Q2 2025 Aritzia Inc Earnings Call
Speaker Change: Thank you for signing by. This is the conference operator. Welcome to Aritzia's second quarter to 2025 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 will not turn the conference over to Beth Reed, Vice President and that's relations. Please go ahead.
Speaker Change: It afternoon and thanks for joining our RISCIS 2nd quarter of fiscal 2025 earnings call.
Mack Reed: On the call today, I'm joined by Jennifer Wong, our chief executive officer, and Todd Ingledew, our chief financial officer. As a reminder, please note that remarks on this call may include our expectations, future plans, and intentions that may constitute board-looking information.
Mack Reed: 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 made differently from the conclusions forecast or projections expressed by the forward-looking information. We refer you to our most recently filed management discussion and analysis and our annual information forms, which included summary of the material assumptions as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information.
Speaker Change: Our earnings release, the related financial statements and the NDNA are available on Cedar Plus as well as the investor-relation section of our website. I'll now turn a call over to Jennifer.
Jennifer Wong: Good afternoon everyone and thank you for joining us today.
Jennifer Wong: We're very pleased with our performance in the second quarter of fiscal 2025. We delivered a 15% increase in net revenue to $616 million. Conquerable sales grew 6.5%.
Jennifer Wong: The momentum we saw in June of July accelerated in August, driving higher than expected net revenue in the quarter.
Jennifer Wong: Our growth was fueled by our business in the United States, which generated a 24% increase in sales in the second quarter. This was driven by our proven real estate expansion strategy, a meaningful acceleration in e-commerce growth, and strong comp growth in our existing boutiques.
Jennifer Wong: In Canada, we saw less momentum, which we believe is due to a softer consumer environment. Sales growth is 6% with driven by the benefits of a calendar shift, which Todd will discuss later.
Jennifer Wong: In our retail channel, we drove an increase of 18% in net revenue in the second quarter. This is primarily due to the progress we've made on our real estate expansion strategy.
Jennifer Wong: In Q2, we opened two additional boutiques from the state of Florida in Boca-Breton and Jacksonville, as well as our six boutiques in Texas, North of Dallas. That's far in Q3, we've opened two boutiques, one in San Diego, and one in the Chicago area.
Jennifer Wong: For the balance of the year, we plan to open an additional 9-10 new boutiques and 2-3 boutique reposition.
Jennifer Wong: This includes our new Chicago flagship and the repositions of our so-ho and fifth avenue flagships in Manhattan. Needless to say, we're super excited about this extraordinary pipeline of opening. The most we've ever had in a single year.
Jennifer Wong: Our boutique openings have a consistent track record at our most predictable driver of top-line growth.
Jennifer Wong: and its clear they help drive round awareness and client acquisition in both new and existing markets.
Jennifer Wong: At our Jacksonville location, which is in a new market for us, 60% of clients during the opening month were new to Eurisia, and in our newest Texas boutiques, an existing market for us, 30% of clients during opening month were new to the brand.
Jennifer Wong: Booteek Repositions also continue to perform exceptionally well, driving top-line growth and profitability while elevating the customer experience.
Jennifer Wong: Our newest reposition near Chicago is generating incremental net revenue of 60%. And delivering meaningfully higher contribution.
Jennifer Wong: Turning to e-commerce, we returned to double digit growth in the second quarter as a net revenue group 10%. This was primarily driven by increased traffic in the U.S., as well as a strong response to our fall product.
Jennifer Wong: We're encouraged by the momentum in this channel. We continue to focus on a number of initiatives to drive future growth in e-commerce and enhance our client's digital journey.
Jennifer Wong: During Q2, we continue to make progress on enhancing arrecia.com and we expect the improved site to go live in the back half of this fiscal year.
Jennifer Wong: In improved functionality across the site such as one page checkout and AI driven search results will offer clients an even more frictionless and easy shopping journey helping to drive conversion.
Jennifer Wong: Foundational components will also enable the development of a mobile app, which we expect to launch next fiscal year.
Jennifer Wong: In addition, we've kicked off a project to enhance our international e-commerce site and customer experience. By optimizing for features such as local currency and pre-paid duties and taxes, we'll be able to drive higher conversion.
Jennifer Wong: These enhancements will not only fuel revenue growth but are also expected to improve channel operating margin.
