Q1 2023 Aritzia Inc Earnings Call
Speaker 1: Order they continue to navigate the ongoing headwinds of the global landscape to deliver for our clients and our business. Ara has never been stronger or better positioned for the future. While we're encouraged by the trends we're seeing in our data, we continue to remain vigilant as we monitor the ever evolving macro backdrop. We are focused on driving long term lasting growth through our strategic initiative and, as always, investing in the infrastructure required to scale for years to come. While tod will provide you with our detailed financial results, I am pleased to share that we delired net revenue of $408 million in Q1 and increase of 65% from last year, led by our business in the us, which continue to accelerate at a phenomenal pace, increasing eighty 1% from last year. In Canada, we grew by 52%, with outstanding comparable sales growth and the benefit of reopen boutiques.
Speaker 1: In Eastern Canada, our boutiques and the progress we made on our geographic expansion drove our exceptional performance and U's growth. In Q1, our retail business surpassed our expectations, as it increased one hundred and 1% from last year.
Speaker 1: We opened three new boutiques in the quarter to a tremendous client response, two of which were in new markets- Las Vegas and miami- and we are pleased with the early results we're seeing in our new boutiques and our new markets.
Speaker 1: The success of our geographic expansion strategy, build on our already flourishing boutique portfolio and positions eritia for continued growth into the future.
Speaker 2: In e-commerce we saw traffic. We saw traffic growth further. In Q1 the U's led that growth where traffic increased by almost 50% from last year.
Speaker 1: To maintain our momentum, we added new and improved features and functionalities to auritcia com. We continued to focus on empowering our clients to shop with us wherever, whenever and however they want. This included improving our product discovery.
Speaker 1: We were especially excited about launching our more sustainable styled Page.
Speaker 1: We better enabled clients to effortlessly shop. The 63% of our spring summer collection made from certified organic or recycled materials.
Speaker 1: While we continued to make our assortment more sustainable, we also delivered on two of our product expansion initiatives. In Q1, we launched our first-ever swim collection.
Speaker 1: And we extended our footwear offering through our first partnership with bam.
Speaker 1: That said, we saw key program and proven sellers continue to resonate with clients and drive our strong demand.
Speaker 1: Selling in our professional and fashion assortment increased as our clients begin to return to the office, social events and travel, all while maintaining our momentum in lifestyle apparel.
Speaker 1: Our business model continues to enable us to provide our clients with beautiful products for all aspects of their life.
Speaker 1: Combination of our geographic expansion and beautiful product collections continued to fuel our brand awareness and client acquisition. In Q1, we made progress on our path to getting famous in the U S.
Speaker 1: Our client acquisition continued to accelerate, and this growth was on top of what we saw in Q4 and.
Speaker 1: As such, we finished the quarter with more clients than ever before. We have doubled our? U's active client base compared to last year.
Speaker 2: Like all global businesses, we continue to experience supply chain disruptions and logistics delays in Q1.
Speaker 1: We maximize the availability of our product and delivered a solid inventory position through strategic inventory management and expedited freight.
Speaker 1: This decision resulted in significantly higher freight costs.
Speaker 1: But we intentionally prioritized our accelerated momentum.
Speaker 1: This enabled us to capitalize on the vast majority of our client demand: grow wallet share and deliver exceptional results.
Speaker 1: We continued to advance our data and analytics capabilities to empower our team to make informed data-driven decision. In Q1 we reached the 50 people milestone on our data and analytics team.
Speaker 1: We also further developed our data warehouse and deepened our partnership with tableau.
Speaker 1: Through this partnership, we will extend their analytic solutions to our entire organization.
Speaker 1: We also advanced our client and sales reporting this quarter, giving us a 360 degree view of our clients and their shopping behaviors.
Speaker 1: This lays the foundation for more personalization and informs the strategies we will employ to drive deeper loyalty with every client interaction.
Speaker 1: In Q1, we advanced our channel reporting as well. We focused on enhancements to our e-commerce and concier dashboards. These dashboards deliver actionable insights that enable us to further optimize our operations and increasingly more value for our clients.
Speaker 1: Moving to people. We continue to grow our team with world-class talent. We filled a multitude of key position across all areas and levels of our business.
