Q4 2024 Aritzia Inc Earnings Call

Thank you for standing by this is the conference operator welcome to R. A T S fourth quarter 'twenty 'twenty four earnings conference call.

Operator: Thank you for standing by. This is the conference operator. Welcome to Aritzia's fourth quarter 2024 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

Operator: 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.

Operator: I'd like to turn the conference over to Beth Reed Vice President Investor Relations. Please go ahead.

Operator: Good afternoon, and thanks for joining our riskiest fourth quarter fiscal 'twenty 'twenty four earnings call on the call today I'm joined by Jennifer Wong, Our Chief Executive Officer, and Todd angle do our Chief Financial Officer.

Beth Reed: Good afternoon, and thanks for joining Aritzia's fourth quarter fiscal 2024 earnings call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer, and Todd Ingledew, 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 results may 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 in our annual report.

Beth Reed: As a reminder, please note that remarks on this call may include our expectations future plans and intention 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.

Beth Reed: Actual results may 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 risks and factors that could affect our future.

Beth Reed: Performance and our ability to deliver on the forward looking information our earnings release, the related financial statements and the MD&A are available on SEDAR, plus as well as the Investor Relations section of our website I will now turn the call over to Jennifer.

Jennifer Wong: Thanks, Beth. Good afternoon, everyone, and thank you for joining us today.

Beth Reed: Thanks, Beth good afternoon, everyone and thank you for joining us today for the fourth quarter of fiscal 'twenty 'twenty four we delivered net revenue of $682 million, an increase of 7% compared to the fourth quarter of fiscal 2023. This is on top of delivering outstanding revenue growth of 44.

Jennifer Wong: For the fourth quarter of fiscal 2024, we delivered net revenue of $682 million, an increase of 7% compared to the fourth quarter of fiscal 2023. This is on top of delivering outstanding revenue growth of 44% in the fourth quarter last year. It's also on top of 66% growth in the fourth quarter of fiscal 2022. All financial metrics discussed today are inclusive of the 53rd week of fiscal 2024, except for comparable sales.

Jennifer Wong: 4% in the fourth quarter of last year. It's also a drop of 66% growth in the fourth quarter of fiscal 2022.

Jennifer Wong: All financial metrics discussed today are inclusive of the 53rd week in fiscal 2024, except for comparable sales.

Jennifer Wong: Comparable sales declined 3% for the quarter as we cycled a remarkable 32% increase in Q4 of last year in the U S. Our net revenue increased 9% for the quarter, while sales grew 4% in Canada.

Jennifer Wong: In our retail channel net revenue increased in the fourth quarter by 15%. This was driven by the progress we've made on our real estate expansion strategy.

Jennifer Wong: Comparable sales declined 3% for the quarter as we cycled a remarkable 32% increase in Q4 last year. In the U.S., our net revenue increased 9% for the quarter, while sales grew 4% in Canada. In our retail panel, net revenue increased in the fourth quarter by 15%. This was driven by the progress we've made on our real estate expansion strategy. During the quarter, we opened three new boutiques in Indianapolis, Indiana; Forta Madera, California; and Roseville, California. We also opened a newly repositioned location in Skokie, Illinois. Thus far in Q1, we've completed the repositioning of our Oak Brook, Illinois boutique. We also opened a Raining Champ pop-up at Yorkdale in Toronto.

Jennifer Wong: During the quarter, we opened three new boutiques, Indianapolis, Indiana, Florida, Madera, California, and Roseville, California. We also opened our newly we position location in Skokie, Illinois.

Jennifer Wong: Thus far in Q1, we have completed the reposition of our Oak Brook, Illinois boutique. We also opened a rainy Champ pop up at Yorktown and Toronto.

Jennifer Wong: Finally, we plan to open a new boutique in Boca Raton later this month, our fourth boutique in the state of Florida. This is significant because boutique openings have been our most consistent and predictable driver of top-line growth. The performance of our new boutiques remains strong, beyond our expectations. The cohort of six new boutique openings in fiscal 2024 is tracking to pay back in under 12 months. This beats our own projections of 12 to 18 months.

Jennifer Wong: Finally, we plan to open our new boutique and Boca Raton later this month, our fourth boutique in the state of Florida.

Jennifer Wong: This is significant because boutique openings have been our most consistent predictable driver of top line growth the performance of our new boutiques remains strong beyond our expectation.

Jennifer Wong: Cohort six new boutique openings and physical 'twenty 'twenty four is tracking to pay back in under 12 months.

Jennifer Wong: This beats our own projections of 12 to 18 months.

Jennifer Wong: But it's not just the new boutiques that are performing very well and driving our top line growth; our boutique repositions are delivering as well. Repositioning elevates the customer experience and drives increased revenue and profitability. From fiscal 2022 to 2024, we completed six repositions in the U.S.

Jennifer Wong: But it's not just the new boutiques that are performing very well and driving our top line growth our boutique repositions are delivering as well.

Jennifer Wong: Reposition elevate the customer experience and drive increased revenue and profitability.

Jennifer Wong: For fiscal 2022 to 'twenty 'twenty four we completed fixed rate positions in the U S. Collectively we more than doubled the square footage of these boutiques and drove an even higher increase in sale.

Jennifer Wong: Collectively, we more than doubled the square footage of these boutiques and drove an even higher increase in sales. This resulted in a mid-single-digit lift in sales per square foot. Turning to e-commerce, net revenue decreased by 3% in the fourth quarter. This was driven by a lower volume of markdown sales compared to the fourth quarter last year.

Jennifer Wong: This resulted in a mid single digit lift in sales per square foot.

Jennifer Wong: Turning to E Commerce net revenue decreased by 3% in the fourth quarter.

Jennifer Wong: This was driven by a lower volume of markdown sales compared to the fourth quarter of last year a tremendous.

Jennifer Wong: The tremendous opportunity we see in e-commerce is far greater than our recent performance, but we also recognize we're coming off three years of unprecedented growth, delivering a four-year e-commerce net revenue growth of 34%. We're confident that as we continue to optimize the composition of our product, brands will re-accelerate. In addition to optimizing our product, we're focusing on three areas to further support growth in e-commerce. For one, we're investing in digital performance marketing. This will help amplify our product franchises, grow brand awareness in the U.S., and drive customer engagement.

Jennifer Wong: The opportunity we see in e-commerce is far greater than our recent performance, but we also recognize we're coming off three years of unprecedented growth delivering a four year E Commerce net revenue CAGR of 34%.

Jennifer Wong: We're confident that as we continue to optimize the composition of our product brands will reaccelerate.

Jennifer Wong: In addition to optimizing our product we're focusing on three areas to further support growth in E Commerce.

Jennifer Wong: One we're.

Jennifer Wong: We're investing in digital performance marketing this will help amplify our product franchises grow brand awareness in the U S and drive customer engagement to we're making good progress on upgrading the technology that underpins our ecommerce platform, we have bold creative plans for delivering an outstanding customer experience.

Jennifer Wong: Two, we're making good progress on upgrading the technology that underpins our e-commerce platform. We have bold, creative plans for delivering an outstanding customer experience on Aritzia.com.

Jennifer Wong: Thunderbirds, Yeah dotcom.

Jennifer Wong: This latest technology will allow us to reach these goals. And three, we're optimizing our omni capabilities. As a reminder, in Q3 in Canada, we completed the rollout of buy online, ship from store and continued piloting buy online, pick up in store. In Q4, we launched omni-channel capabilities in the U.S. Early results are encouraging, and we look forward to ramping up buy-online, pick-up-and-store to more than 100 boutiques this quarter. Omnichannel services optimize our inventory and lower our distribution costs. In addition, we believe Omnichannel will ultimately drive incremental low- to mid-single-digit e-commerce sales growth.

Jennifer Wong: Latest technology will allow us to reach these goals.

Jennifer Wong: And three we're optimizing our omni capabilities.

Jennifer Wong: As a reminder, in Q3 in Canada, we completed the rollout of buy online ship from store and it continued piloting buy online pick up in store.

Jennifer Wong: In Q4, we launched Omnichannel capabilities in the U S. Early results are encouraging and we look forward to ramping up buy online pick up in store to more than 100 boutiques this quarter.

Jennifer Wong: Omnichannel services optimize our inventory and lower our distribution costs. In addition, we believe Omnichannel will ultimately drive incremental low to mid single digit e-commerce sales growth.

Jennifer Wong: Turning now to product one of our primary goal continues to be improving the composition of our product both online and in our boutiques and that's exactly what we're doing we have achieved a much better balance of newness and client favorite at our composition has continued to improve in Q1.

Jennifer Wong: Turning now to product, one of our primary goals continues to be improving the composition of our product, both online and in our boutiques, and that's exactly what we're doing. We've achieved a much better balance of newness and client favorites, and our composition has continued to improve in Q1. Furthermore, our new styles have been well-received, which is a positive indicator for future seasons. We're pleased with the progress we made on our inventory position. We successfully cleared through our fall-winter inventory, ending Q4 with inventory down 27% compared to last year.

Jennifer Wong: Furthermore, our new styles have been wildly seed, which is a positive indicator for future seasons.