Jennifer Wong: Last but not least, our investment in digital marketing this year has been successful, showing strong positive results across the business. We're excited to continue to optimize and build on our learning.
Jennifer Wong: Learning now to product, we saw a strong start to the fall season driven by both new styles and our client favorites. We've seen continuous success in our well-known and loved categories, like sweat, fleas, and sootings, as well as exciting growth in newer collections like home stretch.
Jennifer Wong: New launches in that maximizing share of closets resonated very well with our clients, indicating we have opportunity to expand in these offerings.
Jennifer Wong: Our focus on optimizing the quantity and composition of our inventory is reflected in our strong second quarter net revenue growth.
Jennifer Wong: In addition, due to our approved inventory levels, we had a lower mix of markdown sales compared to the second quarter last year, which helped to drive more than 500 basis points of gross margin improvement.
Jennifer Wong: As part of our strategy to grow brand awareness, particularly in the U.S., we remain focused on amplifying our product and our much loved everyday luxury experience, including the compelling value we offer to our clients.
Jennifer Wong: We also continue to strengthen our cultural relevance and enhance awareness by partnering with Grand Suppelling influencers and growing our roster of celebrity fans. In Q2, influencer NARS Miss, known for her meticulous and viral content on TikTok, starred in our fall to what police pamphlets campaigned.
Jennifer Wong: Her attention to detail aligns wonderfully with our commitment to perfecting every aspect of sweatblades from fit to fabric.
Jennifer Wong: In addition, the roster of celebrities wearing our product included Blake Lively and Skullt Knit and Emily Radikowski in Sweatfleet, highlighting the best in-class quality of our iconically-orissia products.
Speaker Change: It's important for me to see things firsthand and to stay connected to what's going on in our stores.
Speaker Change: In my boutique visit this quarter, I was particularly impressed with how well all of the beautiful products we have this season is merchandise, highlighting the differentiated styling and the excellent quality of our fabrics. It's elevated and there's great balance across the equipment between prints, dollars, forward fashion colors, tailored and casual style.
Speaker Change: I also visited our flagship center construction.
Speaker Change: There is still work to do, but I can tell you, no detail has been left unconsidered. They're stunning, they're aspirational, they offer amazing exposure, and I'm so excited for them to open in time for holiday. We have a long history of executing with excellence, and we intend for this to be no exception.
Speaker Change: We sent recent months hiring, developing and building our team.
Speaker Change: Perfecting design element and honing store operations to prepare for this level of re-challeng.
Speaker Change: will be able to offer an exceptional client experience and showcase our product in the most compelling and shockable way where absolutely thrilled to provide this experience to Chicago and Manhattan and to all who may visit those locations.
Speaker Change: To celebrate the opening, we're planning some exciting activations in store and in the community.
Speaker Change: Daytuned. Now, let me turn the call over to Todd.
Todd Ingledew: and good afternoon everyone.
Todd Ingledew: We're very pleased with our performance for the second quarter of fiscal 2025, which succeeded both our top and bottom line expectations and continues our progress toward our fiscal 2025.
Todd Ingledew: Top line trends accelerated in August and we deliver substantial gross margin expansion, resulting in another meaningful improvement in our adjusted dividend margin.
Todd Ingledew: Turning to the details of our performance, in the second quarter of fiscal 2025, we generated net revenue of $616 million, representing an increase of 15% from last year.
Todd Ingledew: Comparable sales grew 6.5%.
Todd Ingledew: We're particularly pleased with the strength we're seeing in the United States. We're net revenue increased 24% to $345 million in the second quarter.
Todd Ingledew: Rose was relatively consistent across both channels.
Todd Ingledew: Our retail channel was driven by the contribution from seven new and three reposition boutiques in the last 12 months, as well as strong comm growth in our existing boutiques.
Todd Ingledew: The accelerated performance in our e-commerce channel was primarily due to growing brand awareness and a positive response to our fall product.
Todd Ingledew: In Canada, net revenue increased 6% from last year to $270 million. A result benefited from a calendar shift, causing the week of our annual warehouse selling Vancouver to follow the second quarter of this year compared to the third quarter last year.
Todd Ingledew: Excluding this benefit, our growth in Canada was in the low single digits.
Todd Ingledew: Net revenue in our retail channel was $426 million, and increased the 18% from the second quarter last year. This was driven by the performance of our new and reposition boutiques, as well as mid-single-digit compros in our existing boutiques.