Speaker 1: And as always, we put our people first.
Speaker 1: This past quarter, we began offering Jack Dot org's mental health support and resources to all of our people in Canada and the? U's. We also made a donation to support Jack Dot org's mission of providing these resources to young people across Canada.
Speaker 1: It is our responsibility, and more important than ever, that we continue to prioritize our commitment to our people and planet.
Speaker 1: In Q1, we formed our environmental and social Board committee to oversee how we can continue to accelerate the positive impact we are making through our operations policies, programs and initiatives, and later this month we will be publishing our second ESG report and first United Nations global compact communication on or.
Speaker 1: We also continued to focus on uplifting and empowering our communities and all the people we serve. We deepened our partnership with the stonewall community foundation. With them, we started a scholarship program to provide LGBTQ students with financial assistance, opportunities and access to education. We also partneoned with stonewall to launch our proud today pride-forever campaignin this campaign, we shined a light on the stories of LGBTQ revolutionaries.
Speaker 1: We celebrated their heart, passion and fearlessness as they pave the way for future generation.
Speaker 1: I will now pass the call over to tod to share a more detailed book at our financials.
Speaker 3: Thanks Jennifer, and good afternoon everyone.
Speaker 3: We delivered another quarter of exceptional financial results, again exceeding our expectations.
Speaker 3: Driven by stronger-than-anticipated demand, particularly in the United States, as our brand continues to gain momentum.
Speaker 3: For the first quarter, we generated net revenue of $408 million, an increase of 65% from last year.
Speaker 3: This outstanding growth, in spite of macro headwinds, was driven by the incredible demand for our product across all geographies, in all channels.
Speaker 3: The continued momentum in the United States drove net revenue of $207 million in the quarter, an increase of 81% from last year.
Speaker 3: Our business in the United States accounted for 51% of net revenue in the first quarter, compared to 46% last year.
Speaker 3: The sustained momentum is reflective of the significant acceleration in our? U's client base, which has doubled in the last 12 months as more clients discover and become loyal to the auritza brand.
Speaker 3: In addition, our retail revenue in the first quarter was $288 million, an increase of 101%.
Speaker 3: This was led by growth in the United States, where we saw exceptional comparable sales, as well as outstanding performance of our new boutiques, which continue to exceed our sales and payback expectations.
Speaker 3: In Canada. We also saw strong sales in our comparable boutiques and benefited from the contribution from the reopen boutiques in Eastern Canada that were closed for two-thirds of the first quarter last year.
Speaker 3: Finally our e-commerce net revenue was $12 million, an increase of 16%. We saw a strong e-commerce growth across all regions, except in Eastern Canada, where there was a channel shift to retail, as the closed boutiqu from last year were fully opened this year.
Speaker 3: Excluding this region. E-commerce grew 25% in the quarter, reflecting growth in traffic from new and existing clients.
Speaker 3: We delivered gross profit of $181 million, up 66% from the first quarter last year. Gross profit margin was 44% in the quarter, expanding 10 basis points from 44% last year.
Speaker 3: This improvement was achieved primarily from leverage on occupancy and warehousing costs. That was amplified as we lapped the boutique closures from last year.
Speaker 3: This leverage more than offset approximately 500 basis points of erosion from the use of expedited freight, as well as inflationary pressures.
Speaker 3: Sgna expenses in the quarter were $12 million were 30% of net revenue, compared to 28% last year.
Speaker 3: The 100 basis point increase reflects the elimination of subsidies year-over-year and ongoing investments in talent and technology to deliver our growth.
Speaker 3: Overall adjusted EBITDA in the first quarter was $7 million, an increase of 70% from last year.
Speaker 3: Adjusted EBITDA was 17% of net revenue, compared to 17% of net revenue last year.
Speaker 3: These results are exceptional, demonstrating the strength of our business.
Speaker 3: As we continue to drive ongoing momentum in the United States and Canada returns to full strength.
Speaker 3: And all accomplished in spite of impacts from ongoing global supply chain disruptions and the challenging macro environment.
Speaker 3: Inventory was $299 million at the end of the first quarter, up 81% from last year.