Jennifer Wong: We're pleased with the progress we made on our inventory position, we successfully cleared through our fall winter inventory, ending Q4 with inventory down 27% compared to last year.

Jennifer Wong: In March we launched Golden Goldman is an expansion of the athletic assortment, we offered under our TNA brand and allows us to address even more of our clients activewear knee.

Jennifer Wong: In March, we launched GOLDEN. GOLDEN is an expansion of the athletic assortment we offer under our TNA brand and allows us to address even more of our clients' activewear needs. GOLDEN is designed for the athlete who loves all things refined. It features luxuriously crafted essentials made with high-performance fabrics and next-level details. This represents beauty and sport, something we call the aesthetics of athletics.

Jennifer Wong: Goldman is designed for the athlete who can who loved all things were fine. It features luxuriously crafted essential made with high performing fabrics and next level detail.

Jennifer Wong: This represented beauty and sport something we call the aesthetics of athletic.

Jennifer Wong: In marketing our spring Sweat. Please campaign featured international Supermodel and ongoing brand fan arena, shake, establishing cultural relevant and fast and credibility.

Jennifer Wong: In marketing, our Spring Sweatsleeves campaign featured international supermodel and ongoing brand fan Irina Shayk, establishing cultural relevance and fashion credibility. Alongside the campaign, more than 100 aspirational influencers highlighted the stunning versatility of sweatsleeves by showing their audience how they were #hashtag spotted in sweatsleeves. We also continued growing our community of celebrity fans, including Blake Lively and Babaton at the Super Bowl and Meghan Markle in the Super Puff.

Jennifer Wong: Low size the campaign more than 100, aspirational influencers and highlighted the styling versatility of sweat please by showing their audience, how they were hashtags bought it and swiftly.

Jennifer Wong: We also continued growing our community of celebrity fans, including Blake lively and by Baton at the Super Bowl and Megan Marco in the superpower.

Jennifer Wong: In addition to propelling brand awareness and driving client engagement. We also see a tremendous opportunity in marketing to amplify our product franchises over the last 40 years or which has become the creator and purveyor of everyday luxury our clients know and love the Auryxia brand, which is inspired.

Jennifer Wong: In addition to propelling brand awareness and driving client engagement, we also see a tremendous opportunity in marketing to amplify our product franchises. For the last 40 years, Aritzia has become the creator and purveyor of everyday luxury. Our clients know and love the Aritzia brand, which has inspired us to offer more of our styles under the Aritzia name. This enables us to focus and augment the brand as we continue to increase awareness, particularly in the U.S. Of course, our multi-brand strategy is one of our key competitive advantages, so we will continue to create, design, and evolve our collection of exclusive brands that cater to the lifestyles of our clients.

Jennifer Wong: To offer more of our styles into the or what's your name. This enabled us to focus and augment the brands as we continue to increase awareness, particularly in the U S.

Jennifer Wong: And of course, our multi brand strategy is one of our key competitive advantages.

Jennifer Wong: We will continue to create design and evolve our collection of exclusive brands that cater to the lifestyles of our clients.

Jennifer Wong: During the quarter, we continued to optimize our distribution network the ramp up of our new Ontario distribution Center has gone extremely well.

Jennifer Wong: During the quarter, we continued to optimize our distribution network. The ramp-up of our new Ontario Distribution Centre went extremely well. Productivity KPIs continue to beat our expectations. Pick and pack metrics have increased by more than 70% compared to the prior third-party facility. E-commerce pick specifically has increased by more than 90%. Per unit, labor costs are down meaningfully, and we have now exited all of our temporary off-site facilities, resulting in a significant reduction in our inventory management costs. Now, I'll turn the call over to Todd.

Todd: Connectivity Kpis continue to beat our expectation pick and pack metrics have increased by more than 70% compared to the prior third party facility.

Todd: Congress fixed specifically has increased by more than 90%.

Todd: Unit labor cost are down meaningfully and we have now exited all of our temporary all site facilities, resulting in a significant reduction in our inventory management costs.

Jennifer Wong: Now I'll turn the call over to Todd.

Todd Ingledew: Thanks, Jennifer, and good afternoon, everyone. Before I begin, note that all financial metrics discussed today are inclusive of the 53rd week, except for comparable sales. I'll now take you through the results.

Todd: Thanks, Jennifer and good afternoon, everyone.

Todd Ingledew: Before I begin note that all financial metrics discussed today are inclusive of the 50 <unk> week, except for comparable sales.

Todd Ingledew: I'll now take you through the results.

Todd Ingledew: Net revenue for the fourth quarter was in line with our outlook and as expected we delivered further margin improvement.

Todd Ingledew: Net revenue for the fourth quarter was in line with our outlook, and as expected, we delivered further margin improvement, continued to optimize their inventory, and completed and progressed multiple infrastructure projects to support our future growth. In the fourth quarter, we generated net revenue of $682 million, representing an increase of 7% from last year. This increase is on top of two years of extraordinary growth in the fourth quarter, 44% in fiscal 2023 and 66% in fiscal 2022, resulting in a three-year CAGR of 37%. As expected, we saw an approximate $32 million benefit from the 53rd week.

Todd Ingledew: To optimize our inventory and completed and progressed multiple infrastructure projects to support our future growth.

Todd Ingledew: In the fourth quarter, we generated net revenue of $682 million, representing an increase of 7% from last year.

Todd Ingledew: This increase is on top of two years of extraordinary growth in the fourth quarter, 44% in fiscal 2023 and 66% in fiscal 2022.

Todd Ingledew: Resulting in a three year CAGR of 37%.

Todd Ingledew: As expected, we saw an approximate $32 million benefit from the 50 <unk> week.

Todd Ingledew: Following a remarkable increase of 32% last year, our comparable sales for the quarter declined 3%.

Todd Ingledew: Following a remarkable increase of 32% last year, our comparable sales for the quarter declined 3%. Due to our improved inventory position, our comparable sales performance was impacted by a lower volume of markdown sales in the fourth quarter compared to last year. Net revenue in the United States increased 9% to $369 million, on top of an increase in the fourth quarter last year of 56% and 109% in fiscal 2022. In Canada, net revenue increased 4% to $313 million, on top of an increase of 32% in fiscal 2023 and 39% in fiscal 2022. Comparable sales results were similar across geographies, as we saw consistent shopping behavior on both sides of the border.

Todd Ingledew: Due to our improved inventory position our comparable.

Todd Ingledew: Comparable sales performance was impacted by a lower volume of markdown sales in the fourth quarter compared to last year.

Todd Ingledew: Net revenue in the United States increased 9% to $369 million on top of an increase in the fourth quarter last year of 56% and 109% in fiscal 2022.

Todd Ingledew: In Canada net revenue increased 4% to $313 million on top of an increase of 32% in fiscal 2023 and 39% in fiscal 2022.

Todd Ingledew: Comparable sales results were similar across geographies as we saw consistent shopping behavior on both sides of the border.

Todd Ingledew: Net revenue in our retail channel was $416 million, an increase of 15% from the fourth quarter last year.

Todd Ingledew: Net revenue in our retail channel was $416 million, an increase of 15% from the fourth quarter last year. This was driven by the performance of our new and repositioned boutiques, which continue to generate better-than-expected payback periods. Comparable sales growth in our boutiques was positive. In e-commerce, net revenue for the quarter was $266 million, a decrease of 3% from last year. E-commerce was impacted more heavily by the lower volume of markdown sales.

Todd Ingledew: This was driven by the performance of our new and repositioned boutiques, which continue to generate better than expected payback periods.

Todd Ingledew: Apparel sales growth in our boutiques was positive.

Todd Ingledew: And E Commerce net revenue for the quarter was $266 million a decrease of 3% from last year.

Todd Ingledew: Commerce was impacted more heavily by the lower volume of markdown sales.

Todd Ingledew: We delivered gross profit of $261 million, an increase of 8% compared to the fourth quarter last year.

Todd Ingledew: We delivered growth profit of $261 million, an increase of 8% compared to the fourth quarter last year. As expected, gross profit margin increased positively, increasing 30 basis points to 38.3% from 38% last year. The increase was primarily driven by select pricing adjustments and lower warehousing and distribution costs.

Todd Ingledew: As expected gross profit margins inflected positively increasing 30 basis points to 38, 3% from 38% last year.

Todd Ingledew: The increase was primarily driven by select pricing adjustments and lower warehousing and distribution costs.

Todd Ingledew: Although partially offset by inflation and product costs and pre-opening lease amortization for flagship boutiques, SG&A expenses for the quarter were $197 million, up 15% from last year. SG&A as a percent of net revenue was slightly better than our expectations, up 200 basis points to 28.9% compared to 26.9% last year. This was driven by investments in talent made through the end of fiscal 2023, as well as digital marketing initiatives to protect and propel our brand and technology to enhance our e-commerce platform. Adjusted EBITDA in the fourth quarter was $73 million, a decrease of 9% from last year.

Todd Ingledew: Actually offset by inflation in product costs, and pre opening lease amortization for flagship boutiques.

Todd Ingledew: SG&A expenses for the quarter were $197 million.

