Q1 2022 Aritzia Inc Earnings Call
Thank you for standing by this is the conference operator welcome to of Ritziest first quarter fiscal 2022 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question.
Q you May Press Star then 1 on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I will now turn the conference over to Helen Kelly Vice President of Investor Relations. Please go ahead.
Thank you Errol and thank you for joining here at your first quarter of fiscal 'twenty 'twenty earnings conference call on the call today I'm joined by Brian Hill of founder and Chief Executive Officer, and Chairman, Jennifer Wong, Our President and Chief operating Officer and taught English due our chief financial Officer.
Following managements discussion will host the question and answer period opened at your analyst and investors.
Please note that the remarks on this call may include our expectations Fisher Plaza at intentions that may constitute forward looking statements.
Due to the material impact of COVID-19 of business operations in fiscal 2021, certain references to our pre pandemic resulted in first quarter of fiscal 2020 included where management needs to be a more meaningful measurement of performance.
The uncertain nature of COVID-19, and its ongoing impact could continue to materially alter our performance.
We refer you to our most recently filed management's discussion and analysis at our annual information form.
Which will include a summary of the material assumptions as well as the risks and factors that could affect our future performance and our ability to deliver on the sport looking statements.
Our earnings release the really.
The financial statements of MD&A as well as an update at Investor presentation are available on SEDAR and the Investor Relations website at Ritchie of Dot Com I will now turn the call over to Brian.
Thank you Helen.
Thank you all for joining us this afternoon I am pleased alongside with Jennifer and Todd to share with you our Q1 results.
We've had a terrific start to fiscal 2022, our multi channel business is thriving.
And we are emerging from the pandemic the sustained growth in e-commerce and accelerating sales in the United States.
Adding to our already strong business momentum.
As of the last 2 weeks all of our Canadian boutiques are now reopened.
The most capacity restrictions coming off of the remaining 50% of our Canadian boutiques This coming Friday.
With our entire business open our clients everywhere can now enjoy at the everyday luxury experience whenever wherever and however, they choose.
Our future is bright and I could not be more grateful and proud of our extraordinary team.
As we drive forward together meaningful growth leveraging our world class infrastructure and strong financial position to expedite investments across our 4 strategic growth drivers.
Well Todd will provide the details on our Q1 financials I'm extremely pleased to share with you our performance highlights.
<unk> net revenue grow of 122% from $111 million last year, the $247 million this year.
And 26% from 197 million of 2 years ago.
This was despite of half of our Canadian boutiques remaining closed for 2 thirds of the quarter and ongoing capacity restrictions and open Canadian boutiques.
In the United States, our brand affinity deepen.
We're in Q1 net revenues grew 63% in the U S dollars from 2 years ago, and 243% from last year.
In our ecommerce channel revenues continued their positive trend growing 19%, which we are pleased with given that during Q1 last year E. Commerce grew 125%, while it's our boutiques were all closed for the majority of the quarter.
In addition, e-commerce made up 42% of our business in Q1 compared to 20% at the same quarter 2 years ago more than doubling its contribution.
We continue to fuel our surging ecommerce business by elevating our everyday luxury experience digitally.
This quarter, we delivered numerous online enhancements and move forward on our omni capabilities initiative, ensuring we are well positioned to launch the various omni client services throughout this coming year.
To further advanced digital services in our boutiques, we continued the rollout of our clientele app across all locations.
I'm very pleased by a boutique performance as retail sales productivity and open boutiques returned to nearly pre COVID-19 levels.
This was led by the United States, where comps boutiques returned positive single digit growth and our new boutiques continue to outperform expectations.
During the quarter the productivity of our open Canadian boutiques further improved despite ongoing capacity restrictions.
Yes.
Suburban locations continued to outperform urban however, the ongoing pandemic recovery across North America, and the resulting increase in activity in downtown of course.
Though as well for the future boutique recovery.
Turning the product our clients responded exceptionally well to our spring summer collection with expanded development in almost every category.
As restrictions ease and active active social lifestyle lifestyles return.
So as our clients desire to refresh and extend their wardrobes.
The casual clothing continues to perform exceedingly well and as our clients enjoy reducing reduced COVID-19 restrictions, we're excited to see increased performance and less casual fashion styles.
Our strong inventory position going into Q1 enabled us to successfully capitalize on our clients' enthusiasm and our sustained growth in e-commerce and accelerating business in the United States.
It also protected us from the well documented ongoing global supply chain disruptions as a result of the pandemic recovery.
At the end of the quarter, our inventory was up 44% by design as our business continues to grow and supply chain challenges remain.
Of note, we were up 83% as of the end of the Q4 with strategically helped to fuel our increase in sales in Q1.
We remain confident we will finish the season in the clean inventory position as usual.
In marketing, we continued delivering captivating communications the seamlessly translated across all our channels and platforms Inc.
<unk> are clients of bran and feature focused campaigns throughout the launch of spring and summer.
With exciting opportunities in digital marketing, we further invested in world class talent.
<unk> and social media and Influencer wherever we are developing strategies continue to capitalize on these high potential areas.