Todd Ingledew: In e-commerce, net revenue for the quarter was $199 million, an increase of 10% from last year.
Todd Ingledew: The increase was primarily driven by traffic growth in the United States, as strong response to our fall product and our investments in digital marketing.
Todd Ingledew: We're encouraged by the sequential improvement and a return to double-digit growth and we continue to see the opportunity to further drive momentum in this channel.
Todd Ingledew: We deliver growth profit of $247 million. An increase of 33% compared to the second quarter last year.
Todd Ingledew: For a profit margin increased 520 basis points to 40.2% from 35% last year.
Todd Ingledew: We drove better than forecasted Markdown and I am you improvements, resulting in gross poverty margins exceeding our outlook.
Todd Ingledew: We also benefited from lower warehouse and costs and savings from our sports spending initiatives.
Todd Ingledew: These tailwinds were partially offset by higher freight costs.
Todd Ingledew: SGNA expenses for the quarter were $200 million, up 17% from last year, driven by investments in digital marketing to help protect and propel our brand as well as infrastructure projects and technology initiatives to support our growth.
Todd Ingledew: SG&A is a percentage of revenue, increased 40 basis points to 32.4% compared to 32% last year.
Todd Ingledew: The better than expected performance was driven by fixed-cost leverage on higher than anticipated revenue.
Todd Ingledew: Adjusted EBITDA on the second quarter was $55 million, an increase of 161% from last year.
Todd Ingledew: Adjusted EBITDA as a percent of net revenue expanded 500 basis points to 9% compared to 4% last year.
Todd Ingledew: Turning to the balance sheet at the end of the second quarter, inventory was $483 million. Down 4% from last year.
Todd Ingledew: We had $14 million in cash and zero drawn on our $300 million revolving credit facility.
Todd Ingledew: Shifting to our outlook, net revenue in the third quarter of fiscal 2025 is expected to be in the range of $675 to $700 million. Representing growth of 3% compared to the third quarter last year.
Todd Ingledew: It is important to note that the third quarter last year benefited from two factors, which contributed approximately $25 million in revenue.
Todd Ingledew: First, the Digital Archive Zales, which will not recur this year. And second, the fact that our annual warehouse sale in Vancouver fell in the second quarter this year as opposed to the third last year.
Todd Ingledew: Including these factors are expected in a revenue in the third quarter represents growth of 7 to 11 percent compared to the third quarter last year.
Todd Ingledew: We continue to expect Rose Prof. Margin in the third quarter to increase by approximately 400 basis points compared to the third quarter of fiscal 2024. Despite absorbing meaningfully higher for a cost.
Todd Ingledew: We've forecast SGNA as the percent of net revenue to increase by approximately a hundred basis points in the third quarter compared to the third quarter of fiscal 2024.
Todd Ingledew: The increase is driven by additional spending related to key strategic initiatives to drive our growth.
Todd Ingledew: For the full year of fiscal 2020-5, we now expect net revenue in the range of $2.54 to $2.6 billion. Representing growth of 9 to 11 percent from fiscal 2024, or growth of 10 to 13 percent, excluding the 53rd week last year.
Todd Ingledew: Our net revenue outlook for the back half reflects softer trends in Canada, where we're navigating a more challenging macro environment.
Todd Ingledew: Importantly, we continue to see strength in the United States, driven by our boutique openings and ongoing momentum in our e-commerce business.
Todd Ingledew: This flight changes to the moment-winning days. We remain on track to open 12 to 13 new bootiques and reposition three to four bootiques to fiscal year.
Todd Ingledew: We now expect to open five new boutiques and one reposition in the third quarter and four to five new boutiques and one to two repositions in the fourth quarter.
Todd Ingledew: Nearly 90% of our square footage grows for the year, occurs in the 3rd and 4th order.
Todd Ingledew: In the fourth order, these openings are expected to fuel an acceleration and revenue growth to 15 to 20 percent, excluding the 53rd week.
Todd Ingledew: We're raising our outlook for gross profit margins for the year to approximately 450-based points of expansion compared to fiscal 2024. Given the strength in the first half of the year and despite its norming, mainly higher freight costs.
Todd Ingledew: We now expect SGNA as the percentage of net revenue to be approximately flat to up to 50 basis points compared to fiscal 2024.
