Q3 2024 Aritzia Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to see his third quarter 'twenty 'twenty four earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero I would now like to.
Turn the conference over to Beth Reed, Vice President Investor Relations. Please go ahead.
Beth Reed: Thanks, Michelle and thank you everyone for joining our riskiest third quarter physical plane 24 earnings call on the call today I'm joined by Jennifer Wong, Our Chief Executive Officer, and Todd Ingle due our Chief Financial Officer.
Beth Reed: As a reminder, please note that remarks on this call may include our expectations future plans and intentions that may constitute forward looking information such forward looking information is based on estimates and assumptions made by management regarding among other things general economic and geopolitical conditions as well as the competitive environment actual result.
Beth Reed: They differ materially from the conclusions forecasts or projections expressed by the forward looking information we would refer you to our most recently filed management's discussion and analysis and our annual information form which include a summary of the material assumptions as well as the risks and factors that could affect our future performance and our ability to do.
Beth Reed: Oliver on the forward looking information.
Beth Reed: Our earnings release, the related financial statements and the MD&A are available on SEDAR as well as the Investor Relations section of our web site. Following prepared remarks in order to give everyone. The opportunity to have their questions addressed please limit yourself to one question and a related follow up I'll now turn the call over to Jennifer.
Jennifer Wong: Thanks, Beth good afternoon, everyone happy new year, and thank you for joining US today, the third quarter of fiscal 2024, we delivered net revenue of $654 million, an increase of 5% compared to the third quarter of fiscal 2023. This is on top of delivering.
Outstanding revenue growth of 38% in the third quarter last year and 63% in the third quarter of fiscal 2022.
Jennifer Wong: Comparable sales growth increased one 5% for the quarter on top of a remarkable 23% comparison last year.
Jennifer Wong: In the U S. Our net revenue increased 4% for the quarter on top of 58% growth in the third quarter of last year, while in our Canadian market sales grew 5% as we lap 22% growth in the third quarter of fiscal 2023.
Jennifer Wong: In our retail channel net revenue increased 4% in the third quarter driven by the progress we've made on our real estate expansion strategy.
Jennifer Wong: In Q3, we opened one new boutiques in Charlotte North Carolina, as well as our newly expanded Prudential location in Boston.
Jennifer Wong: Q4, so far we have opened new boutiques in Indianapolis, Indiana border Madera, California, and one boutique expansion in Skokie, Illinois next month, we plan to open another new boutique in Roseville, California, representing three new boutiques in the fourth quarter.
Jennifer Wong: Performance of our new boutiques remains strong and continues to result in better than expected payback period.
Jennifer Wong: Our most recent new boutiques remain on track to payback in approximately one year or less are ahead of our expectations for 12 to 18 months.
Jennifer Wong: Our new Charlotte boutique, we opened in November is generating better than planned sales results and tracking to payback in just 10 months.
Jennifer Wong: Our boutique expenses also continued to perform well elevating the customer experience as well as driving increased revenue and profitability.
Jennifer Wong: Banded boutique we opened in Boston last August is generating incremental sales growth of 40% and rent has increased by only 25% delivering a meaningfully higher contribution.
Jennifer Wong: Turning to ecommerce.
Jennifer Wong: Net revenue increased by 6% in the third quarter. Following three years of extremely strong growth and resulting in a four year CAGR of nearly 40% that said, we believe the potential growth in our E. Commerce channel is greater at our recent performance.
Jennifer Wong: And with that I'm extremely pleased to announce that we have added a chief digital officer to our senior leadership team.
Jennifer Wong: The Chief Digital Officer has oversight of the digital customer journey and is responsible for bringing everyday luxury to life online.
Jennifer Wong: This individual has a proven track record of delivering impressive topline and bottom line results through successfully building and scaling best in class digital businesses.
Jennifer Wong: We've also increased our level of digital marketing, but.
Jennifer Wong: But the natural next step in our Influencer strategy and a complement to our boutique opening we believe digital marketing will help grow our brand awareness in the U S for <unk>.
Jennifer Wong: There are product franchises and position us to acquire even more new customer.
Jennifer Wong: We're also in the process of upgrading our technology stack, which is a major milestone in the e-commerce to point out journey and will help unlock all future customer facing experiences online ultimately positioning us to realize our E. Commerce 2.0 vision across our three value proposition tailored product discovery.
Jennifer Wong: Intuitive experiences and creative innovation.
Jennifer Wong: Throughout the quarter, we continued our pilot of additional omni channel services buy online pick up in store and ship from store, we completed our ship from store rollout in Canada with revenue exceeding our expectations at a minimum we believe the incremental contribution of our Omnichannel services could ultimately draw.