We remain steadfast in our commitment to being responsible for the planet.
And the people who live on at this was highlighted in the quarter with the launch of 2 incredibly successful capsule collections in support of our partner organizations and becoming a participant of the UN global compact as part of our overall ESG strategy.
I will now turn the call over to Jennifer where she will further discuss this and share of her perspectives on key areas of our operations.
Thanks, Brian and good afternoon, everyone.
Building on our strong operational foundation, we are extremely pleased to see the momentum in our business of the building blocks, we've put in place continue to fuel our growth.
Today I'll touch on 4 areas in operations first an update on our distribution logistics and concierge of operations second infrastructure investments to support future growth.
Third our ongoing investment in talent.
And finally, our progress on ESG.
As Brian noted disruptions related to the pandemic continues to reverberate through the global supply chain, while we're not immune to the industry wide challenges. Our teams have continued to successfully employ resource full solution to minimize the impact as noted on the last call we've ramped up use of <unk>.
The guided freight to offset longer lead times caused by limited vessels and failing.
And in response to ongoing port congestion in L. A we continue to redirect freight the transferring our goods through Canada to our D C in Ohio, effectively reducing potential delays by 30% to 50%.
Our D C and logistics team continues their exceptional performance in support of the increased demand during the quarter. Our D. C is processed a record 11 million units.
We had a 50% increase in units picked packed and shipped compared to pre pandemic levels, including a tripling of our ecommerce unit.
If you've been in the distribution center of the size of ours, you'll know that this level of demand can put real stress on operations and requires meticulous attention as inventory is coming in is being processed pick pack and ship all at the same time.
Every detail is carefully considered at our D. C is to ensure the end result, whether it's our product arriving at our boutique or at the doorsteps of our clients delivers our everyday luxury experience.
Our growing concierge team.
Kept pace with our D C clocking at nearly 800000 client interactions so far this year.
The e-commerce of our largest boutique. This team is the human connection to our brand when clients shop on Etsy of Dot com with the revamped organizational structure in place, we are optimizing processes and evolving technology to further empower our concierge stylists have the elevate how we connect.
And delight, our clients to shop online.
During the quarter, we introduced dynamic routing to the direct client interactions to the right advisor at the right time to deliver a truly world class experience.
Going forward, we're building of analytics and reporting capabilities to provide real time kpis to drive overall productivity performance and job satisfaction for this important team and revenue center.
The router at the at history, we've prided ourselves on growing infrastructure ahead of the curve to enable our growth our ability to meet demand in Q1 is testimony to the solid operational foundation.
To support numerous ongoing product expansion initiatives and accelerated ecommerce growth. We are expanding 2 of our 3 distribution centers as mentioned on our last call.
First we're adding 50% more usable space to our Vancouver D. C. We're in the midst of completing detailed designs with the targeted completion for spring summer 2022.
Second.
I am excited to announce the in sourcing relocation and expansion of our D. C in the greater Toronto area.
At $35 million this will be the single largest infrastructure investment in our history.
Our new D C will be 550000 square feet more than 3 and a half times the size of our existing Toronto D C.
This is the equivalent of roughly 6 of the half Canadian football fields.
Our new facility will serve as the eastern half of Canada and are growing volume of E Commerce orders in the U S.
We will optimize cost and enhance our delivery times further leveraging what has become a core competency for us.
As this milestone project progresses, I look forward to sharing more details with you.
Our e-commerce team is the busiest they've ever been with ongoing optimizations to the half of our client's digital experience with improved size charts and product details upgraded checkout and country specific content personalization.
Our technology team is working hard to enhance the enterprise wide technologies to support our growth.
We recently embarked on a number of projects to upgrade our primary systems, including our point of sales system in retail our warehouse management system at our D. C phase 2 of our product lifecycle management system to support product expansion.
And continued progress on our omni capabilities, Inc.
All of the key element to support the launch of store inventory visibility later this year.
As always I'm, so grateful for the dedication and hard work of everyone on our team and a special shout out to the busy behind the scenes working diligently to meet our evolving business demand all the while building the necessary infrastructure, we rely on to support our growth.
As we look forward, we remain acutely aware that our people are quite simply everything we are continuously investing in our team from training to workplace upgrades and more and we remain committed to developing our next generation of leaders while.
The recruiting top talent to Auryxia.
Our people and culture team is laser focused on filling a multitude of key position across all areas and all levels of our business.
We were delighted to welcome reigning Champ 2 hour of Ritchie of family in June, which Brian will speak more to shortly from an operations standpoint, we are partnering with their leadership team through a transition period. This will allow us to take the necessary time to learn their business again.
If I, where we can best leverage their strength in ours and to maximize business results.
Develop a comprehensive go forward path and and develop a comprehensive go forward plan.
As with all of our major initiatives, we have a separate integration team undertaking this in an orderly and thoughtful manner because of weak.
And stay focused on running our business.
Finally at Bryan touched on earlier, we are very proud to have become a participant in the UN global compact as part of our commitment to our ESG strategy.
The diversity ratio of quality and social justice continue to be shared societal goals, we remain committed to listening learning and taking action.