Speaker 3: This increase includes higher in transit inventory due to the strategic decision to order and ship our fall product earlier.
Speaker 3: Our inventory buys are focused on our proven sellers and we are confident we are on track to have the product to meet demand through the fall winter season.
Speaker 3: Our liquidity position remains strong, with $179 million in cash and zero drawn on our hundred and $75 million revolving credit facility.
Speaker 3: Since the implementation of our nciib on January twelfth and through yesterday, we have repurchased one point four six million shares, returning $56.7 million to shareholders.
Speaker 3: Given current market conditions, we have increased our pace of planned repurchases.
Speaker 3: We will continue purchasing shares opportunistically throughout fiscal 2020 -three.
Speaker 3: Turning to our outlook, the strong momentum in our business has continued into the second quarter. As such.
Speaker 3: We expect net revenue for the second quarter to be in the range of 440 to $46 million.
Speaker 3: Representing an increase of approximately 26% to 31% compared to last year.
Speaker 3: This reflects continued strength in the United States in both retail and e-commerce, as well as a strong recovery of our business in Canada.
Speaker 3: For the full year, we have increased our net revenue expectations to a range of 1.8, 75 to $1.9 billion, from our previous outlook of one point eight billion dollars.
Speaker 3: The new expectations represent growth of 25 to third 27% for the full year.
Speaker 3: We plan to open eight to 10 boutiques, with all but one in the United States, and to expand or reposition four to five boutiesnow expect gross profit margin to decline up to an additional 50 basis points for the year, to approximately one hundred hundred and 50 basis points down compared to last year, reflecting higher than-expected inflationary pressure.
Speaker 3: Please note that, due primarily to the timing of expedday freight this year versus last year, for the remainder of the year we expect higher pressure on gross profit margins in the second quarter and for that pressure to subside partially in the third quarter, with the opportunity for gross profit margin in the fourth quarter to be slightly positive as we lap elevated freight costs in the back half of last year.
Speaker 3: Sgna as a percent of net revenue is expected to increase approximately 50 to 100 basis points compared to last year, reflecting continued investments in talent and technology to fuel our future growth.
Speaker 3: We expect capital expenditures in the range of 110 to $12 million, comprise primarily of new and reposition boutiques.
Speaker 3: Our new distribution center in the Toronto area and the expansion of our support office.
Speaker 3: In summary, we are extremely pleased with the strength of our business and LL remain prudent with our decisions as we navigate the macro environment.
Speaker 3: We plan to continue to leverage our strong balance sheet to make strategic investments to drive sustained profitable growth into the future and deliver meaningful shareholder value.
Speaker 3: We look forward to sharing our long-term targets with you at our upcoming Investor Day.
Speaker 3: With that. I'll now turn the call back to Jennifer.
Speaker 1: Thanks tod. We're extremely pleased with our Q1 results and excited for the future.
Speaker 1: We have carried our strong momentum into Q2 and continueed to lay the foundation for long-term lasting growth.
Speaker 1: Client demand is showing no signs of letting up across all geographies and all channels.
Speaker 1: We're continuing to deepen our presence in the? U S.
Speaker 1: In Q2, we're entering new markets. We already opened our first boutique in Orlando and will be opening in Atlanta later this month.
Speaker 1: We're also expanding our presence in Palo walto with a new boutique for the fall.
Speaker 1: Our geographic expansion continues to be our most effective vehicle for propelling our brand and acquiring clients for all of our channels.
Speaker 1: That is why we are thrilled to announce our next global flagship on Michigan avenue, on Chicago's magnificent mile. This will be our largest boutique yet, at 45 thousand square feet, and bring everyday luxury to life in a whole new way.
Speaker 1: We're focused on setting ourselves up for a successful full launch with a healthy inventory position and are ready to deliver our first-ever intimate collection.
Speaker 1: We are cautiously optimistic about our outlook for the remainder of fiscal 2023. We're monitoring the challenges of supply chain, labor and inflationary pressures very closelymaximizing our position to deliver everyday luxury for our clients today and tomorrow is our top priority.
Speaker 1: Our sites are always set on the future. The enviable position we are in today is a result of our proven long-term view of the business.