Jennifer Wong: <unk>, a low to mid single digit percentage of E. Commerce sales, we're very encouraged with our early omnichannel or adult and look forward to beginning our rollout in the U S next month.
Jennifer Wong: In product, our assortment of new styles resonated well with our clients during Q3, and we saw a strong start to the outerwear season across Puffers and won't Cote, we continue to expect our assortment to improve with a higher proportion of new styles for spring 2024, which begins to.
Jennifer Wong: Launched at the end of this month.
Jennifer Wong: From an inventory perspective, we're very pleased with the progress we've made and continuing to optimize our position at the end of Q3 inventory was down 22% over last year.
Jennifer Wong: We were able to clear through our inventory and have less product at the end of the season compared to last year and we therefore expect to sell more new products and client favorites for spring.
Jennifer Wong: During the quarter, we had our first ever digital archives sale building on the success of our annual physical warehouse sale here in Vancouver.
Jennifer Wong: With better than planned, allowing us to profitably clear more product early in the season and to test additional inventory clearing strategies as we grow.
Jennifer Wong: To date, we have not seen any material cannibalization to regular price for seasonal sales as a result of the archived sale and to be clear our promotional strategy has not changed we run a full price retail model with markdowns used clear items that we no longer plan to sell in the future.
Jennifer Wong: Throughout the fourth quarter, we expect our inventory position to continue to improve and we look forward to starting spring 2024, with a more optimized product assortment.
Jennifer Wong: In marketing as I mentioned earlier, we have increased our level of digital marketing to propel brand awareness in the U S.
Jennifer Wong: Including paid search and paid social and successfully launch our affiliate marketing program.
Jennifer Wong: Early results have been positive and we are expanding our social and affiliate programs to help ensure our brand is top of mind drive client acquisition and drive conversion.
Jennifer Wong: Our Super Puff campaign. This year featured a cast of high profile, Influencers and celebrities, including Emma Chamberlain.
Jennifer Wong: Jeff and modeled Gab, Brad Bechtle NASCAR driver, Tony bread anger skier Austin Roth and a musician named Maria Saar Doyle, we strategically partner with a wide range of athletes and fashion and cultural icon to connect our super Puff with the whole of our client base.
Jennifer Wong: Our puffer is designed for anyone and everyone already well known for its style. This year, we highlighted that superior technical quality positioning the superpower and the most vertical copper in the marketplace.
Jennifer Wong: Turning to supply chain. This was our first black five day as cyber Monday, utilizing our new Ontario distribution center and it was a tremendous success.
Jennifer Wong: Or coming online just three months earlier, the new facility ramped up smoothly to accommodate volumes higher than we've ever experienced and it operated as our primary distribution center packing three times the number of orders compared to the peak day of our outsourced, Ontario distribution Center last year.
Jennifer Wong: Our already exceptional click the door improve meaningfully in both countries and by 45% or more than an entire day in Canada and the in sourcing facility is both more productive than our prior facility and able to handle all of our east coast volume.
Jennifer Wong: Needless to say, we're extremely pleased with the ramp up of our new facility, where productivity kpis continued to exceed our expectations.
Jennifer Wong: In addition, we have exited all but one of the temporary offsite warehouse facilities, which has resulted in a significant reduction in our inventory management costs.
Jennifer Wong: Our community remains a key priority for Auryxia and this year marks the second year Auryxia created an orange T shirt in recognition of Orange shirt day, we partnered with indigenous artists a lot on Morningstar juul to create especially designed T shirt for our people and clients, which.
Jennifer Wong: Sold out in a matter of hours and enabled us to make our largest donation to date to this organization.
In addition, this holiday season marked our fourth annual warm coat donation, where we give then 4000 winter coats two are a rich Seattle community partners all across North America.
Jennifer Wong: With that I will now pass the call over to Todd.
Todd Ingle: Thanks, Jennifer and good afternoon, everyone our.
Todd Ingle: Our revenue for the third quarter of fiscal 2024 was better than our expectations and we drove meaningful sequential margin improvement compared to the first half of the year.
Speaker Change: Let me take you through the results for the quarter.
Speaker Change: In the third quarter, we generated net revenue of $654 million.
Speaker Change: Representing an increase of 5% from last year.
Speaker Change: This increase is on top of two years of extraordinary growth in the third quarter.
Speaker Change: 38% in fiscal 2023, and 63% in fiscal 2022, resulting in a three year CAGR of 33%.
Comparable sales growth for the quarter increased 5% falling and remarkable increase of 23% last year.
Net revenue in the United States was $327 million in the third quarter, an increase of 4% on top of the third quarter increase of 58% in fiscal 2023 and 115% in fiscal 2022.
Speaker Change: In Canada, net revenue increased 5% to $327 million.