Because the real change starts from within we have been working on this from the inside out during the quarter, we held internal education sessions on ratio of ally ship and anti Asian violent and celebrated pride with our team through our partnership with the Stonewall Community Foundation.
We've shared learnings and counsel on how we can be even better allies and the positive change that each of us can amplify through our individuals' spheres of influence.
And using our platform to give back end effect positive change. We also launched 3 successful brand campaign.
We launched 2 capsule collection, 1 of the support of women and children in need and the other amplifying women's voices and furthering progress towards the gender equality and inclusivity.
In total we raised over $200000.
And.
We shine the light on revolutionary individuals who are paving the new path for the LGBTQ I E..2 at plus community through our Pride now proud forever campaign.
All of these campaigns received tremendous response and we're extremely pleased with how we meaningfully engaged and deepened our connections with our loyal clientele.
In clothing, there's never been a more exciting time for our people is dedicated brand ambassadors and our loyal clients as we elevate both their world through everyday luxury.
I'll now turn the call over to Todd to discuss our financial results.
Thanks, Jennifer and good afternoon, everyone.
Our strong performance in the first quarter reflects our growing brand affinity in the United States and the strength of our multi channel business.
For the first quarter, we generated net revenue of $247 million, an increase of 122% from last year and 26% from the first quarter 2 years ago pre COVID-19.
This was despite the closure of 34 boutiques in Canada for over 2 thirds of the quarter.
Of particular note sales productivity in our boutiques was essentially flat to the first quarter of fiscal 2020, returning to pre COVID-19 levels faster than anticipated.
U S boutiques comp positively compared to pre COVID-19 levels, while income boutiques in Canada began to build momentum despite ongoing capacity restrictions in the first quarter.
Our E Commerce momentum continued in the first quarter as well as our strategic investments continue to pay dividends.
E Commerce revenues were $104 million, a 19% increase on top of the 125% increase in the first quarter last year at the start of the pandemic when all of our boutiques were closed.
Commerce penetration in the quarter was 42% more than doubled the 20% from the first quarter 2 years ago.
Lastly, our business in the United States, So acceleration of sales as our brand affinity continues to grow and the country began to emerge from the pandemic.
Our U S net revenues in the quarter grew 205% from the prior year and 51% when compared to 2 years ago.
In U S dollars, excluding the impact of foreign exchange net revenue grew 243% and 63% respectively.
Please note I will compare gross profit and SG&A the fiscal 2022 years ago pre COVID-19, as it is the more relevant comparison.
We delivered gross profit of $109 million.
28% compared to $86 million in the first quarter of fiscal 2020.
Gross profit margin was 44, 2% in the quarter, expanding 70 basis points from 43, 5% 2 years ago.
The improvement in gross profit margin was primarily due to the strengthening of the Canadian dollar improved leverage on store occupancy and lower markdowns.
These gains were partially offset by higher warehousing and distribution center costs, driven by the volume growth in our E Commerce business.
SG&A expenses in the quarter were $70 million.
Up 29% compared to $54.4 million in the first quarter of fiscal 2020.
SG&A as a percentage of net revenue was 28, 5% in the quarter up 80 basis points from the 27, 7% 2 years ago.
The basis point increase was driven by continued investment in talent across e-commerce marketing and at <unk>.
To support the future growth of our business.
SG&A also included $3 million of the incremental COVID-19 related expenses.
Overall, we generated $41 million of adjusted EBITDA in the first quarter were 16, 6% of net revenue compared to $35 million or 18% of net revenue in fiscal 2020.
Considering we have 34 booties close for 2 thirds of the quarter and continued COVID-19 expenses.
We're very pleased with these results.
Inventory was $165 million at the end of the quarter of 44% from last year. As a reminder, our increase in inventory is comprised largely of strategic buys in proven sellers from our future programs. The successfully fueled our revenue growth in the first quarter and are driving our performance in the second quarter.
We ended the quarter with ample liquidity comprised of $158 million in cash and full access to the $100 million under our revolving credit facility.
Subsequent to the quarter, we closed the acquisition of 75% of reigning Champ based on a total enterprise value of approximately $63 million.
The initial 75% or $47 million will be paid with cash with $33 million paid at closing and the $14 million pulled back to be paid over the next 2 years.
The remaining 25% equity interest held by rating Champs Managements management shareholders will be converted into a risky of shares and if the 3 installments from 2024 to 2026.
We are excited about the acquisition and with the opportunity for men's to become a meaningful part of our business.
Another subsequent event, which just closed today is the refinancing of our credit facility extending it for years to fiscal 2026.
As part of the refinancing we repaid our $75 million term loan and at the same time increase our revolving credit facility from $100 million to $175 million.
This ensures we have access at the same liquidity and generate interest savings of approximately $1.2 million per.
Per year.
Today after the term loan repayment, we are zero drawn on the revolving credit facility and have approximately $120 million in cash on hand.
Looking ahead, we are pleased with the sustained momentum in the second quarter to date, we are on track to deliver our second quarter net revenue of between 290 and $300 million.
Representing growth of 45% to 50% compared to last year.
Our strong performance reflects continued accelerated growth in the United States across those channels.