Speaker 4: As we continue to respond to client demand and the challenges of the global landscape with flexibility, we are also investing in our business for the future.
Speaker 4: We're continuing to grow our boutique portfolio, expand our DC, invest in infrastructure and build our team of world-class talent. We see extraordinary growth opportunities ahead and we're excited to be sharing our multiyear strategic growth plan at arya's Investor Day the week of October twenty-fourth.
Speaker 4: With that, I would like to thank everyone for their support and kind words as I have stepped into the role of CEO .
Speaker 4: And a big thank you to all of our people across our boutique, concier distribution centers and support office.
Speaker 4: I am truly privileged to have the opportunity to lead them. Their tireless hard work, dedication and resilience is unmatched and is what delivered another exceptional quarter.
Speaker 4: And of course, I thank you to our clients and shareholders for their enduring loyalty as we chart our path forward on this incredibly exciting road ahead. We're just getting started.
Speaker 5: With that chh. Please open up the line for questions.
Speaker 6: Thank you. We will now begin the question and answer session. We request everyone to kindly limit to one question only and one follow up. To join the question here you may press far than one on your telephone key ad. You will hear its ownone acknowledging your request.
Speaker 6: If you are using a speaker phone, ple you speak up your handset before pressing any keys.
Speaker 6: To withdraw your question. Please press St then to.
Speaker 6: We will pass for a moment as scholars join the queue.
Speaker 6: The first question is from Mark peri wood, ciibc. Please go ahead.
Speaker 7: Yeah good afternoon I wanted to ask I guess just on the sort of.
Speaker 8: Price and promotional environment and sort of competitive environment. Clearly you know you guys are feeling cost inflation in many of your competitors, even more so with less revenue growth to be able to offset it. But I guess I just wanted to sort of ask about: you know you've been able to move away from some of your promotions, especially in U's, and sort of structurally move higher on gross margin. So 1, you know what are you seeing out there with regards to your competitors, and then seconda, rily wondering how you, how comfortable you, feel about that elevation in gross margin and what scenarios would have to play out to see some of those programs return.
Speaker 8: Gross margins go back to priour levelsi think we're having some technical difficulties here.
Speaker 4: Brian was answering the question, but I don't know if we can hear him. He's talking well, maybe I'll, I'll.
Speaker 4: All and I'll answer that, and then tod or Brian , if you can get your audio going will.
Speaker 4: Have you jumped in in terms of pricing and what we're seeing out there with information? We're getting this question a lot.
Speaker 4: And I think we've held firm and saying that we are. We see no need at this time to increase or change our pricing right now. The positioning that we have in the marketplace with everyday luxury has pushed as positioned us, given what might be coming down in terms of the environment and what we're seeing with competitors, in that we see it being an opportunity, we see there being flexibility and perhaps some opportunity in that we're positioned very nicely where we think that we we might lose some customers at the bottom, but we will certainly see some customers trading down.
Speaker 4: So we're seeing it as an opportunity and, as we've mentioned in many calls and many Q and a, we're managing our supply chain cost and our product cost and all of the inflationary costs that we're seeing as tightly and as closely as possible. And while I know tod has spoken about what our outlook is for grouross' margin for the rest of the fiscal year, we do see these being what we're calling transitory costs, you cost effects, and so we do see things returning to normal at some point over the course of this year and into next year. So you know, as I've been saying in my prepared remarks, we have a long term view of the business. We do not need your react.
Speaker 4: To short-term pressures or transitory pressures, and that's why we're holding firm in terms of our pricing strategy.
Speaker 9: And rect. Can I add something there too, Please? Yeah, you know, we ER as. As you mentioned, we have less ER.
Speaker 9: Off pricing going on and we've seen less of a respondse. We've seen less of a dip in our sales PRI to going off price and we've actually seen less of a pickup since we've been off price. We're really pleased with that and then So really the end of the day we see our customers preparing the pay full price for a product and we actually see our off pricing, particularly in our stores. initatives maybe been continuing to decrease the off pricing as it has not seemed to affect our sales. You know, I had a friend called me in the business from in the U's ask to say they've seen some softness for about four weeks. That was probably two weeks ago- and asked if we had.