Speaker Change: On top of an increase of 22% in fiscal 2023 and 37% in fiscal 2022.
Speaker Change: In both countries trends improved sequentially throughout the quarter, which ended with our block five day event that broke several records.
Speaker Change: Net revenue in our retail channel was $441 million.
Speaker Change: An increase of 4% from the third quarter last year.
Speaker Change: This was driven by the performance of our new and repositioned boutiques, which continued to generate better than expected payback periods.
Speaker Change: E Commerce net revenue was $212 million, an increase of 6% from last year as we lap three years of unprecedented growth in this channel, resulting in a four year CAGR of nearly 40%.
Speaker Change: We continue to see significant opportunity in our ecommerce business, particularly in the United States, where we expect new boutique openings and increased marketing to generate accelerated traffic trends in fiscal 2025.
Speaker Change: We delivered gross profit of $271 million.
Speaker Change: Roughly flat compared to the third quarter last year.
Speaker Change: Gross profit margin was 41, 5% declining approximately 180 basis points from 43, 3% last year and representing a meaningful sequential improvement compared to the first half of this year.
Speaker Change: The margin decline in the quarter was primarily driven by higher markdowns to support the optimization of our inventory position and pre opening lease amortization costs for our flagship boutiques.
Speaker Change: These impacts were partially offset by lower warehousing and freight costs.
SG&A expenses were $187 million.
Speaker Change: Up 14% from last year.
Speaker Change: SG&A as a percent of net revenue was 28, 7% representing an increase of 250 basis points compared to 26, 2% last year.
Speaker Change: Better than our expectations.
Speaker Change: The increase in SG&A expenses was driven by investments in talent made through the end of fiscal 2023 marketing initiatives and support office expansion all to support our growth.
Speaker Change: Adjusted EBITDA in the third quarter was $92 million, a decrease of 23% from last year.
Speaker Change: Adjusted EBITDA was 14% of net revenue compared to 19, 2% last year.
Speaker Change: The decline in adjusted EBITDA margin, primarily reflects two things.
Speaker Change: Mark Downs to support the optimization of our inventory position and investments made to support our growth.
Speaker Change: At the end of the third quarter inventory was $397 million.
Speaker Change: Down 22% from the end of the third quarter last year. We are pleased with the progress we've made as we continue to optimize both the quantity and composition of our inventory.
Speaker Change: Since the implementation of our current normal course issuer bid on January 22023, we have repurchased $1 1 million subordinate voting shares.
Speaker Change: Returning $30 million to shareholders subsequent.
Speaker Change: Subsequent to the end of our current NCI D. We anticipate commencing another for a one year period, which will be used to offset the dilution of option exercises overtime and purchase shares opportunistically.
Speaker Change: During the third quarter, we generated $172 million in free cash flow and ended the quarter with $141 million in cash.
Speaker Change: We also fully repaid the $100 million drawn on our revolving credit facility.
Speaker Change: In addition, given our growth we extended our revolving credit facility to October 2020, and increase the availability from $175 million to $300 million.
Speaker Change: We remain focused on maintaining a strong balance sheet, which has served us well through time.
Speaker Change: Shifting to our outlook based on quarter to date trends net revenue in the fourth quarter is expected to be in the range of $670 million to $690 million, representing an increase of approximately 5% to 8%.
Speaker Change: This increase includes the benefit of approximately $30 million from the extra week in the fourth quarter of this year.
Speaker Change: This net revenue expectation is on top of two years of exceptional growth, 44% in fiscal 2023 and 66% in fiscal 2022.
Speaker Change: We expect gross profit margin in the fourth quarter to be flat to slightly up compared to the prior year. This represents the continued sequential improvement primarily driven by the ongoing reduction in our warehousing costs.
Speaker Change: And we expect SG&A as a percent of net revenue to be up approximately 250 basis points compared to the prior year.
Speaker Change: For the full year. We currently expect net revenue in the range of $2 three two to 234 billion.
Speaker Change: Compared to our previous outlook of $2, two $5 billion to $235 billion.
Speaker Change: This outlook now represents growth for the year of approximately 6% to 7% for fiscal 2023.
Speaker Change: On top of a 47% increase last year and a 74% increase in fiscal 2022.
Speaker Change: In addition to the five new boutiques and three expanded boutiques already opened year to date, we plan to open one additional new boutique and one additional boutique expansion late in the fourth quarter.
Timing of two of our boutique openings, including our Chicago flagship of shifted from the fourth quarter into next fiscal year.
Speaker Change: We continue to expect gross profit margin to decrease approximately 300 basis points in fiscal 2024 and for SG&A as a percentage of net revenue to increase approximately 300 basis points compared to last year.