Todd Ingledew: Up 15% from last year SG&A as a percentage of net revenue was slightly better than our expectations up 200 basis points to 28, 9% compared to 26, 9% last year.

Todd Ingledew: This was driven by investments in talent needs through the end of fiscal 2023 as well as digital marketing initiatives protect and propel our brand and technology to enhance our e-commerce platform.

Todd Ingledew: Adjusted EBITDA in the fourth quarter was $73 million, a decrease of 9% from last year.

Todd Ingledew: Adjusted EBITDA was 10.6% of net revenue compared to 12.4% last year, representing further sequential improvement. At the end of the fourth quarter, inventory was $340 million, down 27% from the end of the fourth quarter last year. We are pleased with our improved inventory position and continue to optimize the composition. During the fourth quarter, we generated $23 million in free cash flow and ended the quarter with $163 million in cash and zero drawn on our $300 million revolving credit facility.

Todd Ingledew: Adjusted EBITDA was 10, 6% of net revenue compared to 12, 4% last year, representing further sequential improvement.

Todd Ingledew: At the end of the fourth quarter inventory was $340 million down 27% from the end of the fourth quarter last year.

Todd Ingledew: We are pleased with our improved inventory position and continue to optimize the composition.

Todd Ingledew: During the fourth quarter, we generated $23 million in free cash flow and ended the quarter with $163 million in cash and zero drawn on our $300 million revolving credit facility.

Todd Ingledew: We remain focused on maintaining a strong balance sheet and expect to see meaningful free cash flow generation starting in the back half of fiscal 2025 as we finish our major capital project. I will now shift to our outlook for the first quarter and fiscal year 2025. Based on quarter-to-date trends, net revenue in the first quarter of fiscal 2025 is expected to be in the range of $475 to $495 million, representing an increase of 3 to 7 percent compared to the first quarter of last year.

Todd Ingledew: We remain focused on maintaining a strong balance sheet and expect to see meaningful free cash flow generation starting in the back half of fiscal 2025, as we finish our major capital projects.

Todd Ingledew: I will now shift to our outlook for the first quarter and fiscal year 2025.

Todd Ingledew: We expect gross profit margin in the first quarter to increase by approximately 450 basis points compared to the first quarter of fiscal 2024, driven by IMU improvements, lower warehousing costs, lower markdowns, and savings from our Smart Spending Initiative. We forecast SG&A as a percent of net revenue to increase by approximately 250 basis points in the first quarter, driven by investments in digital marketing and technology initiatives. For the full year, we currently expect net revenue in the range of $2.52 to $2.62 billion. This outlook represents growth for the year of 8 to 12 percent from fiscal 2024. Excluding the 53rd week in fiscal 2024, this represents growth of 10 to 14%.

Todd Ingledew: Based on quarter to date trends net revenue in the first quarter of fiscal 2025 is expected to be in the range of $475 million to $495 million, representing an increase of 3% to 7% compared to the first quarter last year.

Todd Ingledew: We expect gross profit margin in the first quarter to increase by approximately 450 basis points.

Todd Ingledew: Impaired to the first quarter of fiscal 2024, driven by I M. Your improvement lower warehousing costs, lower markdowns and savings from our smart spending initiative.

Todd Ingledew: We forecast SG&A as a percent of net revenue to increase by approximately 250 basis points in the first quarter driven by investments in digital marketing and technology initiatives.

Todd Ingledew: For the full year. We currently expect net revenue in the range of $2.52 billion to $2.62 billion.

Todd Ingledew: This outlook represents growth for the year of 8% to 12% from fiscal 2024 <unk>.

Todd Ingledew: Excluding the 50 <unk> week in fiscal 2024, this represents growth of 10% to 14%.

Todd Ingledew: Our fiscal 'twenty 25, net revenue outlook reflects the anticipated cadence of our boutique openings and accommodates for a range of macroeconomic scenarios.

Todd Ingledew: In fiscal 2025, we plan to open 11 to 13, new boutiques, including our Chicago flagship and to reposition three to four boutiques, including two of our Manhattan flagships.

Todd Ingledew: Our fiscal 2025 Net Revenue Outlook reflects the anticipated cadence of our boutique openings and accommodates for a range of macroeconomic scenarios. In fiscal 2025, we plan to open eleven to thirteen new boutiques, including our Chicago flagship, and to reposition three to four boutiques, including two of our Manhattan flagships. Other than one new boutique and one reposition in Canada, all openings and repositions are in the United States.

Todd Ingledew: Other than one new boutique and one repositioning Canada, all openings and Repositions are in the United States.

Todd Ingledew: We anticipate total square footage growth of approximately 20 to 25 percent. I can't emphasize enough that our new stores are our most consistent growth driver, delivering predictable revenue growth and attractive payback periods. In addition to building brand awareness, driving significant client acquisition, and fueling e-commerce sales, we forecast meaningful gross profit margin expansion for the year, an increase of approximately 400 to 450 basis points compared to last year. This reflects IMU improvements, lower warehousing costs, lower markdowns, and savings from our Smart Spending Initiative.

Todd Ingledew: We anticipate total square footage growth of approximately 20% to 25%.

Todd Ingledew: I can't emphasize enough that our new stores are our most consistent growth driver delivering predictable revenue growth and attractive payback periods. In addition to building brand awareness driving significant client acquisition and fueling E Commerce sales.

Todd Ingledew: We forecast meaningful gross profit margin expansion for the year, an increase of approximately 400 to 450 basis points compared to last year.

Todd Ingledew: This reflects I'm you improvements lower warehousing costs.

Todd Ingledew: Lower markdown and savings from our smart spending initiative.

Todd Ingledew: SG&A as a percent of net revenue is expected to be approximately flat to down 50 basis points compared to fiscal 2024.

Todd Ingledew: SG&A as a percent of net revenue is expected to be approximately flat to down 50 basis points compared to fiscal 2024. Driven by savings from our Smart Spending Initiative and leveraged on fixed costs, offset by investments in digital marketing. Further, we expect depreciation and amortization of approximately $80 million compared to $65 million in fiscal 2024.

Todd Ingledew: By savings from our smart spending initiatives and leverage on fixed costs offset by investments in digital marketing.

Todd Ingledew: Further, we expect depreciation and amortization of approximately $80 million compared to $65 million in fiscal 'twenty 'twenty four.

Todd Ingledew: We expect our adjusted EBITDA margin to expand by approximately 400 to 500 basis points, reflecting the leverage across the range of potential net revenue outcomes. The expansion is primarily driven by improvements in gross margin. We expect capital expenditures for Fiscal 2025 of approximately $230 million. This includes approximately $190 million related to investments in new and repositioned boutiques for Fiscal 2025 and the start of construction for boutiques opening in early Fiscal 2026. We continue to see our most recent new boutiques tracking to pay back in approximately one year or less, exceeding our projections for 12 to 18 months.

Todd Ingledew: We expect our adjusted EBITDA margin to expand by approximately 400 to 500 basis points.

Todd Ingledew: The leveraged across a range of potential net revenue outcomes.

Todd Ingledew: The expansion is primarily driven by improvements in gross margin.

Todd Ingledew: We expect capital expenditures for fiscal 2025 of approximately $230 million. This includes approximately 100 and under $90 million related to investments in new and repositioned boutiques for fiscal 2025, and the start of construction for boutiques opening in early fiscal 2026.

Todd Ingledew: We continue to see our most recent new boutiques cracking to payback in approximately one year or less exceeding our projections for 12 months to 18 months.

Todd Ingledew: Our CapEx spend also includes approximately $40 million primarily related to the expansion of our distribution center network. This includes a portion of the cost for a new facility in the Vancouver area, which is planned to open in fiscal 2026, and investments in our expanded distribution center in Columbus, Ohio. Throughout fiscal 2025, we plan to use our NCIB to purchase shares opportunistically to offset the dilution of option exercise. We anticipate that our buying this fiscal year will be concentrated during the open trading window.

Todd Ingledew: Our Capex spend also includes approximately $40 million primarily related to the expansion of our distribution Center network.

Todd Ingledew: This includes a portion of the cost for our new facility in the Vancouver area, which is planned to open in fiscal 2026 and investments in our expanded distribution center in Columbus, Ohio.

Todd Ingledew: Throughout fiscal 2025, we plan to use our N CIB to purchase shares opportunistically to offset dilution of option exercises.

Todd Ingledew: We anticipate that are buying this fiscal year will be concentrated during open trading windows.

Todd Ingledew: In closing, we expect sales growth to increase this year driven by an improvement in the composition of our inventory total square footage growth of 20% to 25% and momentum in E. Commerce. In addition, we expect meaningful gross profit margin expansion for the year and modest improvements in SG&A leverage.

Todd Ingledew: In closing, we expect sales growth to increase this year, driven by an improvement in the composition of our inventory, total square footage growth of 20% to 25%, and momentum in e-commerce. In addition, we expect meaningful growth in profit margin expansion for the year and modest improvements in SG&A leverage. For the fiscal year, the combination of revenue acceleration and margin expansion will nearly double our earnings.

Todd Ingledew: For the fiscal year, the combination of the revenue acceleration and margin expansion will nearly double our earnings.