Speaker 8: A quick question hopefully, about these flagships that even know ounce. I guess there's two now- Manhattan and chica-go, and they're substantially larger than the stores that you typically build. So just sort of curious what that means for the, for the business. Maybe you could just talk a little bit a bit about how that space is going to be utilized, how much is for product versus other services- you know, dressing rooms or cafes- and how much of it relates to sort of new categories versus just sort of giving more exposure to the existing sort. Like Yeah, I'll take that. So I see this being.
Speaker 9: To our customers and so we think by opening these bigger stores and due to the economic environment out there- real estate- we're actually paying less. We're getting bigger stores and paying less rent than we were previously. So the economics work. We're getting good TI packages, everything else. You know they will require some capital, but we actually see our sales increasing. So we're super excited with the experience. Yes, we're going to have a bit more food and beverage than we've had in the past, because we think the experience for the customer- that's important. That's a journey through our. Our experience is not just something one dimensional.
Speaker 9: Experience for them and so we're super excited. We've been not doing a lot of research on this and- and we've recently gone on a big trip around all through Europe and United States looking at what others are doing it- we think we were pretty confident we're going to be able to e love, eightate even more than we have already in the past and give our customer that experience and then draw increased top line dollars without having sort of expenses and things because we think our rent or we know our rents actually going to be coming down on these. So we're pretty excited about the next few years of these flagships.
Speaker 10: It's great thanks for that. All the bestthe next question is from Megan and ne with TV Securities.
Speaker 11: All of usthe next question is from Megan and net with TV Securities. Please go ahead.
Speaker 6: Thank you good afternoon. Can you just give a bit more color behind the change in the fiscal' 23 gross margin guidance and, more specifically, how that change relates to what you're seeing in terms of challenges in the supply chain, anything noteworthy in terms of shipping times, freight rates or even your use of expedited freight? And so we did talk a bit about some of the transitory impacts in the gross margin here. So just wondering if you can quantify the impacts from expedited freight in fiscal' twent-three specifically. Thank you.
Speaker 12: I may it, I'll take that one for the year. We're expecting between 25.3 thousand basis points of pressure for mexedite freight. I think the biggest difference is the timing this year. So where last year the majority of the air freight was in the back half of the year, this year the majority is in the first half, including including partially into the third quarter. So there's a large timing shift which is what's causing the variability quarter to quarter but, from a increased perspective, why we went from 1, one hundred to one hundred and fifty. We're just seeing higher inflationary pressure.
Speaker 3: Really across a lot of lines of the PL and specifically as it relates to gross profit product costs logistics costs and even labor at our distribution centers. So.
Speaker 3: That's why we've baked in that additional 50 basis points of pressure and we are starting to see some easing in on the logistics side from a se freight and an air freight.
Speaker 3: Cost perspective and even a little bit on the timing, but it's not. It's not material at this point. You know might be down 10% from the peak as well. We're seeing, and so you, we're anticipating that that may change over the back half, But right now, as of today, we haven't material change from the peaks that we've been experiencing over the last know six to nine months. And just as a follow up, I assume that' that impact from expedence.
Speaker 6: frreight would be incremental to last year, So we're just thinking about how this might roll off going forward. What piece of that would you expect to the stick going forward?
Speaker 13: I think that's that's multimillion dollar question. It's hard to predict at this point. Right now we're just looking, looking out to Q4 and what happens next year I think we'll have a better, better visibility into over the next three to six months.
Speaker 1: That's great, Thank youthe next question is from Irene Al with RBC Capital Markets. Please go ahead.
Speaker 14: Thanks and good afternoon everyone really nice to see the strong momentum and the strong demand continuing and'm also interesting Brian's comment about a friend of his who isn't seeing that So I guess.
Speaker 14: To what you would trebut the ongoing really strong brand momentumto particularly in the U's where I think you said you had the double in the customer base. So if you just talk a little bit about some of the attributes that you think should help rO. wheather this Rocky period.
Speaker 4: High irerene. It's Jennifer. I think you've heard us talk about this a lot. Strategically, it comes down to our business model. Product is that the center of everything that we do, and ensuring we have the right product at the right place and at the right price, quite frankly, at the right time is key to everything that we do, and so what we're seeing in, for instance, with our product expansion, is we have a wide offering. That's a.