Speaker Change: We now expect capital expenditures for fiscal 2024 of approximately $180 million. This includes a $100 million related to our new and expanded boutiques, where we continue to see our most recent new boutiques tracking to payback in approximately one year or less ahead of our expectations for 12 to 18.
Months as.
Speaker Change: As well as $80 million, primarily related to the expansion of our distribution Center network and support office space.
Speaker Change: $40 million reduction compared to our prior guidance, primarily reflects the timing shift from fiscal 2024 to fiscal 2025 of improvements to our distribution center in Columbus, Ohio, and certain store openings.
Speaker Change: Looking to fiscal 2025, we expect top line momentum to accelerate supported by square footage growth of approximately 20% to 25%. This was driven by 11% to 13, new boutiques next year, including our Chicago flagship and four to five newly expanded boutiques, including two of our Manhattan flagship.
Speaker Change: Yes.
Speaker Change: Importantly, our new stores are our most consistent growth driver historically, delivering predictable revenue growth and propelling our brand with.
With continued investment in both our digital experience and digital marketing, we remain confident that both our e-commerce and retail channels will fuel growth of our Omnichannel business.
Speaker Change: We continue to expect meaningful adjusted EBITDA margin improvement in fiscal 2025, with 500 basis points of expansion driven by IME improvements, our smart spending initiatives subsiding transitory cost pressures as well as leverage on fixed costs.
Speaker Change: Closing, we expect sales to accelerate next year, driven by the 20% to 25% square footage growth as well as an improved product position and the execution of our e-commerce to point out strategy.
Compared to the first half of this year, we have already seen our margins begin to normalize with further improvement expected in fiscal 2025.
Speaker Change: We continue to anticipate that our expected revenue acceleration and margin expansion will drive significant earnings growth next fiscal year and beyond.
Speaker Change: With that I'll now turn the call back to Jennifer.
Jennifer Wong: Thanks Todd.
Jennifer Wong: Can see Auryxia delivered meaningful sequential improvement in the third quarter and we remain extremely optimistic about our prospects for accelerated growth.
Jennifer Wong: In Q4, as we continued to anniversary two years of unprecedented sales results. We remain focused on investing in the scalability of our business to set the stage for our next level of growth and help ensure that we can expand in an agile pace.
Jennifer Wong: We're pleased overall with the holiday season, which started off with a record breaking black five day event and we've seen a solid start to the fall and winter sale period.
Jennifer Wong: We're encouraged by the strong response to our assortment of new styles, and we expect the mix of our assortment to be further improved for spring 2024, which launches at the end of this month.
Jennifer Wong: Our real estate strategy continues to deliver better than expected results and we have an extraordinary pipeline of boutiques opening in fiscal 2025, representing annual square footage growth of 20% to 25%. In addition to fueling accelerated retail sales.
Yeah.
Jennifer Wong: Okay.
And then in addition to accelerating retail sales trend, we expect the increased pace of boutique openings to drive incremental E. Commerce sales as we expand into five new markets next year.
Jennifer Wong: In addition to geographic expansion, we see a huge opportunity to accelerate our ecommerce trends through a strategic focus on leadership digital marketing technology and creative innovation.
Jennifer Wong: In closing I would like to thank all of our people across Canada, and the U S for their dedication and hard work, particularly during our busiest time of year as we delivered another successful holiday season.
Jennifer Wong: I am extremely honored to lead this team into the next phase of its growth.
Jennifer Wong: Last but not least I'm also very excited for our spring collection to hit the store and I look forward to introducing everyday luxury to more and more clients as we head into fiscal 'twenty.
Jennifer Wong: Hi.
Alright.
Jennifer Wong: And with that let's please open up the line for questions.
Speaker Change: Thank you to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone 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 two.
Speaker Change: The first question comes from Brian Morrison with TD Cowen. Please go ahead.
Brian Morrison: Good afternoon.
Congratulations on a good quarter, Todd I wanted to ask about the 500 basis points for fiscal 2025. It seems like all the buckets remain unchanged, but you also commented about.
Todd Ingle: A step forward with respect to paid search and digital marketing I'm wondering if you could maybe go into detail if that is factored into your guidance and what steps you have taken and what approach will be taken with that.
Well Brian.
Speaker Change: Brian Thanks for the question I can answer.
Speaker Change: And overall 500 basis point impact perspective of what we're expecting for.
Speaker Change: The margin, but maybe I'll, let Jim answer the second part of your question I'll touch on the digital marketing part of the question.
Jim: We have a significant opportunity in the U S E Commerce space, and we see digital marketing as being a key driver. So could you just give you some color we increased our general marketing spend this past quarter compared to last quarter, which was essentially zero.
Jim: As you know has been <unk>.
