada, because we haven't really come out of it I don't know of is going to look like at the same kind of recovery and Ken as it turns of the United States and were just three months behind and I don't know if at slower I don't know the economic situation in Canada, and we certainly don't have the growth runway we have.
In Canada that we have and the U S. So I see us growing in Canada.
Hum.
More from and just a product mix perspective, and offering more product of people I think most people theres not really a sense of discovery for us and Canada, but our U S is where we're really banking and really seeing some great.
Upticks, and our business and the U S and biggest we never seem quite frankly and we're at.
Really think we're getting famous and we're slowly opening these stores in new markets and you know what.
We were and then we have three stores in Texas, now and we have a store in Colorado, and Pennsylvania, and now and we have a whole bunch coming and various other states and so.
So we just think that we're going to see.
Banded revenue growth, we have so much room, and the United States of runway and the United States, that's working together.
So we're pretty excited about that.
That's really helpful. Thanks for all of the detail and best of luck.
And next question comes from Irene <unk> with RBC capital markets. Please go ahead.
Thanks, and good afternoon.
And following on on those last comments, if we think at by the very strong performance in Q1 can you talk about share.
The mix what are people buying as things reopen and Chris.
Where you saw strength of cadence and the geographic mix tied to what reopened Wan and also wondering given the sort of the the rate the profile and the U S. It's being raised whether youre seeing your geographic mix of sales shift a little bit within the U S.
And I'll talk some and Todd can take some share.
Kind of and looking at me wondering money.
And I'll, let him take but.
Yes, we are certainly seeing of geographic span and that's why we're opening in Florida and different places like that we haven't really great store in Florida, and it just happens to be e-commerce, and so we're seeing some great.
Expansion from and E Commerce perspective, and the United States and states that where you had from.
Essentially zero business and three or four years ago. So we're seeing that happen and we're seeing.
And when we opened the stores that accelerates even more so.
We're pretty excited about that what's the other part of the question Irene the product mix of like Oh are we seeing the same type of products at.
It's interesting you are saying that Irene because were.
There's two I mean, let's face of the U S and Canada and different to different states right now were still a lot of shutdown and so we're still selling lots of at home clothing, we have seen.
Our U S business of the products and started to change and the U S. They're going out a little bit more obviously, it's at summit collection, so it's a little bit different.
And but we are seeing a little in our dresses pickup and are going out clothing pick up a lot more and the U S. I mean, it was interesting when we pivoted very quickly and the team did a remarkable job, but we had some incredible set of professional and more dressy and going out clothing of is really driving our business for a few years leading.
Up to the pandemic so it'll.
It'll be interesting to see how much of that comes back and if theres been some permanent changes obviously people aren't going to be go into the office as much but we'd like to thank people are going to be going out as much and and requiring as clothing and what's so great about our model is we do casual we do dressy.
And we do summer, we do winter, we do everything so well so.
And the team and I'm really proud of them and their shifts and we've started to see the shift and the U S. We have yet to see at in Canada at all.
Yeah, we're all still woefully suppressed and locked down here.
And then just one final question, if I may and it was really going to sort of the brand and the brand reach and of brand visibility.
As you're generating this momentum.
Thank you know with.
With the Influencer strategy and with the surface the key strategies.
Are you finding it easier now where are you finding more people coming to you how is that of evolving.
But we're certainly seeing more people, who work and the industry coming to us maybe not the influences of the people that hire and book the Influencers and things like that we've hired some pretty meaningful positions two to pursue this.
And it's interesting and see what's going to happen with Influencers, obviously theres been a major shift from Instagram to tick tock.
And there's a whole different set of players there.
I think some of the.
Some of the.
Okay.
The typical go to imagery and things that wasn't Instagram that was perhaps driving sales pre pandemic change during the pandemic as as People's lives changed and it'll be interesting to see if they go back to that kind of imagery and lifestyle and if that resonates. So we saw a shift.
From pre pandemic too during the pandemic, we saw a shift and the imagery and and the influence of what's going on out there and I think at actually changed but Influencers people were actually following and engaging with and we think we're going to see another one here as well and coupled with the move to take talk and some of the other platforms.
So.
We're seeing different we don't get Influencers approaching us directly although we do all of a lot of celebrities wearing a clothing on a regular basis.