Todd Ingledew: With that I'll now turn the call back to Jennifer.

Speaker Change: Thanks Todd.

Todd Ingledew: After two years of exceptional growth in our business, 74% in fiscal 2022 and 47% in fiscal 2023, fiscal 2024 was a year of building infrastructure and right-sizing our inventory while continuing to service our clients. Following our unprecedented growth, it was absolutely critical that we right-size our infrastructure and optimize our operations. We made substantial progress in five key areas. We've expanded our distribution center network to accommodate record volume, including the addition of our new 550,000 square foot facility in Ontario.

Todd Ingledew: After two years of exceptional growth in our business, 74% in fiscal 2022 and 47% in fiscal 2020 three fiscal 2024 with a year of building infrastructure and right sizing our inventory, while continuing to service our clients.

Todd Ingledew: Boeing are unprecedented growth it was absolutely critical that we right size, our infrastructure and optimize our operation we.

Todd Ingledew: We made substantial progress in five key areas.

Todd Ingledew: We expanded our distribution center network to accommodate record volume, including the addition of our new 550000 square foot facility in Ontario.

Todd Ingledew: We improved our inventory position, including the composition of our product, and enhanced our proven operating model, which has served us well for decades. We executed on our smart spending initiative, resulting in annualized run rate savings of more than $60 million.

Todd Ingledew: We improved our inventory position, including the composition of our product and enhance our proven operating model, which has served us well for decades.

Todd Ingledew: Executed on our smart spending initiatives, resulting in annualized run rate savings of more than $60 million.

Todd Ingledew: We developed a pipeline of boutique openings in premier locations, including four brand propelling flagship project.

Todd Ingledew: We developed a pipeline of boutique openings in premier locations, including four brand-propelling flagship projects. And last but not least, we kicked off the process of integrating our digital panel, from driving traffic through to optimizing our omni-channel services. Our focus on investing in the scalability of our business throughout this past year set the stage for our next phase of expected growth, helping to ensure we can expand at a consistent, measured pace moving forward.

Todd Ingledew: And last but not least we kicked off the process of integrating our digital channel and driving traffic through to optimizing our omni channel services.

Todd Ingledew: Our focus on investing in the scalability of our business throughout this past year set the stage for our next phase of expected growth, helping to ensure we can expand at a consistent measured pace moving forward.

Todd Ingledew: Q1 is off to a good start, and we're pleased with our client's response to our product. We expect the composition of our product to continue to improve throughout the quarter and be further optimized for fall. The performance of our new boutiques continues to exceed our own expectations. We have an extraordinary pipeline of boutiques opening this year, representing total square footage growth of 20 to 25 percent, with the vast majority in the U.S.

Todd Ingledew: Q1 is off to a good start and we're pleased with our clients' response to our product we expect the composition of our product to continue to improve throughout the quarter and be further optimized for fall.

Todd Ingledew: The performance of our new boutiques continue to beat our own expectations. We have an extraordinary pipeline of boutiques opening this year, representing total square footage growth of 20% to 25%, but the vast majority in the U S.

Todd Ingledew: The increased pace of openings is expected to fuel retail sales growth and drive incremental e-commerce sales as we expand into five new markets. For e-commerce, we believe our revenue growth will re-accelerate as we continue to optimize the composition of our product. In closing, our brand is strong, our financial position is solid, and we have a tremendous multiyear runway for growth in the U.S. To all of our people, thank you for your hard work and unwavering commitment to Aritzia's future, particularly throughout the last year.

Todd Ingledew: The increased pace of openings is expected to fuel our retail sales growth and drive incremental e-commerce sales as we expand into five new markets.

Todd Ingledew: And E Commerce, we believe our revenue growth will reaccelerate as we continue to optimize the composition of our product and Additionally, our strategic focus on digital marketing technology and Omnichannel further supports growth in our digital business.

Todd Ingledew: In closing our brand is strong our financial position is solid and we have a tremendous multi year runway for growth in the U S. So all of our people. Thank you for your hard work and unwavering commitment to her with his future, particularly throughout the last year during that time, we solidified our platform for the next.

Todd Ingledew: Phase of growth I'm very optimistic about all of the opportunities on that for fiscal 2025 and beyond as we continue to plan and bring everyday luxury to more and more clients than ever before.

Speaker Change: Thank you.

Beth Reed: All right, and with that, we're ready to open up the line for Q&A.

Speaker Change: Alright, and with that we're ready to open up the line for Q&A.

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.

Operator: Thank you. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. Please limit yourself to one question and a related follow-up before getting back in the queue. The first question comes from Mark Petrie with CIBC; please go ahead.

Operator: To withdraw your question. Please press Star then two.

Mark Robert Petrie: Please limit yourself to one question and a related follow up before getting back in the queue.

Operator: The first question comes from Mark Petrie with CIBC. Please go ahead.

Mark Robert Petrie: Yeah. Good afternoon, maybe just first on the on the SG&A Guide can you just help help sort of bridge. The pieces. There I recall 150 to 200 basis points of cost efficiencies from the AR from the sports spend initiatives and the majority of that in <unk>.

Mark Robert Petrie: Yeah, good afternoon. Maybe just first on the SG&A guide, can you just help help sort of bridge the pieces there?

Mark Robert Petrie: So could you just talk about what other pieces are going on in SG&A.

Mark Robert Petrie: Yeah, absolutely Mark and it was approximately 60% of the benefits, we're expecting from the smart spending to hit in SG&A.

Todd Ingledew: Yeah, absolutely, Mark. And it was approximately 60% of the benefits we were expecting from the smart spending to hit in SG&A. So, you know, as a reminder, for the full year, we're expecting to be flat to down 50 basis points, so an improvement of 50 basis points. And that's driven by, as you're suggesting, the spend management initiatives, which are offset by investments in digital marketing. So, you know, effectively.

Todd Ingledew: So you know as a reminder, for the full year, we're expecting to be flat to down 50 basis points, So unimproved and a 50 basis points.

Todd Ingledew: And that's driven by as you're suggesting that spend management initiatives, which which are offset by investments in the digital marketing.

Todd Ingledew: So.

Todd Ingledew: Effectively.

Todd Ingledew: That's why you're seeing pressure in the first quarter, and then we're expecting that to improve modestly in the second quarter, and then we're expecting expansion in the third and fourth quarters in FG&A, you know, as revenue growth begins to accelerate, and we're lapping, you know, the improvements and basically focusing further on the first quarter. We have, you know, digital marketing this year, where we didn't in the first quarter last year.

Todd Ingledew: That's why you're seeing pressure in in the first quarter and then we're expecting that to improve modestly in the second quarter and then we're expecting expansion in the third and fourth quarter are in SG&A, you know as as the revenue growth begins to accelerate and.

Todd Ingledew: You know, where we're lapping them the.

Todd Ingledew: The improvements in basically in.

Todd Ingledew: To further focus on the first quarter and we have you know digital marketing this year.

Todd Ingledew: Where we didnt in the first quarter last year, and then we have a technology initiatives that we made in the back half as well as higher spend in the first quarter of this year on projects. So there is it's really oh cadence thing with pressure in the first quarter.

Todd Ingledew: And then we have a technology initiative that we made in the back half, as well as higher spend in the first quarter this year on projects. So there is, it's really a cadence thing with pressure in the first quarter that dissipates in the second and then turns to a positive for the third and fourth quarter.

Todd Ingledew: Dissipates in the second and then turns to a positive for the third and fourth quarter.

Speaker Change: Okay. That's that's helpful and if I could just follow up then on that digital marketing spend.

Mark Robert Petrie: Okay, that's helpful. And if I could just follow up on that digital marketing spend, it has been ramping up, and I'm just curious if you can speak quantitatively or even just qualitatively about the payoffs and the returns that you're seeing from that, and then relate it if you're able to quantify the impact of the lesser availability of clear-out goods.

Mark Robert Petrie: It has been ramping up and I'm just curious if you can.

Mark Robert Petrie: Speak quantitatively or even just qualitatively about the payoffs and the returns that you're seeing from that and then related if you're able to quantify the impact of the lesser availability of clear out goods are on either comp sales or the E comm sales specifically.

Speaker Change: Hi, Mark I'll take I'll take both of those.

Jennifer Wong: Hi Mark, I'll take I'll take both of those. Then I'll take the last one first to quantify it.

Speaker Change: So I'll take the last one first to quantify the.

Jennifer Wong: The lower volume of markdown sales in Q4 was about $15 million. We're especially pleased, though, because inventory was down 27%, so I think that's the important thing to note here is we're in a better inventory position despite the lower volume of markdown sales. On performance marketing, I want to ground us all on the fact that we have done zero performance marketing to date. We've just started doing digital marketing, and we believe we need a baseline level.

Speaker Change: Lower volume of markdown sales in Q4, it's about $15 million.

Jennifer Wong: Oh, we're especially pleased though because inventory was down 27%. So I think that's the important thing to note here is we're in a better inventory position. Despite the lower volume of markdown sales.

Jennifer Wong: On the performance marketing whenever ground us all on the fact that we have done zero performance marketing to date just started up.