Jim: Little mineral.
Jim: No dollars on digital marketing and we will increase our digital marketing spend over time.
Jim: But given the base that we're starting from it will remain at very low single digit percentage of revenue and this is primarily drive our U S E Commerce, which is our most profitable channel.
Jim: And then from <unk>.
Jim: Impacts from margin perspective, we've considered that in our guide of the 500 basis point improvement.
Jim: Obviously with the additional marketing will come additional revenue that will leverage other areas, so well potentially marketing will be a higher percentage of revenue.
Jim: We will see leverage in other areas that will offset that expenditure.
Speaker Change: Okay, Great and then a follow up in terms of product newness Jenn you sound very excited about.
Jenn: What's going to hit the stores in spring and fall of next year, maybe you can just give us some examples of.
Jenn: Not necessarily hurdle rates, but examples of why you're excited in terms of the seating that took place this year and what we should expect.
Jenn: Absolutely Super excited for the spring launch this month in.
Jenn: In a nutshell the proportion of the new in our overall assortment will increase for spring and I would say, we're most of the way there in terms of where we want to be.
Jenn: Essentially expect our assortment to be much more in line with our historical balance. So what does that mean that means when you walk into the store that you walk us through or at the beginning of the season next month. Once we're fully launched roughly half the store will be merchandised with new products and the other half will be merchandise with client favorites that.
Our boutiques, a destination and so knowing that we're getting back to our original playbook. If you will is what has me excited because that's essentially what has driven our success among other things, but it has been at the center of the product driving success for almost nearly 40 years.
Speaker Change: And respect and the ceding that you've done examples of why Youre excited about that.
Speaker Change: Because what I do know is our merchandising strategy and our our assortment strategy allocation strategy is and is a proven strategy for us that is what driven our success for years and so we got away from that in the last few years coming out of Covid could during Covid there was no.
Speaker Change: Playbook sort of through the playbook out the windows talk about that and coming out of Covid and emerging out of Covid.
Speaker Change: Was needed to do was get back to this original playbook, so getting in line with where we have been historically and knowing that when we introduce newness.
Speaker Change: And showcase that to our clients and then in turn.
Speaker Change: <unk> of that become.
Speaker Change: Client favorites.
Speaker Change: Is what fuels our product strategy.
Speaker Change: Good luck and thanks very much.
Speaker Change: Thank you.
Speaker Change: The next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.
Luke Hannan: Yeah, Thanks, and good afternoon, I just wanted to ask about the <unk>.
Speaker Change: Success of the archives, Phil John It sounds like you're pretty positive on what Youre able to see there is the expectation that going forward you may look to clear more product earlier in the season than maybe you have in years past or maybe you can just give us some thoughts on the success of the archived sale and maybe the learnings Robyn.
Speaker Change: Absolutely.
Robyn: The FERC archived cell definitely went better than we planned as you said, it's allowed us to clear more product and I will stay profitably clear more product earlier in the season.
Robyn: <unk>.
Robyn: This is something that we thought we would try this even given the elevated levels of inventory, we're not making any changes to our promotional strategy per se, but this gives us an additional tool or channel shall I say that.
Robyn: As we grow in scale and expand into geographies, it's something that can augment our physical warehouse sale that we have annually here in Vancouver. So we think that this will be something that we could use in the future. Although at this time, we have no plans to have a digital archive sale, we will continue.
Robyn: We have our annual physical warehouse sale here in Vancouver.
Speaker Change: Got it Thanks, and then my second question here is just on maybe where markdown levels or rates are as of today, and where that where that sets up versus pre pandemic levels and maybe what the expectation or what youre seeing so far in Q4 and your expectations moving forward into fiscal 'twenty five.
Speaker Change: Well.
Speaker Change: Okay.
Speaker Change: Yes, sure I'll take that one.
Speaker Change: So we're pleased with obviously the improvement in our inventory levels, which were down 22% in the quarter and we did still achieve our gross margin guidance, but the normalized markdowns were slightly higher than pre pandemic levels.
Speaker Change: In Q3, but for the year, we still expect that our markdowns will continue to be below pre pandemic levels and expect that.
Speaker Change: Next year will be the same.
Speaker Change: Okay. Thank you very much.
Speaker Change: The next question comes from Irene <unk> with RBC capital markets. Please go ahead.
Irene: Thanks, and good afternoon, everyone.
Irene: As you know the store openings is obviously, a big driver of the revenue growth that youre anticipating in F. 'twenty five can you. Please give us an update of the timing.
And at 25, now that we've seen kind of that slippage from late Q4 into next year.
Speaker Change: Yes, Hi, Irene.
Irene: It's relatively consistent with what I provided last quarter. So the concentration of the new stores is in the second and third quarter.