But what we are seeing is people coming to us and saying Hey, we can help you and.
We'd like to come work for Ya joined the team so.
We are certainly capitalizing on that.
That's great. Thank you.
Yeah.
And next question comes from Mark Petrie with CIBC.
Please go ahead.
Hey, good afternoon could you just talk more about the drivers of the ecommerce growth and.
Sure I'm sure it differs significantly and Canada versus the U S but.
And the evolution, you've seen in terms of new customers, discovering the brand or or sort of the substitutions from stores and then also just what youre seeing in terms of on the actual site.
Conversion conversion rates over the course of the year and given all of your investments.
Yes.
We are aware of.
And we're still at work in progress on some of these some of this data because it has changed like the U S is certainly change with all of the stores opening and our retail stores and U S. Doing so while there's been a shift there and so we're seeing who has moved and who has and move from there.
In the U S. We're seeing.
Initially when the pandemic started and we saw a shift from people that were shopping and retail shopping online, but we also have had a huge influx and increasing and new customers, who previously shopped at of Ritchie at all.
Sure.
We're ironically is still seeing a lot of new customers come into our retail stores to honor.
Very high rate right now.
And then and Canada. It was mostly the shift I mean, most most young Lady shop, with Us and Canada already so it was mostly a shift from retail to.
Our online channel and it'll be interesting to see on that shift and what goes back and what's not I mean, we're trying to track.
We're trying to it takes a while to figure out if you've actually had lapsed customer or you've lost a customer and so we're kind of working on a lot of that and you know it takes a lot of people have measurements of the year. Some people I've mentioned as of two years, so it'll be interesting to see.
What what what happens there our strategy is to make sure though that the customers that were shopping retail and came in and started shopping online and remain as omni customers. They go back to retail, but they continue to shop online because we've they've proven to be the best customers that we have and and the U S at more.
Of the acquisition play Canada, its more of a retention play and making sure those customers are activated and retain whereas in the U S. It's a big activation play and that's what our strategy is and the U S still.
Yeah understood, Okay and then.
I just wanted to ask about the denim category and it's.
It's been a couple of years since the launch.
We've seen you guys adapt and expand the offering.
And sort of at sort of topical it seems like you're well positioned in terms of in terms of the trends in that category, but could you tell us more about what youre seeing and the denim business and.
Maybe just in terms of context, how would you think of that that would rank that category would rank and the opportunities you see and your assortment for taking more share of wallet.
And we've expanded our denim line two we started off of denim Forum and we ran with that for a few years.
And just more of less building, our infrastructure and capabilities around that we've now recently and in the process and we havent launched them, although we've coming up with denim categories in our baton Wilfred and TNA and Sunday bass and some of those categories. Those brands. So we were kind of the target was.
To get our you know we have three different sources of denim, we have external third party brands, we have our denim Forum brand and we have our.
Our brands are existing clothing brand and the target was to have a balance between the three of those were.
We're obviously doing a great job and the denim Forum and the third party brands, but now our growth is focused on our <unk>.
Our grant and denim that are and our exclusive brands and building that out and so we're launching babatunde and I think I think for fall, but it might be for spring and I'm not sure Wilfred launching and everything else those are more fashion focused whereas denim forms more basics focused.
Surprisingly, we're actually seeing some ROE are really resonating with non denim within our denim collection as well so that's actually been at <unk>.
And surprise so we're on track I think where we're from an infrastructure perspective, we're moving into a second phase, where we're doubling down on our infrastructure as far as production capabilities sourcing capabilities QA take capabilities.
Denim is a very hands on business. So we have certainly has been a little harder to operate with COVID-19 and our inability to travel certainly something that's far more hands on in the factories in the mills and connecting with people and so it's actually been in our denim people travel more than our clothing people and so this is.
Being a little bit difficult for them, but we're super excited with where of denim is and we're right on track to where we had plan several years ago. When we launched it and we're right on track with hour process and rolling out now into our other brands and and.
And we're at we're staying true to wonder what the plan was and it seems to be working.
And can you give any context with regards to the magnitude of the opportunity versus some of the other sales.
Sales driving initiatives you have in terms of SKU expansion and new categories.
Yeah.
Yeah, I mean I think.
Hired a head of denim she came in and I said what at percent using denim will make up of our sales and she said well I hope it's 50.