Todd Ingledew: Always with a long-term view, we continue to invest in our future growth, while working to deliver meaningful margin expansion over the near-term.
Speaker Change: The End of the World War II
Speaker Change: We expect adjusted EBITDA as a percentage net revenue in fiscal 2025 to increase the approximately 400 to 450 basis points reflecting the leverage across the range of our net revenue outlook.
Speaker Change: In closing, the actions we've taken to improve the performance of our business, fueled 24% net revenue growth in the United States, and 500 basis points of adjusted EBITDA March and Expansion in the second quarter.
Speaker Change: The record number of new and reposition boutiques that we're opening in the back half of this year, along with our e-commerce initiatives, we'll drive accelerated revenue growth this year and next.
Speaker Change: Further, we expect to continue to drive margin improvement back toward our historical levels in the high teams.
Speaker Change: All of this keeps us on track to achieve our fiscal 2027 top and bottom line targets.
Speaker Change: With that, now it's from the call back to Jennifer.
Jennifer Wong: Thanks, Todd. Our strength in the United States have continued into the third quarter. While our outlook for Q3 is impacted by the timing of boutique openings, we expect to fuel additional momentum in the back half of the year as we complete our real estate projects and make further progress on our e-commerce initiatives.
Jennifer Wong: In Canada, we have seen a slower start to the quarter as we navigate a softer consumer backdrop.
Jennifer Wong: That said, we have a large phase of highly engaged and extremely loyal clients in Canada. And with our optimized inventory position, we are in a very well-positioned situation to meet incremental demand as the environment improves.
Jennifer Wong: Along with our growing brand awareness, the momentum we're seeing in both retail and e-commerce, particularly in the United States, keeps us on track to deliver on our long-term goal.
Jennifer Wong: First, our real estate expansion strategy continues to produce exceptional results.
Jennifer Wong: In addition to the record number of new boutiques this year, we have another strong pipeline of opening plans for fiscal 2026. This increased pace of opening is expected to fuel retail sales growth and drive incremental e-commerce sales as we expand into new markets.
Jennifer Wong: In a commerce, we've started to generate accelerated sales growth driven by it.
Jennifer Wong: Successful Product Launches, Inventory Optimization and Digital Marketing Initiative.
Jennifer Wong: We have a number of initiatives underway to...
Jennifer Wong: We will further acceleration in our e-commerce business, including the upcoming launch of our new and improved arresteer.com.
Jennifer Wong: For 40 years, we've successfully run our business with a long-term view and a disciplined approach. We continue to make strategic investments to support our recent and future growth. The investments we're making today in real estate, digital, marketing and technology will help position us to generate possible growth well into the future. With just 56 boutiques in the United States, we're only just getting started. The opportunity to grow our brand remains tremendous.
Jennifer Wong: In conclusion, we have great momentum behind the brand and we look forward to our bright future ahead, both in the very near-term and over the long-term, or confidence that our commitment to executing on our proven business model will drive value creation for all of our stakeholders for many years to come. Thank you.
Jennifer Wong: With that, let's please not open up the line for Q&A.
Speaker Change: Thank you. To join the question, you, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your quest. If you're using a speaker phone, please pick up your handset before pressing any keys. Do a draw your question, please press star, then two.
Speaker Change: First question comes from Luke Cannon with Canna Cordinuity. Please go ahead.
Luke Cannon: Yeah, thanks. Good afternoon. Maybe we'll start with the difference that you're seeing right now between the Canadian clientele and then your US clientele. So I think that's something that most folks on this call are seeing that all across the consumer universe. So that's not really a surprise. But how exactly is that manifesting itself in your business? Is that just shining away from higher ticket items, for example, is trip frequency a little bit different north of the border versus south of the border, maybe just additional commentary on how exactly that's manifesting itself in your business?
Speaker Change: Hi, Loves. Yeah. Ultimately, we saw a starting to see a bifurcation in the second quarter.
Speaker Change: Maynley due to the US momentum, our Canadian business between Q1 and Q2 was relatively balanced, relatively consistent between the quarters in Canada, but it was because of the US momentum that we saw it falling apart from the US business. Canada has been performing consistently until we entered into Q3 where we started to see a little more softness.
Speaker Change: What we're seeing is no different in average order value, average selling price.