Irene: But I can give you more specifically.
Irene: One new store in Q Q1, and then four in the second quarter.
Irene: Seven in the third quarter and one in the fourth quarter.
Irene: And then I think importantly to note that the expansions, which will primarily be the.
Irene: The at least the largest of which will be our two Manhattan expansion are scheduled for the back half of next year.
Speaker Change: Understood. So.
Speaker Change: If we think.
Speaker Change: Curious are the timing of all of this charge, if we're looking at 20% to 25% square footage growth.
Speaker Change: If we were going to think maybe household bad on the run rate on revenue growth for a little bit more than half does that seem kind of reasonable giving given the timing.
Speaker Change: Yes.
Speaker Change: On the retail revenue I would say a little bit less than that given the heavy weighting in the back half of <unk>.
Speaker Change: The eight stores eight new stores in the back half and then Theres three expansion, but the two largest.
Speaker Change: Are the Manhattan, one so it would be a little a little less than that that we would benefit from next year.
Speaker Change: Okay. That's really helpful. Thank you and then just shifting topic slightly in terms of the retail revenue or the revenue growth, let's call. It mid single digits.
What is your what's your sugars data, telling you around spend per client versus new spend particular, new clients, particularly as youre, increasing our digital marketing spend and to what degree is extending your customer base.
Speaker Change: <unk> of that strategy.
Speaker Change: Quarter over quarter, what we're seeing with new clients and existing clients is that the average basket sizes generally inconsistent.
Speaker Change: What happened is with the new clock when the new clients come on board and they become returning clients. We see the frequency of their visits increase and so that that's what we're looking to do with acquired clients and then also.
<unk>.
Speaker Change: Right.
Speaker Change: <unk> Ah Ah retain and culture.
Speaker Change: Cultivate a loyal client base, we have a very loyal clientele in Canada and our objective is to achieve that same level in the U S. So we see that.
Speaker Change: We still expect to see client growth continue that's what we're aiming for and as far as overall spend we believe that that will remain consistent across.
Speaker Change: Across time over time in between two groups.
Speaker Change: That's great. Thank you.
Speaker Change: Yeah.
Speaker Change: The next question comes from Martin Landry with Stifel. Please go ahead.
Martin Landry: Hi, good afternoon.
Martin Landry: I wanted to touch on your two main markets the U S and Canada.
Your revenues in the U S were up four 2% year over year.
Slower paced than what you generated in Canada. Despite the fact that most of your store openings were in the U S and last year.
Martin Landry: So I was wondering is there anything.
Martin Landry: That could explain why Canada outperformed the U S in terms of revenue growth during the quarter.
Martin Landry: Overall overall as we've said that what we what we see is there is macroeconomic pressure on the consumer.
Across the board across both geographies across both channels there may be some country differences between the two countries.
Martin Landry: Overall, that's what we're seeing what I will say in Canada with our very loyal clientele. We do have a very very loyal following we are very well known and loved in Canada.
Martin Landry: And we are getting more famous in the U S. A but what we're seeing is that our new client growth did moderate over the period and existing clients where shopping left so we see that way, we're upbeat, where there's a period where things have moderated.
Martin Landry: And what we see is that this is likely reflected.
Martin Landry: The macroeconomic pressure on the consumer.
Speaker Change: Okay, and do you expect that trend to continue into Q4.
Speaker Change: Towards the east.
Speaker Change: Okay.
No what we're seeing actually is a bit of a pickup in the fourth quarter and trends in the United States.
Speaker Change: And I think you could also look at just the lapping the U S had meaningful comps over the last two years and so that that's also making it even tougher compare.
Speaker Change: But we actually have seen those trends start to turn in the fourth quarter.
Speaker Change: Okay. Okay. That's helpful. Thank you.
Speaker Change: The next question comes from Mark Petrie with CIBC. Please go ahead.
Mark Petrie: Hey, good afternoon.
Mark Petrie: I know it won't be until next months, where you're back to sort of normal levels on new items, but you did.
Mark Petrie: Paul It out as a benefit in Q3, and just hoping you can.
Mark Petrie: Expand on that a little bit specifically, how the performance varied if at all between Canada, and the U S as well as across categories and brands.
Speaker Change: Oh, Hi, definitely.
Say that there was a notable difference between the two countries.
Speaker Change: But what we did see this quarter is that compared to last year. If you look at it in terms of the contribution to overall sales newness doubled.
Speaker Change: From last year.
Speaker Change: But same time last year.
Yeah, Okay, Okay perfect.
Speaker Change: And then following up on on Irene's question, obviously, the flagship stores are a big part of the square footage growth.
Speaker Change: For fiscal 'twenty five.
Speaker Change: Joe you secured attractive rent deals.