In addition to the ongoing retail recovery and the reopening of all of our boutiques in Canada over the last 2 weeks.
We're also seeing the continued easing of restrictions across Canada, with Ontario, increasing storage capacities of this Friday.
While pandemic related challenges aren't completely behind us. We believe we are well positioned for the remainder of the second quarter.
Given our strong performance to date, we have raised our outlook for fiscal 2020, and now expect net revenue to be 1.15 to $1.2 billion up from our previous guidance of $1, 1.1 to $1.6 billion.
For the fiscal year, we continue to expect gross profit margin to remain relatively flat to fiscal 2020, we.
We anticipate gains in the first half, resulting from leverage on fixed costs and the strengthening Canadian dollar will be offset by increased cost pressures in the back half from higher warehousing and distribution center costs continue the investment in product Allen and the impact of higher costs related to expedited freight.
SG&A as a percentage of net revenue is expected to increase compared to fiscal 2020.
The accelerated investments in people processes and technology are expected to more than offset the leverage on fixed costs.
Contributing to an approximately 75 basis point increase over fiscal 2020.
In addition, we expect to incur ongoing operating expenses related to COVID-19 of approximately $9 million for the year of <unk>.
Further 75 basis points.
Reigning channel is expected to deliver $25 million in revenue and $5 million and adjusted EBITDA for the full year.
For reporting purposes, we will fully consolidate <unk> financial position and results from operations for only 8 months from the June 25th closing date through to the end of the fiscal year and remove the 25% non controlling interest from adjusted EBITDA.
Therefore, reigning Champ is expected to add approximately $17 million in revenue and $3 million and adjusted EBITDA for the remainder of our fiscal 2022.
These amounts are incremental to the receipt of outlook provided.
In summary, we are pleased with the strength of our business across all channels. Our product continues to resonate with our clients. Our ecommerce is sustaining its momentum our U S business is accelerating and all of our boutiques are now reopened and performing on average at pre pandemic levels with.
With our strong balance sheet position, we are accelerating investment in our strategic initiatives.
We are excited about our future and are confident that our history of operational discipline and track record of driving profitable growth, we will continue to position us to deliver meaningful shareholder value.
With that I'll now turn the call back to Brian.
Yeah.
Thank you Todd.
As Todd discussed.
We've had a strong start to Q2.
We kicked off with our multi our much loved annual summer sale.
We continue to see an acceleration of sales across both channels in the United States as well of sustained growth in our ecommerce business in Canada, and we are delighted with the reopening now of all of our Canadian boutiques.
As I previously suggested as a result of COVID-19 people of change how they're going about doing things. However, they have not changed what they do socializing and going out attending events and starting the travel again.
And they need fashionable everyday luxury product to do so.
Our expanding product assortment serves us well and reposition where you're at in responding to increasing demand and we will continue to do so in the future.
As the pandemic continues to evolve there are however, ongoing impacts as we anticipated.
While we could not be more excited by our results we're maintaining the johns.
All global businesses as I mentioned previously we too are experiencing ongoing supply chain disruptions expected the carry on throughout the remainder of the fiscal year.
We are mitigating this through continued strategic order management has proven effective however, as Jennifer mentioned, we are meaningfully increasing our use of expedited freight ensuring we entered the fall winter season, and a strong inventory position.
Building on the momentum of our business, we are driving hard on our 4 strategic growth levers to continue to make meaningful progress.
The first ecommerce and omni channel innovation, we are capitalizing on our multichannel client relationship progressing our omni initiatives and personalization of capabilities.
We expect to launch the store inventory visibility come August quickly followed by buy online ship from store and buy online pickup in store beginning rollout by the end of the fiscal year.
Second geographical expansion.
We remain on target to open 6 to 8 new boutiques. This year in Premier U S markets and 6 expansions of the existing boutiques across North America with additional deals underway.
Already this quarter, we of open to Panga in Canoga Park, California, and we're very excited to open the growth are first boutique in West Hollywood, California later this year.
We're also planning for a super Super World pop up boutiques in time for a fall winter season come August the.
The first reopening in the heart of Soho in New York and the second new boutique opening on iconic Melrose Avenue in Los Angeles.
Third brand awareness and customer expansion, we're capitalizing on growth opportunities in the United States, including the ongoing build out of our paid media program and are developing both our customer acquisition and retention strategy.
And fourth product expansion, we are meaningfully expanding our product lines by progressing with the development of new categories, extending our depth and widening our breath.
Over the last few decades, while we considered an expansion of the men's we've always maintained a disciplined focus on our women's business.
When the opportunity to acquire range Champ was presented earlier this year. It was 2 perfect pass up.
As I mentioned on the analyst call at the time of the acquisition, although there are cost savings and synergies. This isn't a cost saving exercise it is the revenue growth opportunity.
We look forward to capitalizing on our world class operational expertise and infrastructure as mens merchandize independently will become a meaningful part of the richest platform of corresponding growth.
We are emerging from the pandemic confident in our ability to consistently deliver profitable growth.