Yeah.
And I said, if you get to 10 and I'm gonna be static so.
You know I think that.
And it really depends of the problem with denim is at denim tendons difficult I mean, I've said, all along and our people have heard me say at a thousand times here at Levi's created the five of one and they've spent 100 years coming trying to find the non core to the five O. One they built an incredible business, but nothing and still.
Don't see and beneath the covers there but.
They still sold more 500 ones and any other denim and they've had so it's not an easy category, whereas some of the other low hanging fruit and our product categories, like adding length, and adding color and things of so simple for us so.
And I actually like to think that you know, perhaps maybe some of these other category expansions are actually going to be more important and as we continue to open up in southern California, and Florida of Hawaii and places like that are warm weather offering is going to be meaningful for us because it's fine for spring and summer, but come fall and winter it's.
Challenge, selling coats and parkas and things like that its areas and it's going to make up more and more and more of our business and as you can see looking at the population map and the U S. It's a lot of people live and southern United States and our products resonating, but is resonating and spring and summer. So we have to make sure. It's also resonating fall and winter. So there's a whole bunch of categories and <unk>.
I think really you know when and where and when it had a board meeting and I list them all out.
The input and I got back was slowdown a little you can do all of these things at once so.
We have all sorts of opportunities on our product and we're just going to make sure we plan for them and strategically put them and in order and phase and now properly, but certainly some of them are easier than others and I would say denim I wouldn't say, it's the hardest but it's in the sort of top three.
Third of of hard hardest to actually go out and expand and execute on for share compared to some of the others.
That's very helpful. Thanks, I'll pass the line and all of Us.
Thank you.
The next question comes from Stephen Macleod with BMO capital markets. Please go ahead.
Thank you good evening and good afternoon.
I just wanted to think about and if you look back over the last year. You know obviously the resilience of the business has really shone through and the consumer response and engagement has been.
And you know very strong in terms of e-commerce.
As well as in store, but I'm just curious if you think back is there anything that you would identify or point to as potentially.
Our consumer shopping behavior of consumer consumption.
Behavior of that might be more permanent as you begin to exit.
The pandemic.
I think from purely of product perspective, I think.
We had a whole bunch of core product and service.
Sort of go to product in Canada, and and and the U S.
The customer was not our clients were and coming to us for that they werent coming to us from our basic.
Pants, and fleece and things like that and that has now changed its changed meaningfully so one of the things that you.
You can show all of the fashion, you want and you make money and this business selling the meat and potatoes of the bit of.
The product and we werent selling we weren't at the place to go to and in previous shocks in the United States and previous accelerations and different trends when things got a little tighter and the U S of this or that it actually hurt our business more and the U S and it did and Canada and in this particular case.
You know, we're just finding of resilience of our brand. It's just obvious and looking what were selling and looking where go to place now and go to shop in the United States, whether that be online or in our stores and I don't think we were before so we've been seeing and noticing that I think so I guess, it's <unk>.
Really the biggest thing we've seen is a category expansion.
<unk>.
And to the U S. The second thing we've noticed is back to our brand is our new stores are opening up higher when we used to when we were originally going public and we penciled out new stores in Canada, and the U S. We had of far.
Longer.
Longer ramp and the United States, and we do and we're seeing now our new stores and places like Glendale, and in Philadelphia, and and places we've noticed a huge.
Recognition and hitting the ground running way more than we were three four of five years ago, and certainly more than we were 10 years ago and is at is that because of the pandemic I don't know specifically it is I know, it's certainly hurt our competition.
I think our inventory being clean and launching with new product rather than selling older product throughout the last year has been really helpful for us.
I think our decision to have a.
A lot of inventory.
And new inventory and fresh inventory. This spring I think has helped us quite a bit.
So you know.
I don't know if there's any been too.
Too many specific small things other than some big moving things and I think is changing and I just think our place, particularly in the U S and the in the.
In the mindset of the consumer and the U S where a player now they know who we are they're showing up there on our website as I mentioned, we've seen our business and online and Florida and places like that expand and quite frankly, that's why we're opening up stores and Nashville, and Charlotte and places like that I mean, where were doing good business and these places now.
Whereas.