Speaker Change: Units for Transaction, they have remained consistent year over year in the quarter. It's really just volume. It's related to volume and traffic. So the shopper, when she's shopping, she's shopping less, but when she is shopping, she's more discerning. And when she, what we're seeing even just with the conversion on our, on our e-commerce site, it's improving. So when she's coming to the site, when she's coming to the store, she's buying it, she's shopping less frequently. In Canada.
Speaker Change: Okay, thanks, that's helpful. And maybe just to follow up, I apologize I missed this in your prepare to marks, but when it comes to the store level economics for those boutiques that you had at open during the quarters, it fair to say that they were still tracking around that 12 month payback period or better, or has that changed in.
Speaker Change: and the U.S. at all.
Speaker Change: Yeah, no, nothing has changed. Our new stores continue to perform exceedingly well. All the new stores growing right now are in the United States. We do have one scheduled for Canada later in the year, but yeah, we're extremely pleased, obviously, with the 24% growth and revenue that's being driven by all of those new stores. And, you know, the new stores contribute roughly 50% of our growth in the United States in the quarter. And so we're excited about not only the stores we've been opening, but obviously the number of stores that we have from now through the end of the year.
Speaker Change: Okay, great. And then last question, and then I'll pass the line here. When it comes to the updated guidance, specifically the updated S-GNA guidance, I know that there's different investments that you're making in the business right now, but can you give a little bit more specificity on what exactly that is that's maybe change from from last quarter to to this quarter? Is it more investments and some of the existing initiatives that you're going to have planned for? Is it an expansion and scope of those initiatives? Just any incremental detail there would be helpful. Thank you.
Speaker Change: We're continuing with a lot of the investments that we have mentioned in previous quarters.
Speaker Change: Some of the more notable ones are in place to fuel growth. For instance, our digital investments, including the re-platforming of arritzia.com, that's been in the works now for a year. That's going to be launched in the back half of the year. We'll start to see improvements with our site experience. We'll be able to do more things, more innovative, creative features on the site, and then that platform will be the underpinning for the mobile app that we've started development on, which will come out next fiscal year. These are all things that are related to our second growth leaver of accelerating digital.
Speaker Change: The internationally commerce enhancements is in the same category. At the same time, we're making infrastructure investments as we always have for our last four years. We like to build our infrastructure, lock and step with our growth. In particular, the last couple of years, we've had to invest in infrastructure to catch up with some of the extraordinary growth that we experience coming under the pandemic. And certainly, as our sites are set on further growth going forward for making investments in technology and some systems like merchandising planning as well as workforce planning and things of that nature.
Speaker Change: Good next question comes from Mark P3 with CIBC. Please go ahead.
Mark P3: Good afternoon. Could you just clarify for the Q3 trends today? Are you saying that the U.S. is stable and it's Canada that's decelerated?
Speaker Change: Yes, what we're seeing is a momentum remains strong in the U.S. and it's dampened, unfortunately, with what we're seeing starting Q3 in Canada.
Mark P3: Yeah, okay. And I wanted to just clarify, Jen, one of your comments around the digital marketing. I think you said your plan from here is to optimize and build. Does that imply that you expect overall investment to sort of be stable from here or are you still in ramp up phase?
Speaker Change: Right, let's talk to the specific members, but right now what we have planned for the year, what we have shared with you, has not changed.
Speaker Change: When I say optimizing, it's about getting more precise with our targeting, more precise with the actual placement of the paid media spend.
Speaker Change: Okay, and if I could just ask one other one, which is just regards to sort of the consumer ten trends and sort of shifts in taste.
Speaker Change: What categories are occasions or types of product are sort of under or over indexing versus your expectations so far in fall winter?
Speaker Change: We continue to see that many of our items, uh, both the existing client favorites, favorites as well as the new items that we introduce every season late, the old continues to be balancing terms of how it's performing and we like how it's performing
Speaker Change: and I think, you know, given what we've done in optimizing our product, that kind of shows, and the results in Q2. And so it still remains relatively, you know, consistent across the categories whether it's our beloved sweat sleeves and effortless pants collection. I mentioned on the call that newer programs like the Home Stretch, we're starting to see encouraging results.
Speaker Change: So, you know, really again, it's across the entire range and assortment that we're offering, and nothing's really spiking. What we like to see is the balance across everything, and I think we're, you know, this season we're really achieving that.