Of our business momentum led by the continued acceleration of sales in United States and sustained ecommerce growth will be supported with ongoing investments in strategic infrastructure, including the recruitment of targeted world class talent.
Continuously optimized processes.
Meaningfully enhanced technology and the significant expansion of our distribution network.
I remain deeply grateful for our People's unwavering commitment to of risks here and our clients enduring loyalty to our everyday luxury experience I could not be more excited about our future.
Thank you.
Okay.
With that lets open the lineup for questions certainly.
Certainly we will now begin the question and answer session to join the question queue. You May Press Star then 1 on your telephone keypad, you'll hear a tone of acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then 2 we will pause for a moment of callers join the queue.
Our first question comes from Mark at Sugar of Baird. Please go ahead.
Good afternoon, and congrats on the continued momentum here.
So.
It's great to hear that all of the boutiques are reopened in Canada.
I am curious how are you thinking about pent up demand with the stores now reopen at.
I guess it seems you're very effectively capture demand in your digital channel through this period of disruption. So I'm trying to think through how much incremental growth. You think you could see from here in the coming quarters versus perhaps just more of a normalization with some of these channel dynamics.
I'm going to start and I will pass this over to Todd here with the actual numbers of the has any but.
It's too soon with Toronto.
The Canadian stores the other Canadian stores that were opened half of our Canadian stores in the West. The challenge. We had is that they were they stayed open during.
The times oscillating up and down Covid.
Members, so people felt comfortable in the not comfortable and comfortable now comfortable and so there wasn't really definitive sort of spikes in E. Commerce business. When people were felt less comfortable and vice versa. So it's pretty hard to judge so far with Ontario, opening we think we'd probably get at pretty good read, but we're not really going to end.
At a good read until to be able to answer that question until these stores get opened to figure out how much is actual incremental versus not so well at the stores are open until they get the full capacity starting this friday so.
I don't know if we have an answer Todd do you have a feel for that yet it's too high I think it is too early to all of that.
Too early to comment, but what we have seen.
The states as our stores reopen at our E Commerce business continued to grow from the <unk> from last year or so or we're hoping the same.
We're cautiously optimistic at the same thing is going to happen here in Canada.
That is that's.
That's helpful. And then separately you guys pulled back on your typical sale period I think in the first half of the the calendar year here Im curious, how youre thinking about sale events and promotional strategies.
For the back half relative to what the company has done historically.
So what we're thinking we lost our regular lighten up sale in the spring Im not sure of we're going to have our regular layered on sale in the fall, we'll determine if were going to have that.
We'll have to do a little bit to do with how our strategy in the sales strategy, but also with supply chain disruptions to our businesses and how much inventory we have.
So we're going to be monitoring that.
We delayed our.
Our American.
Sales growing early prior to memorial day to at the beginning of June at.
And that we're going to continue that that's done we're not going to we're not going to go back to 2.
I wanted to change that for a decade now so that's now fixed.
But.
I think.
2 points here 1 is.
Our marketing department feels that we're talking about sale of little too much.
But the product department needs to have sales to clear out inventory and we have a addiction at are at tier 2 starting in the seasons squeaky.
The squeaky clean inventory and we always will try to do that so.
Hum.
Maybe the solutions decoupling and have us continuing with different sales periods and various sale periods, but have marketing to speak to the mass and so we've been debating that of late but.
Our objectives to be on sale of the lesson, we have been in the past and so we're going to sort of figure out and try and navigate that test and see how that manifests.
Okay. Thank you for the detail ill jump back in the queue.
Our next question comes from Mark Petrie of CIBC. Please go ahead.
Yes, good afternoon.
Just.
Wanted to ask about the differences you're seeing between the Canadian and U S markets and separate from the differences in opening restrictions have you observed any differences in sort of consumer demand.
You know what.
What people are actually buying and does that have any implications about how you plan of position for upcoming season.
I think thats a good question, it's going to be interesting to see because we've all seen the pictures of celebrations and festivals of music and get Togethers and the United States.
Of 2 months ago, a video of the just blew my mind on that.
It was the Vegas pool side. Thanks.
Didn't even look like COVID-19 ever even existed let alone even happened. So we'll see how Canadians react to that our sense is there's been less euphoric response.
2 to Covid or maybe we're just a little bit more cautious here I don't know so your guess is as good as mine on what's going to happen there as far as product goes.
We always did have a great.
The mix of product and that's 1 of the things we've always been the most proud of is not just through the department the.
The the various product types.
T shirts, blouses sweaters jackets dresses codes whatever.
Also across having different product for our customer.
And her her needs whether she is going to work whether she's going out whether she is hanging note on the weekend, whether she is exercising whatever we've always tried to have be there for her regardless of whatever activities.
When Covid first hit we saw a definitive drop immediately going out of close as well as professional where we've seen a rebound now in the going out wherever we haven't seen the rebound in the professional were quite as much but.
Time will tell and we'll see what gets mandated come fall in.
We're optimistic that people are going to want to refresh their wardrobes, regardless of whether up too so.
We haven't really got a good read on the U S versus Canada, but that's a little bit has to do with the seasons to people aren't don't typically dress up in the same manner in the summer and they are a bit more casual on the a little less clothing. So we'll be able to answer that question a little bit more on our next earnings call. After we see a reaction to our fall.