Jennifer Wong: They did it on more of a digital marketing and.

Jennifer Wong: We believe we need a baseline level, if we're gonna be a player in the digital space, we need a baseline level of digital marketing.

Jennifer Wong: If we're going to be a player in the digital space, we need a baseline level of digital marketing. The majority of that is to protect and propel our brand and our product franchises, and, of course, overall, to drive traffic and conversion.

Jennifer Wong: Majority of that is to protect and propel our brand and our product franchises and of course overall to drive traffic and conversion, we're really only about six weeks into it. We just signed on with a digital agency at the beginning of this year or ramping them up we're taking a crawl walk run approach are the early indicators. If you look at it apples to.

Jennifer Wong: We're really only about six weeks into it. We just signed on with a digital agency at the beginning of this year. We're wrapping them up. We're taking a crawl, walk, run approach. The early indicators, if you look at it apples to apples against the industry, are that what we're doing right now, we are focused on the bottom of the funnel, particularly on conversion, and we're performing at industry standards, if not better than industry standards, when we are compared to many in our peer set. I find that to be quite encouraging, and we'll continue to monitor and assess it. As long as it's adding incrementally to our business, we'll continue with it and adjust as necessary.

Jennifer Wong: Against the industry is that Oh, what what we're doing right now and we are focused on the bottom of the falloff, particularly on conversion as we're performing at industry, if not better than industry. When we are compared to many in our peer set so I find that to be quite encouraging and we'll continue to monitor it and no.

Jennifer Wong: That's it and as long as it adding incremental.

Jennifer Wong: Incrementally to our business will continue with it and adjust as necessary.

Speaker Change: Okay I appreciate all the comments all of us.

Beth Reed: Okay, I appreciate all the comments. All the best.

Beth Reed: Hum.

Beth Reed: The next question comes from Dylan Carden with William Blair. Please go ahead.

Dylan Douglas Carden: The next question comes from Dylan Carden with William Blair. Please go ahead.

Dylan Douglas Carden: Great, thanks. Just a point of clarification, on the gross margin guide, or I guess taking a step back, the 500 base point that you kind of previously spoken to on total EBITDA expansion, that kind of embedded the current guide on the sort of 400 to 450. There's no change there, right?

Dylan Douglas Carden: Great. Thanks, just a point of clarification on the on the gross margin guide or I guess, taking a step back the 500 basis point that you've kind of previously spoken to on total EBITDA expansion, that's kind of embedded in the current guy on the sort of 400 to 415.

Speaker Change: No change there really.

Speaker Change: Exactly there's no change, we're still targeting the 500 basis points.

Todd Ingledew: Exactly, there's no change. We're still targeting 500 basis points. Yes, 100%. The range that we provided is simply based on the variance and the fixed cost leverage, right from the top of the range to the bottom.

Todd Ingledew: Yes, 100% the the range.

Todd Ingledew: Then we provided is simply based on the the variance in the fixed cost leverage right from the top of the range to the bottom.

Dylan Douglas Carden: Sure. Well, I guess to that point, can you kind of just sort of mention a range of macro outcomes. Anything you can kind of speak to is where your consumer is at present, to get greedy, maybe even by jurisdiction, and kind of what the top and bottom end of the guidance kind of envisions as far as that goes.

Todd Ingledew: Sure well I guess to that point, he kind of did you sort of mentioned.

Dylan Douglas Carden: A range of macro outcomes and anything you can kind of speak to where your consumer is prevalent.

Dylan Douglas Carden: If you get greedy, maybe even by jurisdiction and kind of what the top and bottom end of the guidance kind of envisions as far as how that trends.

Speaker Change: Yeah. We're we're impacted the same as a lot of others are are observing right now are our customers impacted by macro challenges that are out of our control.

Jennifer Wong: Yeah, we're impacted the same way a lot of others are observing right now. Our customers are impacted by macro challenges that are out of our control. Nothing's really changed quarter over quarter.

Jennifer Wong: Nothing's really changed quarter over quarter, we just see that you know are our consumer.

Jennifer Wong: We just see that, you know, our consumer is shopping, but when she's shopping, she is, you know, discerning with her spend. So, this is just showing up in terms of volume overall, but we still have a customer that is shopping with us. And basically, our basket size and average order value continue to be consistent.

Jennifer Wong: His shopping but when she's shopping she is you know just starting with her spend. So this is just showing up in terms of in terms of volume overall, but we still have a customer that is shopping with us and basically are our basket size and and average order value continues to be.

Jennifer Wong: Consistent.

Jennifer Wong: Yeah.

Dylan Douglas Carden: And then on the digital marketing front, was there a certain virality of the brand that sort of happened organically over the last two or so years before you really start ramping up this digital spend? Is that sort of a hole you need to fill, or is it... More that you've sort of gone from zero, and they're sort of incremental, demanding that you can drive through that. Hmm.

Speaker Change: Great and then on the digital marketing front was there a certain.

Dylan Douglas Carden: Virality as a brand that sort of happened organically over the last two or so years that you're kind of seen a low end.

Dylan Douglas Carden: Sort of before you really start ramping this digital spend that is that's really a hole you need to still or is it.

Dylan Douglas Carden: More than you are going from zero.

Dylan Douglas Carden: Incremental to.

Dylan Douglas Carden: Is there anything you can trust.

Speaker Change: Oh I understand your question.

Jennifer Wong: I understand your question. We've grown. We've grown together.

Jennifer Wong: We've grown.

Jennifer Wong: We've grown with.

Jennifer Wong: No there's no no digital marketing and included in our overall digital play book, we've experienced phenomenal growth in e-commerce coming out of Covid.

Jennifer Wong: No digital marketing included in our overall digital playbook. We've experienced phenomenal growth in e-commerce coming out of COVID. We've spoken a lot about that. I think what happened coming out of COVID, when everybody was digital, is that the space is noisier. It's noisier.

Jennifer Wong: We've spoken a lot about that.

Jennifer Wong: I think what's happened coming out of Covid. When there everybody was with digital is that the space is noisier. It. It's it's noisy or there's everyone is doing some form of digital marketing and more and more of it and so for us to ensure that we remain top of mind.

Jennifer Wong: Everyone is doing some form of digital marketing, and more and more of it. And so, for us to ensure that we remain top of mind and continue to have a share of the mind and attention of the customer. We are going to participate and have, you know, at least a baseline level of digital marketing. But to be clear, it's only a component of our overall e-commerce digital playbook. At the end of the day, the key driver of our business is our product, and we've always said that.

Jennifer Wong: And continue to have share of mind and attention of the customer.

Jennifer Wong: We are going to participate and have you know at least the baseline level of digital marketing.

Jennifer Wong: And to be clear, it's only a component of our overall E Commerce digital play book at the end of the day. The key driver of our business is our product. So that we've always said that regardless of how both channels. The key driver is our product so.

Jennifer Wong: Regardless of, you know, both channels, the key driver is our product. So digital marketing, there's a lot of focus on digital marketing because we haven't done it before, and we're just introducing it as of late. And as I said a minute ago, the early indicators are that it is contributing and it is incrementally positive for us, but it's only a component of our overall playbook. At the end of the day, we see e-commerce will re-accelerate and get back to more of the same levels that we saw in our organic growth when our product is optimized.

Jennifer Wong: There's always a lot of focus on digital marketing, because we haven't done it before and and we're just introducing it as of late and as I said a minute ago. The early indicators is that it is a contributing and it is incrementally positive for us, but it is only a component of our overall play but at the end of the day, we see e-commerce.

Jennifer Wong: Well, we'll reaccelerate and and and and get back to more at the same level that we thought our organic growth when our product is optimized.

Speaker Change: Thank you.

Jennifer Wong: The next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.

Luke Hannan: The next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.

Luke Hannan: Thanks, good afternoon. Jen, you mentioned that you were pretty happy with the rollout of buy online, pick up in store, and ship from store so far in the U.S. I'm just wondering if we can get a little bit more granular on what, I guess either quantitatively or qualitatively, you're pleased with. Are you able to convert more, we'll call it, more casual clientele, into more repeat purchasers of Aritzia products, or just anything else that you can share?

Luke Hannan: Hey, Thanks. Good afternoon. Gen. Do you you mentioned that you were pretty happy with the rollout of buy online pick up in store and ship from store. So far in the U S. I'm just wondering if we can get a little bit more granularity on on what I guess, either quantitatively or qualitatively.

Luke Hannan: We're pleased with are you able to convert more.

Luke Hannan: Call it more casual clientele into into more repeat purchasers of auryxia product or just anything else you can share there would be helpful.

Jen: Yeah, what what it's really you know what underlying all of that what it's done is it's opened up the availability of our pretty much our full inventory to the online customer, whereas before when the inventory for the online customer was just what was in our distributions.

Jennifer Wong: Yeah, what it's really, you know, underlying all of that, what it's done is it's opened up the availability of pretty much our full inventory to the online customer, whereas before, when the inventory for the online customer was just what was in our distribution centers, and we had items that were in the stores, they wouldn't be able to purchase them. So it opens up, so when I say it optimizes our inventory, it opens up so much more availability to that online customer.