Five years ago, we werent at and I was a lot more concerned about how were going and make money and some of these secondary markets and we're actually doing really well and secondary markets and as you know at the size of the United States has opened up a whole floor.
Core of opportunities for us so.
It's really been the brand recognition is being the clients coming to us and.
We're now for the Staples and need it's repeat customers coming to us and and all of that's very exciting.
Yeah, that's great.
And then thinking about that strong momentum and the U S.
You mentioned, some D C investments and Vancouver, and Toronto, that's part of this year's Capex.
Are you are are you going to be needing to make further D C investments and the U S to meet this strong demand.
Well, if you recall hi, Stephen as Jennifer if you recall I did announce a couple of quarters ago that we did expand our Ohio D C and.
And we expanded the space there that we felt would last us at least three to five years from that point forward.
A lot of a lot of our system and is out of Canada has does expansion and our T D CS and Canada and so right now what we're doing as I mentioned in my remarks is that we're conducting of centroid of analysis of essentially of network analysis that will allow us to really plan out where are we.
And at our D. C nodes, we are contemplating some form of expansion and the U S, but right now and the near and midterm, It's primarily Canada.
Okay. That's that's helpful. Thanks, Jennifer.
And then maybe one last one if I could.
On the last call.
Brian I think you mentioned that you found that your omni channel customers.
We're typically spent.
And I think it was three times more than someone who was and in store E Commerce only.
Are you still seeing that that kind of a multiplier effect.
Yeah, I mean that hasnt changed and in several years and and I haven't really looked at it.
Since the last call I suspect it hasnt changed.
Because it was it was very similar for years and then I think my team to come tell me.
Hey, Brian we got at 911 here and they're not spending as much or cutting and running into my office. If they are spending more than three to one.
Florida, one, but no we haven't seen that change the key thing here for us is making sure that these customers that werent able to shop retail.
All of that a lot of them that moved online stay and both channels and that is going to be super important for us and so we're really working on strategies around that.
Okay. That's that's great. Thank you very much.
The next question comes from Dylan Carden with William Blair.
Please go ahead.
Great. Thank you very much you've kind of set of my question perfectly there.
I was just curious the implied first quarter guidance growth and United States seems pretty profound and I'm. Just wondering if you could give any color around kind of the give and take between the two channels online and retail sort of embedded and that number and kind of what youre seeing is of world opens back up as far as retaining I guess, both new customers and some of them.
Traffic and the online channel.
Okay.
Hi, Don.
What I would say is that we are seeing continued acceleration of our e-commerce business and.
And strength and and our boutique.
Traffic and business as well so it's really is across both channel that we're seeing.
Sort of sustained momentum.
Okay.
And then I guess, you've touched on at a couple of times on this call just sort of the maybe the new geographies that youre thinking about from a retail perspective are these.
Added to or incremental to your initial store targets and the country or is this sort of just following migration patterns and the United States more than anything.
It's really following of migration pattern, except for the fact that that are.
Our targets are higher now.
And I was when we were sitting down looking at.
With the team looking at.
And our Oracle and our goals and and planning of how much business would do.
So the of whoever's been taken the over has been winning these bets now so.
And we're that's why we're getting more and more excited is seeing how good our business and Houston is hits, 50% more than we thought it would be even per as presently our business and Austin and 50% better business and Glendale is meaningfully better.
We have we're opening these stores and we're doing meaningfully better than we thought we'd be doing so super excited about that and we.
Just think of it bodes well for all of the stores and the southern United States.
And we will see what happens as we start opening and the southeast hopefully we experienced the same thing but.
And there's opportunities and Vegas, there's opportunities and Phoenix, there's opportunity for yourself and what are the place of United States and southern United States. So a lot of people and it's not true.
And I am sorry.
And with Fort Lauderdale, and its all sorts of great place great customers, we have and the United States and the sort of great shopping centers and obviously our E comm ships everywhere. So.
This is what's so exciting and it's just the fact that.
We seem to have.
And a lot.
The southern United States of little bit to more than we had in the past so that's sort of super exciting and just.
And are you Laura please.
And also it sounds like are you rethinking the box at all at as far as size or location.
The geographies of little different but just location within these geographies.
No. It's funny you asked that because there was some hesitancy of few years ago of taking on larger locations and that Hasnt seen has gone now it doesn't matter, where they were in Canada, the United States or the northern United States.