But.
We're optimistic that the People's wardrobes, theyre going to be going back to normal here.
And how they had previously purchased and as I mentioned, we're set up at Auryxia to do whatever it may be whenever whenever way the wind blows here on clothing, and what she wants where we're therefore.
Yeah, Okay. Thanks, and I guess, just following up but maybe it was slightly separate topic.
I'm just curious maybe it's difficult to answer given the noise of the pandemic, but is there any difference in how the Canadian consumer or the U S. Consumer has responded to your efforts around additional colors Hudson sizes.
Or is it pretty consistent across the 2 markets.
It's pretty consistent across the 2 markets.
You know.
We're going to see some differences I think in in color, particularly come fall and winter in the United States, where we have a lot of growth in the in the southern the United States, but up to this point in time, it's been pretty consistent and the reaction has been being very positive both in Canada and United States.
Okay, and then 1 more if I could just 1 maybe for Todd I'm not sure but I.
I guess just generally you know there was obviously a lot of puts and takes on margin, but fundamentally is the business exit of the pandemic is the underlying profitability of the business shifted given the changes in product and geographic mix or other factors I mean, you highlighted.
You know relatively meaningful SG&A.
The costs that you expect this year, but.
But presumably that but.
<unk> zone over the course of time, but do you think the business exits the pandemic fundamentally different from a profitability perspective.
No no we did not.
We're still as I discussed the experiencing COVID-19 related expenses that are are material and we've made investments over the last 2 years in our people.
Last year during the pandemic, we continue to invest as we have done this year and those investments in at an e-commerce and marketing they will all generate.
What we feel has outpaced growth in the years ahead, and so no. We don't believe there's any fundamental shift.
Having said that as our business grows in the United States and that becomes a more meaningful part of our business.
Especially the E Commerce channel I think we've talked about that quite a bit of that.
It is our most.
Our our highest.
The margin channel and the most accretive so.
As as that continues to grow.
We do expect margins overtime will will expand from that dynamic.
Understood I appreciate all the comments and all of the best.
Our next question comes from Derek <unk> of Canaccord. Please go ahead.
Yeah, Hi, thanks.
I was just wondering if you could talk about how you envision now that youre, starting to see brick and mortar reopen across the board here the mix between ecommerce and brick and mortar stores.
I guess more.
Curious in terms of your of planned to in the past with the E. Commerce strategy, you're offering more sizes is that you're still going to have more sizes online versus in the stores. How do you plan on sort of managing that mix.
Yeah, I mean, our stores have been getting bigger over the years end there continue to get bigger a lot of the stores are opening now, albeit the growth. We're about to open is in particularly large but some of the stores, we've been opening of being meaningfully larger than than we would have in the past.
It is helping us we have some expansions happening in Canada with some flagship opportunities that we're expanding in as well so from a size perspective, our stores are getting bigger, but they are not in any way shape or form of keeping pace of the growth of our product online so whereas our stores.
Ours are growing and our average storage size is growing 10% of year, because we have 100 stores, so theyre not growing particularly necessary of getting reposition.
<unk>.
Our product mix is growing far faster than that of the larger so.
We don't have any stores now that whole house, our whole product assortment and as we continue to the expanded colors sizes links.
And other categories, our stores are not going to be able to hold our product to be able to hold even less of a percentage of the product, but that's fine because we have a robust e-commerce channel and that's 1 of the benefits of the Congresses as you can sell as much as your warehouse kind of can hold in the distribution centers kind of hold and that's why Jennifer has embarked.
And then the big expansion of our distribution network right now to accommodate the expansion of our product specifically on the fly the <unk>.
Stores, we've been pleasantly surprised with how they bounce back we don't know if this is just pent up demand or this is going to continue we don't know at this point in time.
Sort of at the high class problem Wonder.
I'm wondering whether your stores will come back down to Earth as we predicted but.
I think that.
The the stores and the positioning of the stores, although they are profit centers for Etsy, and although we saw a lot of product in our stores the role of the stores starts of change and it's about the the.
At the presentation of your brand and the experience the customer has and setting that up in real life.
Versus online so I think it's the combination and I will continue to say I think we're extremely well positioned having world class retail and World Class E Commerce, and we think thats at a strategic advantage for its the in particular, both today and going forward. So we don't see that changing so.
The expansion of our product not just in sizes and shapes and colors and things like that.
The categories in all sorts of things.
A lot of that expansion will occur online only.
Okay. No. That's really helpful. And then just 1 more just in terms of the the expansion with the of the distribution centers.
Jennifer It sounds like that was predominant the ecommerce and in eastern Canada, and the U S market, but.
Is there any update on on an international strategy beyond North America or is it at sort of too early to ask that question.
Yeah.
We are really focusing on the international.
A few years back end of sort of dawned on us.
I think we're better off looking at the easy low hanging fruit of the United States, which is right there and Thats 1 of the reasons our businesses grown so fast in the last 24 and 12 months is through.