Jennifer Wong: And we had items that were in the stores are they wouldn't be able to purchase it. So it opens up so when I say it optimizes our inventory it opens up a film that's more availability to that online customer and then on top of it. She has the choice of picking up and picking it up in store, which means you can get even to her and the customer experiences.

Jennifer Wong: And then, on top of it, she has a choice of, you know, picking it up in store, which means she can get it even sooner, and the customer experience is fantastic. And then when she's in the store, and when a style advisor is assisting her, there's a lift; there can be a lift there too. So what we love about it, first and foremost, is that it optimizes our inventory, it makes it more efficient, and then ultimately, for those items that are in the stores and not in the distribution center that might not otherwise be in the stores, it lowers our distribution costs at the end of the day. And all to say that it does add incremental sales to the e-commerce channel.

Jennifer Wong: It is fantastic and they werent she's in the store and when our style advisers assisting her there there's a lift there can be a lift there too. So we love about it first and foremost is that it optimizes our inventory it makes it more efficient and and then ultimately for those items that are in the stores are not in the distribution center.

Jennifer Wong: That might not otherwise be in the stores. It lowers our distribution costs at the end of the day and all to say that it does add incremental sales to the E Commerce channel.

Luke Hannan: That's great. Thanks. And then my follow-up here is just on the cadence of comparable sales growth for the balance of the year, recognizing that there will be positive contributions from this investment in digital, but then I imagine going up against tougher comps when it comes to markdown sales as we get closer to Q2 and Q3. So, I'd love to hear your thoughts there.

Speaker Change: That's great.

Luke Hannan: And then my follow up here is just on the cadence of comparable comparable sales growth for the balance of the year recognizing that there will be positive contributions from this investment in digital but then I imagine going up against tougher comps when it comes to markdown sales as we get closer to the Q2.

Luke Hannan: Q3, so would love to hear your thoughts there.

Luke Hannan: Yeah.

Speaker Change: Yeah from a revenue cadence perspective, obviously the growth is more heavily weighted in the back half of the year and we have you know what.

Jennifer Wong: Yeah, from a revenue cadence perspective, obviously, the growth is more heavily weighted in the back half of the year. And we have, you know, we're, as I said, if you exclude the 53rd week, we're expecting 10 to 14 percent revenue growth for the year. And then within the first quarter, that growth is expected to be three to seven percent. And that's compared to growth of 13 percent in Q1 last year. So actually, the comparisons get easier as we move through the fiscal year.

Jennifer Wong: As I said, if you exclude the 50 <unk> week, we're expecting 10% to 14% revenue growth for.

Jennifer Wong: For the year and then within the first quarter that growth is expected to be 3% to 7% and that compared to growth of 13% in Q1 last year. So actually the compares get easier.

Jennifer Wong: As we as we move through the fiscal year and so therefore with the combination of you know.

Jennifer Wong: And so, therefore, with the combination of our new stores opening in the back half of the year and easier comparisons and all of the initiatives underway within e-commerce and the product positioning, we expect that we will still see some sort of revenue acceleration quarter on quarter through the year. And, you know, that will be both for non-comp and comp.

Jennifer Wong: Our new stores opening in the back half of the year and ease.

Jennifer Wong: Easier compares and all of the initiatives underway within e-commerce and the product positioning.

Jennifer Wong: Positioning we expect that we will still see sort of revenue acceleration.

Jennifer Wong: We're one quarter through the year.

Jennifer Wong: And.

Jennifer Wong: That will be both for non comp and comp.

Luke Hannan: Got it. Okay. Thank you.

Speaker Change: Got it okay. Thank you.

Luke Hannan: The next question comes from Martin Landry with Stifel. Please go ahead.

Martin Landry: The next question comes from Martin Landry with STFL. Please go ahead.

Martin Landry: Hi, good afternoon.

Martin Landry: Hi, good afternoon. I'd like to talk a little bit about the cadence of EBITDA margin improvement. Todd, you mentioned that you're going to have some SG&E leverage that's going to kick in a little later this year.

Martin Landry: I'd like to talk about a little bit yeah.

Martin Landry: Cadence of the EBITDA.

Martin Landry: The margin improvement.

Martin Landry: Todd you mentioned that you're going to have some SG&A leverage that's going to kick in a little later this year.

Martin Landry: No.

Todd Ingledew: Can you give us a bit of color on the cadence of EBITDA margin improvement throughout the year and what the exit rate could look like?

Martin Landry: How is going to be can you give us a bit of color on the cadence of the EBITDA margin improvement throughout the year and in what could be exit rate look like.

Todd Ingledew: Yeah, 100%.

Todd Ingledew: Yeah, 100%. So I've already laid out the SG&A cadence with increases again in the back half and pressure in the first half. And so obviously, going along with that is the growth margin expansion that we're expecting, which obviously is significant at 400 to 450 basis points of improvement. And the cadence of that that we're expecting is that roughly near the top of that range in Q1 and Q2 and near the lower end of that range in Q3 and Q4.

Todd Ingledew: So I've already laid out the the SG&A cadence with.

Todd Ingledew: Increases again in the back half and pressure in the first half and so obviously going along with that is that the gross margin expansion that we're expecting which obviously is a significant at a 400 to 450 basis points of improvement.

Todd Ingledew: And the cadence of that that we're expecting is that.

Todd Ingledew: Roughly near the top of that range in Q1, and Q2 and near the lower end of that range in Q3, and Q4, and that's really driven by our one of the components of benefit we're seeing in gross profit is our distribution center cost and we.

Todd Ingledew: And that's really driven by one of the components of benefit we're seeing in gross profit is our distribution center costs. And we were already benefiting in the back half of last year from the opening of our new distribution center. So we don't expect, you know, we won't see as much year over year benefit on the back part. That's why there's a cadence there. But obviously, in the back half of the year, if you take the 400, call it at the bottom end of the range for gross profit, roughly 100 basis points of leverage in SG&A, which is what we're expecting in the back half. If you model it out, you'll get that exit point of roughly 500 basis points of improvement in the back half of the year.

Todd Ingledew: We were already benefitting in the back half of last year from the opening of our new D. C. So we don't expect you know we won't see as much year over year benefit in the back burner, that's why there's a cadence there.

Todd Ingledew: Obviously in the in the back half of the year. If you you take the 400 call. It at the bottom end of the range for gross profit.

Todd Ingledew: Roughly 100 basis points of leverage.

Todd Ingledew: In SG&A, which is what we're expecting in the back half of you model it out.

Todd Ingledew: You'll get that extra point of roughly 500 basis points of improvement in the back half of the year.

Speaker Change: Okay. That's helpful and can you.

Martin Landry: Okay, that's helpful. And can you just, you know, talk a little bit about your aspirational goal of bringing EBITDA margins towards 19%? You know, is this still a goal that you think you can achieve in the coming years? And what would be the moving parts to get there?

Martin Landry: Just you know talk a little bit about your.

Martin Landry: Our aspirational goal of bringing EBITDA margins.

Martin Landry: Towards 19% you know is this still a goal that you can you think you can achieve in the coming years.

Martin Landry: And what would be the the moving parts to get there.

Martin Landry: Yes, we're still targeting the high teens EBITDA margin, obviously, we're taping taking a meaningful step this year and then next year, we would expect another another jump in our in our EBITDA margin as we.

Todd Ingledew: Yes, we're still targeting the high-teens EBITDA margin. Obviously, we're taking a meaningful step this year, and then next year, we would expect another jump in our EBITDA margin as we, one, benefit from the revenue from all of the stores that we're adding this year and further leverage from new stores next year, but also from the rent that will be coming off as we open our new flagship locations. You know, we've talked about the pressure that we're seeing today, so that will drive improvement in FY26, as well as what we think is a multi-year IMU improvement opportunity will be part of the building blocks, and potentially lower markdowns as we work through FY26 and 27, both from an IMU and markdown perspective.

Todd Ingledew: One benefit from the revenue from all of the stores that were we're adding this year and further leverage from new stores next year, but also from the the rent that will be coming off as we are.

Todd Ingledew: As we open our new flagship locations, we've talked about the pressure that we're seeing today, so that that will will drive improvement in FY 'twenty six as well as you know.

Todd Ingledew: What we think is a multi year I am you improvement opportunity.

Todd Ingledew: We'll be part of the building block.

Todd Ingledew: And potentially a lower markdowns as well as we work through FY 'twenty six and 27 are both you know from an I M. U N markdown perspective, and then also you know as we as we continue to say.

Todd Ingledew: And then also, as we continue to say, as our mix shifts towards the United States and that becomes a larger and larger portion of our business, there's an underlying benefit that will help support margin expansion right away through FY27 and beyond.

Todd Ingledew: The as our mix shifts towards the United States and that becomes a larger and larger portion of our business. There was an underlying benefit that will.

Todd Ingledew: It helps support margin expansion right away, you know through FY, 'twenty, seven and beyond frankly.

Todd Ingledew: Oh.

Martin Landry: Okay, that's super helpful. Best of luck.

Speaker Change: Okay. That's super helpful Best of luck.