Speaker 15: Has a fantastic appeal to our customer and they're responding real well to what we're offering. And so, you know, by covering many different categories across different brands and different occasion sets and you know, different segments of our market, we have an offering that is resonating really well with our customer. And I think you know we've been doing this now for almost four decades and there's been you know number of different economic cycles in H for four decades and I think, if we continue to execute like we've been doing- and you know we've proven over.
Speaker 15: Like the last three years, at how we can execute during very, very challenging times. We feel very, very confident that we are in a solid position to be able to continue to reform through a period, a child, another challenging period and ultimately, what we're what we're, what we're setting our sites on, is ensuring that we keep our eye on the prize for the long term, long term opportunity- we still see the? U's, as there's a lot of white space there- and ensuring that we can continue to build the foundation for getting famous and propelling our brand.
Speaker 15: And providing that exceptional client service that we are known for. That's what will keep us in the gme, So to speak, and I think that's proudven, that's proven through Q1 and it's moving into Q2. And Mike, we've said there's no indicators right now for right now that we're seeing any change in that.
Speaker 15: Yes we're not. We aren't seeing any change in that right now. That that's great and based on your commentary jendaify, it sounds as though the line extensions, notably the swim wear, the launch, is going very well and I'm wondering you know how that might frame how you're thinking about the foundation or the intimate launch in the fault. I'm going to pass that over to Brian because it's a product question, if you don't mind. I mean, I love the swim where. I love what' I love what we're doing. Personally, I think it's great and I know a lot of people are excited about, but Brian can spebig to about that more in terms of the strategy and what.
Speaker 9: Irene. I think you know we launchedwe launched the babavaton and then we launched TN, the support portion of it.
Speaker 9: And now where we've launched relaunched Babaton with our second capsule and I think that you know we're in it for the long games Jen mentioned. I mean these initiatives right now in the shortterm are not going to dri our Sal. What's drive our sales and continue what's being driving our salesales andwe'llcontinue tori rive our sales are as ecuting on what we do every day and these new categories are looking down the road and down in the future as we continue to expand. So you know we're excited about them. The launches have gone extremely well but at the same time I don't think that we 're.
Speaker 9: We're depending on these launches for our sales and driving our growth over the next year years. As Jennifer mentioned, we're going to belooking into the? U's, we're going to be looking into e-commerce, we're going going to be looking to maintain our sales in Canada and continuing to execute on all the things we've done such a good job of and expand all our product expansion initiatives. So that's what we're looking at doing and we're super excited about it and our teams performing extremely well.
Speaker 1: That's great. Thank youthe next question is from Lorraine Hutchinson, with Bank of America. Please go ahead.
Speaker 16: yougood afternooni just wanted to ask on the state of the consumer. Are you seeing any change in consumer behavior in Canada or the? U's be an investketizedze or categories? Is a consumer acting any differently around you going out and where the work? Are you ING any mix shift? Just wanted to get your overall thoughts on where we are, where your customer is and how they're feeliling.
Speaker 4: On the range. That's a good question because we've had lots of internal dialogue about that and, while our business is exceptionally good and continues to be exceptionally good, we are, as I said, monitoring very closely for any sign and, like I said in the prepared remarks, we have not seen any indicators. Sales being at the top line, but we have not seen any indicators whether it be traffic to our website or average transaction size or average selling price. We are not seen indicators at this time and we're very much what other people are reporting.
Speaker 15: But so far right now we are not ING any changes in in the patterns or behaviorsand. If I could just maybe there. It's byant sorry I just add something the only thing we've seen changing is is the product they're purchasing based on the sort of changing face in realities of COVID-19 and opening things up and travel and things. So we've seen some of the product that during COVID-19 was not really registering with clients. We've seen that register quite a bit now and come ING back for us. So we've seen that we've seen the the mix of what we're selling is changed dramatically but.
Speaker 17: Number of boutiques that you might open them there over the long run.
Speaker 18: I'll take that again.
Speaker 19: I don't know if the boutiques themselves and the quantity is changing what we're actually.