All of the later since certainly since the since last year is due to the fact that we've focused on the U S and the U S is driving our growth right now so.
<unk>.
<unk>.
Yeah.
Our international of certainly back on our radar now.
And we are certainly putting strategies together to continue to grow our international but our focus is still.
Firmly in the U S is a huge opportunity for us there and we're going to continue to explore that while we can.
The international is certainly back on.
Drawing board per per se in figuring out the strategies and how we're going to grow that too.
Okay, great. Thank you very much.
Yes.
Our next question comes from Irene <unk> of RBC capital markets. Please go ahead.
Thanks, and good afternoon, everyone, just kind of thinking about at the conversation that's been happening so far.
So I guess the first question is obviously as you expand the the.
Offering both in terms of categories in the entrance of sizes colors et cetera.
How do you effectively communicate that to your existing customer base to the extent that a lot of that is going to be available online as opposed to in store.
Well.
Hi, Irene Thank you for that question.
I think theres, a theres a matter of.
With colors and things like that we are going to start promoting color in general there is a lot of our competitors promote Colorado there right now and so we're going to we're going to start probably spending a little bit more time promote and color.
I think from a sizing perspective.
The length perspective.
We've just we don't have sizes and lengths of haul our styles at the moment, it's been successful.
When we're in a position that we feel confident that we can.
Sort of a promise to our customer that those sizes and lengths are there and deliver on those that's when we'll probably start speaking about at a little bit more it's going to be a pretty simple we have a robust.
Direct to consumer communication channels, we have social media, we have on our website. So it's going to be pretty in the M&A, obviously of our retail stores, it's going to be pretty simple to communicate that we just want to make sure that we're comfortable with the length of.
I'll frame the size offering and some of these other offerings and then I think from a new product category perspective, I think the customers are going to be able to we're going to be promoting those assay launch and so I don't think it's going to be any secret to anybody these as product and I think it'll be quite simple to communicate that we just have to make sure that we have our ducks all of <unk>.
Non-GAAP, but we're pretty comfortable before we start communicating too much about it.
That makes a lot of sense. Thank you Bryan and then just sort of continuing the discussion about sort of the potential impact of all of this if we go back to pre Covid you were on the great trajectory of let's call it mid teens, plus or minus at any given year of topline growth.
But is it reasonable at Brian to think that over the next several years as you do launch. So many of these initiatives that we could actually see an acceleration.
In that topline growth rate.
Yeah.
Jennifer is always reminding both Todd and myself too to plan for the worst and hope for the best So.
We're planning that same level of growth, we're hoping that will grow and we may see some some more robust growth as well and we're certainly of setting ourselves up for that.
But we're planning we're being conservative in our planning and making sure. The whatever it is or we're planning for is something that we feel pretty comfortable because there's a lot of moving parts, whether it be distribution center size at systems head counts all sorts of things.
We don't want to be sitting here coming to.
You in 1 day, and saying Hey, we invest at all of the segment sales.
So we're going to be conservative.
On how we plan everything in power or hopefully going et cetera, we're going to set ourselves up and hope that we will achieve some higher growth rates for share.
Okay and then finally last question on this topic I promise.
Again, just continuing to think this true you've been in that statement.
All of the talent, which is great because it's enabling you to do all of that stock.
Sure, presumably at some point and I don't know if it's 2 years and it's probably true hearts could opinion.
But we should see.
Sure.
More of a convergence in terms of or we should see sort of I guess some of the SG&A and a growth into the sales level is that a way to think about it.
Yes, yes exactly.
As I was answering to Mark that's exactly how we're looking at it end. This year is still being pressured again by Covid expenses and then.
The 2 years' worth of.
Yes.
Growth in our investments in our people that will contribute to outpace growth in the coming years end, we fully expect to return and then.
The likely exceed our previous margin levels.
That's that's very helpful. Thank you.
I'll get back in queue. Thanks.
Our next question comes from Stephen Macleod of BMO capital markets. Please go ahead.
Thank you good afternoon.
Yes.
Lots of lots of great ground covered so far but I just wanted to follow up on 2 things.
The first 1 was Brian in your prepared remarks, you talked a little bit about our investments in social media and Influencer.
Type.
Marketing can you just elaborate a little bit on what those investments might look like is the magnitude of material and are these more focused on specific offerings specific products or more more broad based in terms of brand building.
I think first of all I'll go backwards here I think it's a combination of specific products. If we have specific products to promote and brand building run cases, where we don't.
We have been doing some in the past we brought on some people know I haven't seen to kind of re.
<unk> strategy here.
Overall in those areas I mean, we brought on some of the social hour, we have a fairly robust social platform right. Now is the perfect knowledge, we have holes in it yes.
Could we be doing better, yes, but we have extremely high engagement Instagram people at places like that like some of the and the top quartile of the industry. So.
So I've been told anyways, but.
The.
We're waiting for strategy brought on some real professionals here, you've got a lot of experience in this area of loan loss.
No.
No.
Tictoc is comes at the forefront now.
Slightly for a reason to.
There's a lot of Instagram because of wild west for a while they're at now.
Yes.