Martin Landry: The next question comes from Irene <unk> with RBC capital markets. Please go ahead.

Irene Ora Nattel: The next question comes from Irene Nattel with RBC Capital Markets. Please go ahead.

Irene Ora Nattel: Yeah.

Irene Ora Nattel: Thanks and good afternoon, everyone. Most of my questions have been answered, but just a couple of more housekeeping items. You very helpfully provided the timing of the news story at the Q3 call.

Irene Ora Nattel: Good afternoon, everyone. Most of my questions have been answered, but just a couple of more housekeeping items you very helpfully at the Q3 call provided the timing of the new store openings in F. 'twenty five I believe in your comments you said that they are largely unchanged, but can you. Please confirm the quarterly cadence.

Todd Ingledew: Yeah, of course, Irene. So right now, we're expecting one new boutique and one repositioning, which is already open in the first quarter, three new boutiques in the second quarter, and then nine new boutiques and two repositions, which include the Chicago flagship, as well as the Soho and Fifth Avenue flagships, in the back half of the year, and those should be weighted more, you know, more towards the

Irene Ora Nattel: Yeah of course I mean.

Todd Ingledew: So we're right now we're expecting one new boutique and one reposition which is already open in the first quarter a.

Todd Ingledew: Three new boutiques in the second quarter, and then nine new boutiques, and who Repositions, which.

Todd Ingledew: Each include the Chicago flagship AR as well as the Soho and fifth Avenue flagship.

Todd Ingledew: In the back half of the year and those should be weighted.

Todd Ingledew: More and more towards the end of the third quarter.

Speaker Change: Okay. So that is that is super helpful. Thank you.

Irene Ora Nattel: Okay, that is super helpful. Thank you.

Irene Ora Nattel: And then, can you give us a little bit more color around basket composition and how you're seeing consumers, your customers shopping? You noted that there was a great response to the newness. If you can give us some examples of that, and also how you feel about newness and what we should be seeing in the stores as we move really into the heart of spring/summer, says Irene, still in the single digits in Montreal.

Speaker Change: Then can you give us a little bit a little bit more color around our basket composition and and how you're seeing the consumers. Your customer shopping you noted that there's great response to the newness.

Irene Ora Nattel: If you could give us some examples of that and also how you feel about newness and what we should be seeing in the stores as we move really into the heart of spring summer Central Greene.

Irene Ora Nattel: In the single digits in Montreal sale.

Irene Ora Nattel: Mhm.

Irene Ora Nattel: Yeah.

Jennifer Wong: I'll take the second question first. You know, as I said, we've made great progress in our product composition, and we have a much better balance now going into spring. We've made tremendous progress. It'll get even better for summer, and we'll largely be where we need to be for fall. So it's a process, it's sort of a progressive optimization here.

Speaker Change: I'll take the second question first.

Jennifer Wong: As I said, we've made great progress.

Jennifer Wong: In our product composition, and we have a much better balance now going into spring, we made tremendous progress.

Jennifer Wong: They'll get even better for summer <unk>.

Jennifer Wong: And will largely be where we need to be for fall.

Jennifer Wong: Progressive it's sort of a progressive optimization here as far as newness is concerned when you walk into the store and what you see merchandize I think we're hitting our targets and our goals of having half the store merchandising and in newness and and the other 50%.

Irene Ora Nattel: As far as newness is concerned, when you walk into the store and see the merchandise, I think we're hitting our targets and our goals of having half the store merchandise in newness and the other 50% of merchandise in our client favorites. You know, we've never, ever had a problem with fashion. So I wanted all of our items, all of the styles, the whole entire assortment to be excellent pieces. And it really is just what we're working on right now is getting the right composition between the two.

Irene Ora Nattel: Merchandise in our clients say that you know we've never ever had a problem with fashion. So all in all in all of our items all of the style Hum the whole entire assortment and Ah excellent pieces and it really is just what we're working on right now is getting the right composition between the two as far as what we're.

Irene Ora Nattel: As far as what we're seeing, you know, trending, as I mentioned, Golden was extremely well-received, and I personally love Golden. It's amazing. We had a fantastic campaign around it as well. Our Aritzia Sweatplace is performing well. You know, really, as always, we've had items pretty much in every department performing, whether it be shirts, sweaters, pants, you know, even accessories. So, you know, we're pleased with getting back on track with our product playbook, and we're seeing the response now early in Q1. And I'm super, you know, optimistic, and more than optimistic; I feel very, very confident that this trend will continue as we progress through the year.

Irene Ora Nattel: Seeing trending as I mentioned, a golden it was extremely well received and I'd I personally love Golden Amazing, we had a fantastic campaign around it as well or with just sweat places performing well I'm. You know really is as always we've had items pretty much in.

Irene Ora Nattel: Every department performing whether it'd be shirts sweaters has you know even accessories. So you know we're pleased with getting back on track with our product playbook and we're seeing them. The response now early in Q1 and I'm I'm Super Yeah.

Irene Ora Nattel: Optimistic and more than optimistic I I feel very very confident that this trend will continue I see progress through the year.

Irene Ora Nattel: Awesome.

Jennifer Wong: That's great!

Irene Ora Nattel: The total revenue that's great for them.

Speaker Change: Thank you and then just just one last question if I may around swim because it on the side it looks like there's a lot of discounting going on so just kind of wondering how swim has performed relative to expectations.

Irene Ora Nattel: And then just one last question, if I might, around SWIM, because on the site, it looks like there's a lot of discounting going on, so I was just kind of wondering how SWIM has performed relative to expectations.

Irene Ora Nattel: Hum.

Jennifer Wong: Um, we don't, uh, we, did you say GWIM? Well, yeah. And I'm not saying that we've continued with, there's a bit of background noise there, we have not continued with women.

Speaker Change: We don't we.

Speaker Change: We did.

Speaker Change: Did you say.

Jennifer Wong: Our targets are well yep.

Jennifer Wong: It doesn't mean that we change with or has it been a background noise. There we have not continue with women to the collection going into the spring or summer. So I'm not quite sure what you're talking about as far as discounting deals I think we we we kind of give any commentary in terms of the markdown sales and how that was quite markedly reduced in Q4 of fiscal two.

Jennifer Wong: 24, so yeah.

Jennifer Wong: Given where our inventory levels are we're feeling again like we're getting we're getting back on track to our more historical levels of our family.

Jennifer Wong: At that you know I'll I'll I'll I will add that for Q4, despite the lower well actually yeah. Okay.

Jennifer Wong: For Q4, our markdown levels were you know, although slightly higher than last year. They are still below pre pandemic levels. If if if that's what's you're wondering about.

Irene Ora Nattel: Thank you very much.

Jennifer Wong: I think of it or the a M E. That's great. Thank you.

Irene Ora Nattel: So you mentioned divestiture of B class.

Irene Ora Nattel: Oh, my God you're over here.

Irene Ora Nattel: Operator.

Beth Reed: I think we have something; the line is open to someone else.

Speaker Change: I think we have something in the lines open to someone else.

Operator: I'm sorry; let me just check.

Speaker Change: We're excited about let me check I can't.

Beth Reed: I think that our next generation will.

Operator: Our next generational.

Beth Reed: The next question comes from Brian Morrison with TD Securities.

Brian Morrison: The next question comes from Bryan Morrison with TD Securities. Please go ahead.

Brian Morrison: Please go ahead.

Brian Morrison: And your comment with respect to the new products, you say that they're making great progress and being well received. You gave examples of Golden and your Sweat Fleece, but I just want to know, like, are you hitting your sales targets with respect to your new products? Yeah. Absolutely. And then, Todd, I got cut off on the call a bit, but just in terms of your margin progression, the 500 basis points, the items within your control, whether it be the transitory cost, the smart spend, the IMUs, are there any that are underperforming or outperforming with respect to the results that you've seen so far today?

Brian Morrison: You say that they're having great progress and being well received you give examples of Goldman your sweat fleece, but I just want to know like are the are you hitting your sales targets with respect to your new products.

Brian Morrison: Yes.

Brian Morrison: Perfect and then Todd I got cut off on the call a bit but just in terms of your margin progression a 500 basis points.

Todd Ingledew: No and that's you know we saw the 30 basis point improvement in the fourth quarter, which is what we were anticipating and.

Todd Ingledew: No, and that's you know, we saw the 30 basis point improvement in the fourth quarter, which is what we were anticipating and, you know, already can have, you know, obviously good visibility into the IMU for the first quarter and for spring. The warehousing costs, that has already happened, as I said, the benefits. We're receiving those benefits, you know, and we were in the fourth quarter, so we expect to receive them in the first and second.

Todd Ingledew: I already have you know obviously good visibility into the the I M U for for the first quarter and for spring.

Todd Ingledew: And then, obviously, the improved markdowns, while there's some benefit in the first quarter because we're lapping some runoff sales and markdown sales from last Q1, but that will predominantly be seeing the benefit of that, obviously, during our sale periods, the benefit of that, so in the second and the fourth quarter, but no, we have great visibility into the gross profit margin expansion for the year and are already seeing those benefits today.