Speaker Change: Okay, appreciate all the comments, all the best.
Speaker Change: Thank you.
Speaker Change: The next question comes from Martin Landrieve, T4, please go ahead.
Speaker Change: I did that for you guys.
Martin Landrieve: I was wondering if you could help us out just to clarify one thing, did you delay some store openings into fiscal 26 or it's just the delay between Q324?
Speaker Change: Yeah, I think that, I know there's no change to our annual ed.
Speaker Change: Annual numbers for the new stores were expecting 12 to 13 new stores and 3 to 4 expansions in reposition. We have seen a shift from 2 to 3 to 2 for a couple of them, but as I outlined in my prepared remarks, we've opened.
Speaker Change: Five Newstores.
Speaker Change: Year to date, we have three more scheduled to open in the third quarter and then we have four to five.
Speaker Change: New Store opening plans for the fourth order. And then from a reposition perspective, we've opened one year to date. We have one plan for the third order, which is our so-ho-fifth location. And then we have one to two reposition plans for the fourth order.
Speaker Change: Keeping in mind that, you know, as I said, I already started to say it and one of the lot of answers, but those those stores, you know, as I commented, delivered roughly 50% of the revenue growth in the second quarter in the United States.
Speaker Change: In our outlook, we're expecting an acceleration in the fourth quarter with all of that new square footage driving 15 to 20% growth in the fourth quarter. Again, as you've heard us say, 90% of the square footage that we're opening is in the back half this year and it's going to drive meaningful growth not only in the fourth quarter but but also in next fiscal year.
Speaker Change: Yeah, thank you. And that's a good segue into my next question. You opened up a little bit about seeing as you're excited with your, your plans for fiscal 26 for your real estate. And I was wondering if you can give us a peek as to what that could look like in terms of store openings.
Speaker Change: Yeah, I mean, we won't have the exact number of new stores until we would typically communicate that in January, but our range of 8 to 10 new stores obviously were higher than that this year and I would anticipate that we will likely be slightly above the top of the range for next year as well.
Speaker Change: Okay, that's all pro. And maybe I'll ask question for you, Todd. You actually reiterated your fiscal 27 goals.
Speaker Change: I think it's great to see.
Speaker Change: That includes thinking a bit of margin that's near 19% by recall correctly. Wondering what's the path from here to there? Is this a straight line? Is this going to be back and loaded in terms of gross margin? A bit of margin expansion, just a little bit of color would be helpful for modeling purposes.
Speaker Change: Yeah, I mean, I don't want to particularly, you know, provide these actors again for next year, but I would say, you know.
Speaker Change: Strayline is safe at this point from this fiscal year through to FY-27, but we'll communicate specific when we provide our guidance for next year, but some places to say, I think I've reiterated this previously, but we're obviously making great strides this year in our margin improvement.
Speaker Change: The Ev
Speaker Change: I am you that we're seeing this year is really a start and we expect to see multiple years of new improvements.
Speaker Change: We have a number of smart spending initiatives that are still underway that will deliver further March and Improvement, the flagship locations and the rent that we're paying in both locations or amortizing in both locations. For those stores, we'll benefit us next year and then just...
Speaker Change: The overall growth in our US business is accretive to our margins, so with each year and literally each new sore opening, as the US becomes a larger portion of our business, we have a lift from that as well. And we actually, having just to give a little bit more color, we have just gone through a bit of a planning exercise to evaluate the FY27 target.
Speaker Change: and from a top and bottom line perspective, we still feel confident that we are on track to achieve those.
Speaker Change: A next question comes from Stephen McLeod with BML Capital Markets. Please go ahead.
Speaker Change: Thank you for agreeing with me, Rowan
Stephen McLeod: I just wanted to follow up on the SQ&A guidance, and her family that they're investing in that continue to be ongoing. But just was there anything incremental because the sales number leftly, you know, guidance, the midpoint is unchanged, but SQ&A is a percent of sales.
Stephen McLeod: has changed a little bit from this curious what the incremental piece is in the F-China that wasn't there for a month ago.
Speaker Change: Yes, the incremental investments are what I mean.
Speaker Change: was describing the investments in infrastructure projects and technology initiatives where we've effectively greenlit projects that we had initially planned to start this year, and we've now started them. And then...
Speaker Change: There is...