Speaker 19: Looking at is changing the footprintts and increasing the footprints of the boutiques, because we have such a long product, a broad product expexperience, and even our largest stores can only hold 50% of our product at this point in time. So we're looking expanding these, and these aren't just the flagshipps we're looking to expand. We're expanding our. Our new stores are getting bigger. Obviously sometimes real estate and the opportunities don't necessarily presented the opportunity for a bigger store, but generally speaking, we change the size of the stores that we're actually communicating to the landlords that we're after, and so we think, rather than opening more stores.
Speaker 19: Grow and continue. Our stores in the? U's continue to grow on a sales for square foot basis. All of the SUD, that does open up some opportunities down the road for secondary and tertiary stores within markets which we're certainly going to be looking at, and that's. We have a lot of experience doing so in Canada. Ok, that's there in te byen. Is there any opportunity in Canada in certain markets where you're also making, you should apply the bouti.
Speaker 20: Some of. I mean we've always talked about new boutiques and reposition boutiques. Presently we're repositioning three in Toronto from sort of 4, 5000 feet up to 15, two thousand feet. We have one and win to pay we're under construction on So we've announced all those stores. We're continuing to do that in Canada, But so we see some growth there. But in the scheme of our growth it's really going to come down to the United States. That's where the big opportunity and that's where we're really excited.
Speaker 20: I mean we've always talked about new boutiques and reposition boutiques. Presently we're repositioning three in Toronto, from sort of 4, 5000 feet up to 15, two thousand feet. We have 1, and Winnipeg we're under construction on. So we've announced all those stores. We're continuing to do that in Canada, But so we see some growth there. But in the scheme of our growth it's really going to come down to the United States. That's where the big opportunity and that's what we'rereally really excited. Ok understood, Thank you very much.
Speaker 21: The next question is: from speef the cloud with be MO capital markets. Please go ahead, Thank you. Thank you, good evening afternoon. I just sort of lots of great ground you covered so far, So thank you. I just wanted to follow up on the gross margin expectation and tod. You gave some some commentary around sort of the the cadence of pressure as the year unfolds or the rest of your uncls, and I'm just curious, like how much, how much visibility do you have into those movements? And one of the biggest things that may cause gross margin potentially come in better or worse thanunexpected.
Speaker 12: Thanks Steve. So the number one thing, as I said, creating the movement quarter--to-quarter, is the variance in expedited freight spend timing last year compared to get this year. So we started in Q3 spending significantly on expedited freight last this year and so therefore in obviously the first half of this year we're lapping a period where we didn't spend it significantly. And then we also have the second quarter, COVID-19, releef subsidies and rent abatements that we received last year that are obviously we're not going to get year.
Speaker 3: And then the store closures from last year as well, in Q1 that we were lapping two months of closures versus one month in Q Q2, and so that leverage that we saw from those stores in Q1, or the revenue that those stores then generated this year, is coming off in Q2. So that's why we're planning on seeing the most pressure in Q2 and then that will begin to ease in Q3 and then, as I said, in Q4 we're anticipating that we have the opportunity to to move slightly positive from a gross profit perspective. What could, what could change?
Speaker 3: Potentially air freight prices could come down, or expedited freight costs, and then we're obviously monitoring our usage as well, and so there could be savings there. But as far as the other inflationary pressures, we're anticipating that those will remain for the rest of the year.
Speaker 18: Okay if I could, if I get, add a little bit. We are seeing some.
Speaker 19: We haven't seen to come through because the product, the product hasn't arrived yet, but we are seeing pressure on costs and things like that.
Speaker 19: Which we've seen over the last sort of 12 months. We're going to see that inflationary pressure on the products coming in, but we're actually anticipating that that will subside when.
Speaker 19: Potentially some kind of recession of some form or another. How deep it is, who knows. But we actually think is, as business and demand peels off to the interest rates increases and things like thatd, that we actually think that that that inflationary pressure might actually ease itself. We're hoping that we're also going to get margins and some of a little bit of leverage to offset some of those inflationary pressures as well. So there's a lot of moving parts here on the product and I'm quite involved in on a daily basis and where there's just a lot of puts and takes and it'll be pretty 'is pretty hard to determine right now where this whole thing'is going to shake out as far as andhow that's going to fect gross margin over above.