Heartened up and is becoming expensive and the algorithms have been changing and things of the decisions.
We need to get to get through from your customers.
So.
I do know is at the social.
Landscape changes fairly regularly.
All of England a system. So it's important that you stay ahead of the ahead of the.
Because you can put the strategy in place of around 3 or 4 years, you have to the strategy.
And we're always looking at looking at this and we have some real professionals now coming in I Havent seen sort of the next iteration of what our strategy is but I'm, hoping to see at the next few weeks and.
Go from there I see at.
Okay. That's great. Thank you.
And then maybe just 1 just following up on something in the last questions that you were talking about with respect to SG&A leverage.
Is the way to think about where we are today.
But this is SG&A.
The impact from the investment.
The investments as well as obviously COVID-19 will be isolated to this year, presumably but in terms of the SG&A that you're taking on too to support some of the investments that you've made do you expect that to continue the way like into the next fiscal year or is it too soon to tell I am just trying to get a sense as to when you expect.
2 to leverage those SG&A investments at a more material way.
Okay.
Yeah.
Steve.
I think the best the thing to do is just no David as we've been discussing for like the last 12 months or maybe even 2018, we are planning to provide a revised multiyear plan, which will obviously include the projected revenue growth as well as <unk>.
Our margin expectations and we were still.
The targeting to do that this fall but.
Obviously need to ensure that the business continues to normalize here over the next 2 to 3 months.
So I think I would leave it until then but as I said, we expect our.
Our margins.
Our our EBITDA margins will return to pre COVID-19 levels over time, and then growth growth beyond that.
Okay.
Helpful. That's great totally understandable and then maybe just finally with respect of range Champ I know you're in the early days of ownership.
But I'm just curious what kind of industry feedback you've gotten on that acquisition.
It may be even potential client feedback as well.
Yeah. That's an interesting question you asked.
We haven't the.
Client feedback hasn't.
Got in the made its way up to me and anecdotally I of trends in people that of congratulated me, but from an industry perspective, we've gotten a lot of great feedback from.
People, we do business with prospective employees at senior employees that are coming on Super excited about at internal employees are super excited about it. So we've got some really great feedback and the good news has been as well as that.
Craig and the team from branding channel have received multitude of positive feedback from there.
From the at Theres, there end of the industry, both the men's wear and the street where industry. So I think of lot of people felt this was a really great arrangement and up to this point of time. Its early days as you mentioned, but.
We couldnt be more thrilled.
How were growing about the integration of everything Jim mentioned, but just anecdotally as well.
Talking about the Craig couple of times a week.
What we're able to do end.
Some of the shifts we've already made.
I think it's going to be of great great partnership here going forward.
Great.
So much.
Our next question comes from Patricia Baker of Scotiabank. Please go ahead.
Well, thank you very much and good afternoon, everyone. Jennifer I Wonder if we could talk a little bit more about the Toronto DC. The notice of its the largest project in the company's history are there any incremental capabilities that will come to you from having the facility you mean apart from the price of its going to be.
3.5 times larger than your existing D C.
And 1 of the big functionality that will be able to offer by in sourcing is we'll be able to ship cross border from this distribution center. So right now we ship cross border from our Vancouver D C. At.
And for various reasons, it's difficult to do that with the 3 P. L. The right now so I think that well that's going out of kind of volume in particular, but just having that functionality. The ship cross border will be at a big game changer for US and then in addition to that we are exploring various.
Various levels of automation that might make it more.
The more cost effective although what we have found with our business in beans at 2 unit oriented business and highly personalized with packaging and whatnot that.
At the level of automation, but we'll be very very minimal.
In comparison to say at Amazon.
But other than that I think we'll find having control of by in sourcing it won't be at real game changer.
No absolutely. Thank you and then just lastly, with respect to Q1 is were there any particular product will be in the <unk>.
Quarter.
I think we.
What we've seen more so in Q1 and a continuation in Q2.
Is the.
We had shortages of products in fall and winter we.
We were light on inventory as I think of lot of retailers were but.
And we saw our business do extremely well in Q3 and Q4 of last year, but we could have done better and Thats why you saw our inventory levels rise at the end of Q4, because we started the finally getting enough product and to fuel our sales and our sales growth. So.
As far as wins go I wouldn't say, there's any particular item. Its just the fact that we have right sized our inventory for our growing business and it took us a while the catch up of it surprised us and we are quite bullish on the fall and winter, but we still didn't have enough inventory and so the great news is our inventory is in great position right.
Now the levels are great and we're seeing that we're seeing that we.
We saw that in Q3 Q4 of sales, but as I mentioned that could have been better but we've seen that's what's fueled our great Q1, and our strong outlook for Q2, now and hopefully that continues into the fall but.
We've had at when our business is as good 1 typically we have a lot of different products that are resonating with the consumer and not just wanted to.
Thank you very much Brian.
This.
The question and answer session I would like to turn the conference back over to Helen Kelly for any closing remarks.
Thank you Ariel and thanks again to everyone for joining us. This afternoon, we'll be available after the call to answer any questions you might have.
If we don't see you enjoy your summer and we look forward to speaking with you again soon thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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