Todd Ingledew: All periods the benefit of that in the second and the fourth quarter, but no where we have great visibility into the gross profit margin expansion for the year end and are already seeing those benefits today.

Brian Morrison: So in terms of those four key buckets, is it fair to say they're all between 125 and 150 basis points and then there'll be a slight offset with respect to the growth in the rent expense? The IMU, they would go in the...

Todd Ingledew: The IMU, they would go in the order of IMU, then the warehousing and distribution center costs, the lower markdowns, and then spend management, and they kind of, you know, one is slightly bigger than the other.

Michael W. Glen: The next question comes from Michael Glen with Raymond James. Please go ahead.

Michael W. Glen: Thanks for getting me in. Can you speak to how we should think about e-commerce sales trending in Q1 on a year-over-year basis?

Todd Ingledew: Yeah, our e-commerce sales in the first quarter are trending within that three to seven percent range that we laid out.

Michael W. Glen: Okay, so no, we shouldn't expect any meaningful variance between retail and e-commerce growth in Q1.

Todd Ingledew: I think we should continue to anticipate that retail growth will be slightly higher than our e-commerce growth driven by new stores.

Michael W. Glen: Okay. And then, I know you've spent a lot of time talking about customer activity when you open new stores. Are you still seeing the same level of customer response when you open new stores relative to the past? Or has there been a change? Have you seen any slowdown in terms of the traffic experience when you open new stores?

Jennifer Wong: No, we get an overwhelming response when we open new stores. I think that's proven in terms of some of the metrics that we shared with you on the call in the opening remarks. When we open a new store, they perform extremely well. And I might add for e-commerce, when we open a new store in a new market, we see a 70% halo e-commerce list. So new store openings, as we said in the opening remarks, are the most predictable driver of sales.

Michael W. Glen: OK, and any changes at all in terms of how you have seen any slowing on the paybacks for new stores that you've referenced in the past?

Jennifer Wong: No, no, we have not. We continue to see, as we've said, better than our expectations of 12 to 18 months. We consider to continue to see paybacks beating that. So we have not seen any slowdown. OK.

Michael W. Glen: Okay, thanks for taking the questions.

Mauricio Serna Vega: The next question comes from Mauricio Serna with UBS; please go ahead.

Mauricio Serna Vega: I just wanted to get a better sense of how you're thinking about the comp sales for the year. Maybe you could provide, I mean, total sales will accelerate because of the boutique openings, but from a comp sales standpoint, how are you thinking about that, you know, starting Q1 and as the quarters progress? And then maybe, I guess, just wanted to make sure, like, from a digital... Hello, everyone. From a digital point of view, from the adjusted EBITDA margin, the big change relative to the previous outlook of 500 basis points to now this range is essentially some of the, you know, so you're reinvesting some of the gains into digital marketing. Is that the right way to think about it? Yeah, I mean, I'll take the first one or the second one.

Todd Ingledew: Yeah, I mean, I'll take the first one, or the second one first, and that's that we are still targeting 500 basis points at the top of the range, and the range provided simply reflects, again, the de-leverage that we would experience with the decline to the bottom of the range, and so that's the gap. And yes, we are, as we said last quarter when we reported, investing in digital marketing, and that is offsetting some of the benefits that we had within spend management within SG&A, but we're still targeting the 500 at the top of the range.

Todd Ingledew: And then, to answer your first question, from a cadence of the comp or maybe composition of the revenue, you know, again, we're forecasting or... for a 10% to 14% growth if you exclude the benefit of the 53rd week in FY24. And that is broken down into two components, non-comp and comp. And the non-comp component, which is obviously the new and repositioned boutiques, is approximately 60% of the revenue. And that component, we expect to be, you know, relatively consistent through the range, and the range is really the comp component, which is made up of both retail comp and e-commerce, with obviously e-commerce being the majority of that comp growth.

Todd Ingledew: And so the range that we have, outline the different scenarios for our comp growth, and that's how we're looking at that revenue growth. So if you, you know, flex the comp using that hundred million dollar range, that's how we're looking at it. And obviously, the comp growth, we're expecting to be lower in the first quarter and then grow in the second, third, and fourth.

Todd Ingledew: In the first quarter and then grow in the second third and fourth.

Todd Ingledew: The next question comes from Stephen Macleod with BMO capital markets. Please go ahead.

Stephen MacLeod: The next question comes from Stephen MacLeod with BMO Capital Markets. Please go ahead.

Stephen MacLeod: Thank you. Good evening.

Stephen MacLeod: Thank you good evening lots of my questions have already been answered. So I just had a couple of just a couple of clarifying questions just.

Stephen MacLeod: Lots of my questions have already been answered. So I just had a couple of, just a couple of clarifying questions. Just on the new store timing, it sounded like it was slightly different than what it was before. I just want to, just wondering, Todd, if you could run through the timing of those new stores and repositionings and then when the flagships come online as well.

Stephen MacLeod: On the on the new store timing.

Todd Ingledew: Yes, so there hasn't been any material change in the timing.

Todd Ingledew: Yeah, so there hasn't been any material change in the timing. You know, again, one new boutique and one reposition in Q1, three new boutiques in Q2. And then the majority of the stores in the back half are planned for close to the end of the third quarter. But I guess I just want to caution you against opening them early in the third quarter. You know, we have nine new boutiques that are coming online, so those will. We'll be coming in, you know, effectively majority in that October, November timeframe. Some of them could bleed into December and January.

Todd Ingledew: You know again, one new boutique and one reposition in Q1, three new boutiques in Q2 and then.

Todd Ingledew: The majority of the stores in the back half or are planned for close to the end of the third quarter, but I guess I just wanted to caution against putting them early in the third quarter.

Todd Ingledew: We have nine new boutiques that are coming online so those will.

Todd Ingledew: Will be coming in.

Todd Ingledew: It effectively.

Todd Ingledew: The majority in that October November timeframe.

Todd Ingledew:

Todd Ingledew: Some could bleed into December and January so that it's just you know obviously with construction, it's hard to pin exactly when they're going to open and we have major projects going on right now with our Chicago flagship Soho and fifth and we expect the Chicago flagship to open first.

Stephen MacLeod: So it's just, you know, obviously with construction, it's hard to pin exactly when they're going to open. And we have major projects going on right now with our Chicago flagship, SOHO, and FIFTH. And, you know, we expect the Chicago flagship to open first in the back half, then SOHO, and followed by FIFTH. And those, again, those projects are large. And so there could be some movement from our expectations, but, you know, we do feel confident that by the end of the second half of the year and, likely, by, you know, December, we will have the vast majority of those stores open.

Todd Ingledew: In the back half than Soho and followed by staff and those again those projects are large and so there could be some movement from from our expectations, but we do we do feel confident that by the end of the back half of the year and <unk>.

Stephen MacLeod: Okay, that's great. And then just in terms of the Q1 guide, did you say that comps are embedded in that total growth of 3-7%? Did you say that comps are expected to be positive in Q1?

Todd Ingledew: No, I said, well, yes, I mean, what I said was that our revenues would be in the three to 7% range, and e-commerce would land within that retail growth. However, total retail growth will likely be slightly higher, like slightly higher than EECOM.

Stephen MacLeod: Okay. Okay, great. Thank you.

Stephen MacLeod: And then maybe just last, I just have a modeling question with respect to just the IFRS 16 adjustments related to depreciation and interest. Are you able to talk a little bit about how those are going to be expected to grow through 2025 and 2026? Because I know that sometimes impacts margins and EBITDA.

Todd Ingledew: The depreciation and amortization we're expecting to be roughly $80 million, as provided by my commentary, and yeah. That's the expectation.

Stephen MacLeod: Okay. What about the IFRS 16 piece, depreciation on ROU assets and the interest expense on lease liabilities?

Todd Ingledew: Yeah, I can follow up with you on that exact number. Okay. Yeah, no, that's helpful.

Stephen MacLeod: Thanks. Thanks. I appreciate it.

Stephen MacLeod: Yeah, no, that's helpful. Okay, great.

Operator: Once again, if you have a question, please press star, then 1. The next question comes from Mauricio Cerna with UBS.

Mauricio Serna Vega: Great. Thanks.

Todd Ingledew: I just had a quick follow-up question because when you were answering the question about the comp sales and the growth, I just want to make sure I heard right that 50% of the revenue growth is coming from the non-comp. I just want to make sure I heard that right. The 53rd week from last year, so you get $2.3 billion. The difference there, roughly 60% of that, is expected to be coming from the stores, the new stores, and would be classified as non-comp. And then the other 40% would be expected to come from comp sales, which are mainly e-commerce.

Speaker Change: Got it.

Speaker Change: Thanks, so much.

Todd Ingledew: This concludes the question and answer session I would now like now like to turn the call back over to Beth Reed for any closing remarks. Please go ahead.

Beth Reed: This concludes the question and answer session. I would now like to turn the call back over to Beth Reed for any closing remarks. Please go ahead.

Beth Reed: Yep, 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 next quarter. Have a great evening.

Beth Reed: Yeah. Thanks, again to everyone for joining us. This afternoon, we're available after the call you have any further questions and we look forward to providing another update next quarter have a great evening.

Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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