Speaker Change: and Jen already ran through the list, but those those projects as well as.
Speaker Change: Incommental Marketing Spend, as we launch our flagship locations, we're obviously, you know, We're celebrating, we're celebrating, if the historic milestone in our 40 years of business to be opening three flagships of those sizes, those sizes in effectively, on one-less period. So, we're really excited, as I mentioned, I hope we did.
Speaker Change: here in my voice, the excitement that I have for the flagships, the iconic locations, they're going to get us famous in the US, they're going to ultimately be a beacon for everyday and luxury, and we have some really exciting things planned, as I mentioned, in-store activations, activations within the community, digital, PR media, you know, we're really, this is a big deal, this is a very big deal for us.
Speaker Change: Yeah, that's great. Okay, so those are, you know, that's incremental stem that you expect to generate a return on which is deep there.
Speaker Change: Okay, that's great and then I sort of declare if I mentioned the number a couple of times, but just in terms of the new stores being weighted to Q4, you said that, you know, those stores are expected to deliver 15, 15, 15, 15% of the growth of Q4. Is that, are you saying in the US?
Speaker Change: A loan, or is that, are you kind of going back just to what you think the top line consolidated number is.
Speaker Change: Yeah, that's the range for, I mean, it's the implied range given the Q3 guide and the guide for the full year, it's the implied range for Q4, Q4 total growth.
Speaker Change: The stores that we're opening will be supporting the acceleration of revenue in Q4 that's implied in the guidance.
Speaker Change: Right. Okay. Okay. No, that's helpful. Thanks, Todd. And then maybe just finally, you know, he talked about some of those non-comparable items in Q3, a fiscal Q3. Is it fair to say that comps maybe have decelerated a little bit, excluding those non-comparable items just given the income of the weakness you've seen in Canada? Yeah.
Speaker Change: Yeah, so the way we've modeled out com for the third quarter is actually a slight acceleration in e-commerce.
Speaker Change: If you exclude the impact of the digital archives sale, so a slight increase from the 10% so still low double digits.
Speaker Change: and then for the retail channel, there is a slight deceleration from the trends in Q2.
Speaker Change: and Tirely Driven by...
Speaker Change: Effectively, while we've seen in Canada in the first month.
Speaker Change: of the Porter and...
Speaker Change: You know, we're continuing to see strong momentum in the United States, and that has not changed. Get up. And then the net of that be a somewhat similar type of comp in Q3.
Speaker Change: New Song Q2.
Speaker Change: Yeah, it'll be some mid-single-digit. Yeah, okay, okay, that's great, okay, Jennifer, I start appreciate it.
Speaker Change: Yep.
Speaker Change: The next question comes from Mauritius Erna with UBS, please go ahead.
Mauritius Erna: Hi, good afternoon. Thanks for taking my question. I just want to clarify the two factors that are impacting your third quarter sales guidance that you're laughing. Is that, in fact, on both markets or is it more weighted to one and just want to make sure from that regard that, you know.
Mauritius Erna: like one mark on the other.
Speaker Change: Yeah, so there's there's two factors that total $25 million. One is the Vancouver warehouse sale, which it still occurred in the same week, which is prior to Labor Day weekend in Vancouver. But it occurs in Vancouver, so it's in the Canadian results.
Speaker Change: But this year, it's in Q2 last year, it was in Q3. So there's a benefit of roughly 200 basis points in the second quarter this year. And then Q3 will be impacted this year by not having it. And then the digital archive sale was in both countries. So across e-commerce in both countries. So the impact is spread.
Speaker Change: Got it, and then just thinking about Q4, the implied Comself Guide, Fair Tourism also like a mid-Single Digit Comself Guide, or is it like some sort of acceleration there, just trying to understand.
Speaker Change: and like, what are you, how are you going to eat?
Speaker Change: Yeah, it would be slightly higher, but still mid-single digit, and the revenue acceleration as I was saying is driven by the new stores and the expansions and revisions that were opening.
Speaker Change: God, and then this last question on the girls margin for the third quarter that you've the expansion of 400 basis points, you know, could you give us like a sense of what are like those?
Speaker Change: The main drivers behind that.
Speaker Change: Yeah, it will continue to be the same drivers that benefited us.
Speaker Change: through the air, which is, you know.
Speaker Change: I am you improvement.