Speaker Change: And that goes a long way instruments are supporting the financials for those for those patients.
Speaker Change: Or are you thinking about the sales productivity.
Speaker Change: Of that space versus.
Speaker Change: The approved typical store.
Speaker Change: These flagships theres there.
Speaker Change: A very important brand propelling factor with these flagships the where they are located as we've shared or is some of the best real estate in the U S is arguably north America, so the positioning and the actual physical location of these stores is very important to our overall <unk>.
Speaker Change: Hitting and brand awareness.
Speaker Change: Campaign, if you will as we as we expand in the U S in terms of actual productivity.
Speaker Change: I would point to what our existing expansion so far.
<unk> has indicated which is when we expand a store like the one we did in Boston, we see that the overall contribution increases as a result of the increased square footage because it allows us to showcase more product in a very elevated.
Speaker Change: Everyday luxury fashion it improves the shopping and client experience because we know there's more space. We can have more fitting rooms that we can have this this is generally a nicer client experience and then with yeah I got to give a shout out to the to the leasing team that.
Speaker Change: Negotiate great.
Speaker Change: Okay.
Speaker Change: Leases for us that allows us to have.
Speaker Change: And overall.
The higher contribution on the bottom line the between the total productivity of the stores and the lower rent per square foot. At this is is meaningful contribution. So we know that our boutique expansion is a meaningful contribution to our overall sales.
Speaker Change: Okay, that's very helpful and if I could ask one more I guess for Todd.
Speaker Change: What was the impact of the fishing.
Todd Ingle: Phishing feed work in Q3, and how should we think about the benefit flowing through in Q4, and then in fiscal 'twenty five.
Speaker Change: Sorry, Marc I missed that you said efficiencies and then of something and it was in <unk>.
Marc: So what you said.
Marc: Yes, sorry, I mean, you guys have been working on on a whole host of it.
Marc: Projects regarding efficient.
Marc: Quantify that how much of that flowed through in Q3, how should we think about the benefit in Q4 and next year.
Speaker Change: Yeah, so for for next year.
Speaker Change: Which would be inclusive.
Speaker Change: Things were seeing this year is $60 million is the benefit we're expecting but it won't be completely incremental because we're expecting about $30 million of the benefit this year.
So that that's coming primarily in the third and fourth quarter. So you can think of that as approximately $15 million of.
Speaker Change: A benefit in Q3 and $15 million in Q4 and then.
Remaining 30 will come next year, and then potentially some additional.
Okay understood. Thanks for all the comments all of us.
Speaker Change: Okay.
Speaker Change: The next question comes from Stephen Macleod with BMO capital markets. Please go ahead.
Stephen Macleod: Perfect Okay.
Stephen Macleod: Thank you.
Stephen Macleod: Just wanted to ask a question about SG&A.
Stephen Macleod: When you think about the Q4 guidance that you've laid out.
Stephen Macleod: I would've expected to see a bit more SG&A leverage so I'm just curious if you're observing.
Stephen Macleod: There you can point to that's happening in Q3 Q4 on.
Stephen Macleod: On the SG&A side.
Speaker Change: Yes, so specifically.
As we said.
Speaker Change: We're expecting 250 basis points of pressure in the fourth quarter, which is consistent with the third quarter.
Speaker Change: Really from the same items, which is investments in retail and support office talent digital marketing initiatives in support office expansion and.
We have left the guidance for the year.
Speaker Change: 300 basis points up so I think thats, what youre driving that given the improvement that we saw in Q3 against our guide, but I think we just felt from a conservatism perspective that it made sense not to flow through that benefit into the full year.
Speaker Change: But it will be the same pressures in the fourth quarter that we saw in the third.
Speaker Change: That's how we're planning for it.
Speaker Change: Okay, Okay, great and just in terms of the sales sales by channel.
Speaker Change: Give some color on sort of what you saw in Q3.
Speaker Change: And I'm just wondering if you can give some color on what youre seeing on a quarter to date basis in Q4.
Speaker Change: Terms of by geography, and end channel like are you seeing that sort of positive same store sales growth trend continuing into Q4.
Speaker Change: Yes, our trends in Q4 have continued.
Speaker Change: The momentum has continued effectively from the third quarter.
Speaker Change: We're pleased with that and happy with the start to the quarter, obviously still a lot of weeks ago, especially with the additional week, but we're very pleased with what we're seeing right now unable to comment just around what youre seeing by specifically by channel and geography.
Speaker Change: When you think we will get into that detail when we report the quarter, but it is consistent from the third quarter, leading into the far theres been no mark changes all of a sudden going from one quarter to the next yes, save a little bit of a pickup in the United States.
Speaker Change: Yep Yep.