Southeast southwest where after the same sized box.
And in Austin, and we have a really big store, we are at an all of the Apple store.
All of that we took and it's doing extremely well and it's a big store and and.
And.
So we're looking at our store and to paying I think it's over 10000 feet, which are average that were looking towards eight so we're super excited about.
The opportunities, we're getting great real estate.
And there's not that many people opening new stores, there really isn't that many people opening sizeable new stores. So.
The landlords and we're making great partnership with the landlords right now they want us and we want and our real estate and so.
It's been great and.
And but no we're not changing our footprint Dennis it doesn't matter, where it is I mean, we need to show our product and one of the things of what we've found is particularly with our category expansion. We can have our stores holding five or 8% of our product they need to hold meaningfully more of our products. So we need to make sure they are expanding and they're representing the brand properly and representing all customers we have a wide.
<unk> of customers.
And so both from an age perspective, and an income perspective, and everything else. So it's important that we're able to showcase all of that good.
A good representation of all of our product.
Yeah.
Awesome. Thank you very much nice work.
Thank you.
The next question comes from Patricia Baker with Scotiabank.
Please go ahead.
Good afternoon, everyone and thank you very much for letting the call go occupied there just like you get my question from Jennifer Thanks, So much for giving us the overview of your approach.
And strategy behind ESG, and your accomplishments and just with reference to something you mentioned about Q4 of that you've launched.
Of search function, so that your customers from filter looking for organic recycled and and and responsive responsible for of course content product probably too early for you to give us any details about that but are you already seemed at that something that you'll be of.
Customer appreciates and wants to be able to do.
You're right. It is probably too early to have real empirical data, but I will say anecdotally. It's a feature of that internally. We're very very very excited about and externally. We've heard lots of great qualitative feedback that this is the direction that people want us to go in and we do believe that.
You know of.
First and foremost at makes shopping yeah. All of our goal is always to make the shopping online easier and more seamless and easier to navigate where to find specific products and specific attributes of our products and with sustainability being so important as well as the content of our sustainability of factors, whether it's recycled R. R.
Increasing and our product and hopefully increase and further even beyond this current season, we wanted to be able to showcase that so that is at yeah. It's a huge feature and Marcia.
And we're feeling very positive about it and we're getting and I was just really great qualitative feedback on it and we'll share more of as Lee as we learn more.
And they superenalotto spice of getting great feedback on that and then just one last question.
Talked about investing in talent and you referenced that you have now hired.
You asked questions at retail can you give us and any details on the background of all of this higher and I can understand why now because you're growing so fast.
Could you give us a little bit more detail on that specific client.
Absolutely.
I've personally met her and intervenor, along with our head of retail she's a of seasoned professional and comes from luxury.
And she is honestly, a born and raised U S citizens and we feel that she knows the market and all of the regions and and are in the U S extremely well and I would say she spikes, particularly highly and terms of the client experience and and we.
And we felt we really connected in terms of the exceptional.
And.
And to offer them.
So all of our clients quite frankly.
And while she is based on the West Coast Sea travel into the stores and connect directly with our people and our clients face to face.
Even though she was president and again and executive seemed very grassroots and loved connecting with people at both our own people as well as our clients externally facing and I think she is actually right now and even as I said, she is and the west coast and she is actually.
I think she is in New York I think I talked of as she was at New York Yesterday, and I talk there so.
And she has no problem and traveling and what I love about her is that she sets of real example in terms of how we want them to exemplify our values internally as well as our brand externally and you know I think I've said at a few times now and I think she she's very client centric.
At.
And we've just been true right.
Super impressed with her she has only been with US a few months with and Super impressed with her.
Okay tremendous thank you.
Okay.
This concludes our question and answer session.
I'd like to turn the conference back over to Helen Kelly for any closing remarks.
Thank you Sherry and thanks for everyone for joining us at this very busy or any of this afternoon, sorry, our call ran at a few minutes late and.
And the team will be available after the call to answer any questions only habits and this environment. Please continue to take care of and we look forward to speaking with you again very soon thanks bye.
Right.
This concludes today's conference call you may disconnect your lines.
And for participating and have a pleasant day by day.
Yeah.
Oh.
Okay.
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Okay.
Okay.
Okay.