Speaker 22: For offering a more broadly.
Speaker 19: Yeah we're not even convinced this point in time. We're going to offer intimates and swimm in our stores. I mean our e commerce channels. That you know where we're doing more business and e commerce now than we were at a rich you public five years ago. So part of the product expansion, some of these initiatives may be e commerce only and there's a lot of peer plays out there doing incredible business without any stores. So we were, we look at our channe and we look at our. Both are well, all our channels, whether that be your conciers and everything else as well, and and the product doesn't necessarily need to go to all through all channels. And presently we're not looking at, we're looking at promoting our swimm things in our stores.
Speaker 19: For sure, our intimates as well. But whether we're going to sell it now or not, that is not does yet to be concluded, and so no, Michigan is not in. The size of Michigan is not related to to that. The size of Michigan related to the success of our larger stores. In Canada, in the? U's, we have the two thousand square foot store and in Toronto that's succeeding our expectations, our store and so Ho is at the size it should be: two thousand feet. So we're looking at these. These expansions is necessary square footage just just to fulfill the existing demand we have from our consumers.
Speaker 18: Great okay, what Thanks so much to that colorthe next question is from delan card en withod. William Blair, Please go ahead.
Speaker 18: I was just hoping you could Deli little more handholding on the inventory growth. How much relates to the closures last year expedited freight how it trends to the balance of the year and then sort of the current nature of the inventory. I notice you mentioned those sort of proven sellers but.
Speaker 23: How much that is new categy extensions just tryingtrans fer impact for people that might be concerned of about ill in all, I'll take the beginning of that. Yes, I'll think about. I think it's starting with last year is probably the right place to start. When you look at the year over year growth last year, throw the entire year we were chasing, our inventory levels were between 20% - 30% up over the prior year, but our sales were up 75%, So we were in an extremely low level last year and so what we're seeing now is getting ourselves back into a position.
Speaker 3: Where we feel comfortable with our inventory levels, and so, while it looks like a larger increase over the prior year right now, if you take out some of the in transit that I talked aboutwe would be down to a 54% increase. But even even that I don't. That's not how we're looking at it. It's really from a building our inventory to be able to meet the demand that we have today and ensuring that we're in the right product. I think you've already heard Brian mention it- that we we are investing in our proven sellers.
Speaker 3: That are going to drive our business in Q3 and Q4 and also potentially in Q1 of next year. So it's we feel extremely comfortable with where we're at right now and frankly, we're still building from. This point is: how is how we are looking at it and making sure that we have the right level of inventory to drive the sales?
Speaker 20: Yes Thank you tod and once again I'm in this every day and tod and I having having the most meaningful discussions. We've had on inventory probably ever and as well. Jennifer and the three of us have been having these discussions as tod mentioned. We 're.
Speaker 19: Grossly under inventory last year when we think we left a lot of, lot of sales on the table. And then we want to not only catch up with that, but we're trying to get our inventory even higher, to to sort of leviate the expedited freight coupled with the ongoing ongoing rolling COVID-19 closures and some of our supply chain as well. And so we're, rather than being sort of.
Speaker 19: Well it taught. I can RE what the numbers you just said. ourselveses were up around 70% in our intory was up 20% or 30% or what if those numbers where we don't just want to get up to 70? We need to get beyond that because we don't want to be a position where we're buying at 70, expecting increases at 70 and all of a sudden we have some COVID-19 shutdowns or there's some shipping delays and things like that. So we're trying to get ourselves in a a position that we're actually even pending swing the Pendy them farther than the other direction. That said, we are cogniz of sort of some potentially pending inflation area effects. They're going to affect everybody in.
Speaker 21: This concludes the question and answer session and today's conference call. You may disconnect your lines.
Speaker 21: Thank you for participating and have a pleessant day.
Speaker 24: Please be patient and operator will be with you shortly. Please be advised that your information will be treated in accordance with the Canadian personal information protection Act. Think that, jacon up youi, I'd like to connect to the rtsawi like part it. Yeah, always are. Yes, Thank you now getting no problearden. I will take question lot. Rachel Snap and the company H fromai or are on Jong, Thank you.