Speaker Change: Okay. That's great. Thank you very much.
The next question comes from Michael Glen with Raymond James. Please go ahead.
Michael Glen: Hey, Thanks for taking the question just going back on the 500 basis points for fiscal 'twenty five have you provided or given an indication about how to think about that.
Michael Glen: Bucket that between gross margin expansion and SG&A leverage.
Michael Glen: Yes.
Michael Glen: A lot of the components hit hit.
Michael Glen: Gross profit so if you walk through them 150 basis points from IMU improvement, obviously thats all within gross profit to 150 to 200 basis points in our smart spending initiatives, that's about 60% SG&A, 40% gross profit and then the 125 basis.
Michael Glen: Points pickup from transitory costs subsiding is effectively our distribution center.
Michael Glen: In Toronto as that ramps and we are.
Michael Glen: Our temporary warehousing cost falloff.
Michael Glen: It fits within gross profit our Cogs. So affects the gross profit line and then our pre opening lease amortization as the other transitory costs. So thats also.
Michael Glen: An improvement to the gross profit line. So the majority of the 500 is hitting the gross profit line.
Michael Glen: But you would expect to be able to leverage SG&A next year is that a fair assumption.
Speaker Change: Yes, there is some improvement from SG&A related to the smart spending initiatives as well as leverage from our higher revenue. So.
Speaker Change: There is obviously this is all contingent on on the revenue levels that we achieved next year.
Speaker Change: Okay and then.
Speaker Change: What kind of commentary can you provide around the competitive environment that youre seeing or are you seeing.
Speaker Change: Increased competition in your core markets.
Speaker Change: How how things evolved over the past year.
Speaker Change: Yeah My comment on the competitive landscape is essentially we still continue to see no. One that can compete with us on the breadth of our products or on the quality care and attention they'll go into our products of our boutiques we have operated.
Speaker Change: Okay.
Speaker Change: For decades, we've always operated in a competitive environment and while as we become more and more well known and get more famous in the U S. Certainly we are coming up on competitors' radars and I just see this as an opportunity to double down on our marketing and communicating effectively to ensure that our everyday.
Speaker Change: Luxury value proposition is well understood by the U S and prospective clients alike as it is with our existing loyal clientele.
Speaker Change: Okay. Thank you for taking the questions.
Speaker Change: Once again, if you have a question. Please press Star then one.
Speaker Change: Next question comes from Alex Yao with Bank of America. Please go ahead.
Alex Yao: Hi, Thanks for taking the question can you give an update about how much outerwear is as a percent of total sales and what percentage of that is just super Puff franchise and also how outerwear sales have trended versus last year given the recent warmer weather in both U S and Canada. Thank you.
Speaker Change: Well I won't tell you exactly how much outerwear makes up as a percentage of sales we never we never share what how our categories stack up but what I will say is overall, our outerwear sales were a positive two year over year. Certainly this is driven by the Super Puff that is a product a franchise of ours, but as mentioned we are <unk>.
Speaker Change: It's received a lot of attention I'm, just given their high luxurious quality and attainable price point. So we're super pleased that the superclass continues to perform well for us.
Speaker Change: And.
Speaker Change: As I said that we always we still saw strong demand for our world codes.
Speaker Change: That said outerwear across the board performed very well and I'll remind you that no one brand, including the Super Puff accounts for more than 10% of our annual sales that Mike speaking.
Mike: Thank you and if I may one more just can you also talk a little bit about the sales trends by month and is black Friday was stronger than Christmas and also in certain categories and sub brands did better than others.
Speaker Change: Thank you.
Speaker Change: During the quarter.
Speaker Change: We had sequential.
Speaker Change: Yes sequential improvement I guess I would say throughout the quarter with November being our best month.
Speaker Change: What were finding with our holiday period, essentially now startling starting in block five day things are kind of even out between the black five day period versus boxing week, which is which you know historically.
Speaker Change: Historically it was very it's still a very big in Canada, but historically it was you know our equivalent of the Black Friday, but things are kind of what I would say as we you know it's sort of.
Speaker Change: We saw it smooth out a little bit.
And not be so.
Peak and Valley, if you will as we've seen it in the past certainly we broke a lot of records as Todd mentioned in his prepared remarks, we broke a lot of records on Black Friday, including it being some of our top sales days in our retail stores ever that includes even in Canada as well and a couple of cases, so we just.
Speaker Change: We just kind of continue to see block five day would be a big event.
Speaker Change: And it just being an extended long period between November into December.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session I would now like to turn the conference back over to Beth Reed for any closing remarks.
Beth Reed: Thanks, again to everyone for joining us. This afternoon, we're available after the call to answer further questions and we look forward to providing another update at the end of next quarter.
Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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