Speaker Change: Lower Markdowns, the warehousing costs being lower. Now that item is less of a benefit in Q3 and Q4 because we're lapping when we had the new distribution center open last year. So we were already benefiting in Q3 and Q4 from the synergies from the new DC. And then we have some smart spending initiatives as well that will benefit us in the third quarter. And I should say that we also continue to expect...
Speaker Change: Pressure from Freight Thoughts that are included within that 400 basis points. And is that freight cost pressure that it gets worse versus when we were like three months ago? Or is that consistent with the course?
Speaker Change: I was definitely higher than the beginning of the year, so when we originally provided our annual guidance, we weren't anticipating one meaningful acceleration and air freight costs.
Speaker Change: He prayed we've had to do the different strike situations. We've had to redirect some of our hybrids from Vancouver and that's been at the higher cost, but obviously ensuring the time liness of the delivery. So yeah, it is higher than what we were initially expecting.
Speaker Change: Good. Thank you so much for your congratulations and my results.
Speaker Change: Thank you.
Speaker Change: Once again, if you have a question, please press star, then one. The next question comes from Brian Morrison with TD Con. Please go ahead.
Brian Morrison: Oh, thanks very much. Going back to the SG&A, you mentioned the higher infrastructure cost and the marketing of the flagships.
Brian Morrison: I assume that the market of the flagships has already planned in that number. So is the infrastructure the SGNA spend, is that a pull forward or is that just incremental?
Speaker Change: The infrastructure spend is incremental to this year. I mean, we were planning all of these projects in the coming fiscal years. The one that's generally listed, but we've moved them forward and started them earlier. And then we are spending that incrementally as well.
Speaker Change: Is that because of the successes you're seeing to date from them?
Speaker Change: It's the opportunity that we see, so the app is, you know.
Speaker Change: is a meaningful opportunity, as well as improving our international e-commerce site and the virtual planning software that we have already had planned, but we have increased spend on that because of all the benefits we're expecting to get, and we're trying to accelerate those projects to...
Speaker Change: We're Steve the Benefits.
Speaker Change: Ficker, obviously. And then the marketing, it actually is, is, or is incremental spend. We made the decision to increase the spend around the flagship locations from what we had originally planned. With the timing of the flagship, I'll opening close together, which was not necessary of originally our plan. We thought that this is a great opportunity to be, as I said, to celebrate that we're opening.
Speaker Change: I don't know, between the square footage, between the three of them that's effectively, I know it's not the same, but it's effectively like opening 10 inline stores all at once. So you can imagine the scale of what this means, and it's not just for the locations that they're opening in. This will be something that we can celebrate across our entire store base and in both countries, because I think it'll be a very big brand propelling opportunity. And as I said, it's a historic milestone in our 40 years of business. As it relates to the Commerce Growth Initiative, the mobile app will be a digital flagship property that unlocks everyday luxury digitally. It will allow for...
Speaker Change: On-page channel connections and integrate all of the touch points that will drive frequency, among our clients and compel loyalty and, of course, the international, we concentrate right now, international makes that just barely over 1% of our e-commerce sales right now. And with this enhancements to the e-commerce site, we think that will triple in the first year.
Speaker Change: Okay, so on that slide. Peter, I'll read me why.
Speaker Change: on your studies. So on the flagships, will they be open for Black Friday? How much is the incremental spend on that? And Todd, what will be the fall off of the pre-leaf favoritization associated with that?
Speaker Change: i
Speaker Change: The, so we're currently planning for two of the flagships to fall within the third quarter which Black Friday is extremely late in the third quarter. That's the Chicago and so a whole location and then Fifth Avenue is planned for the first half of the fourth quarter.
Speaker Change: So that's the timing and that's what's going to interact, be their big project. I was there last month.
Speaker Change: and we want to get them right.
Speaker Change: And this is, you know, so we want to make sure that we get these flagships that will be with us for decades to come. We want to get them right. And there are inherent risks to time ones and constructions that, you know, we always say that there's risks that we can't control. I just want to share with you, that's the cell hole building we're in. It was built in 1883. [inaudible]
Speaker Change: It's over 140 years old.
Speaker Change: You know, when we're opening up walls, we're opening up walls with the original lathe and cluster. We're installing up and down escalators, cutting big holes in the floor, and the sheer amount of structural that's required is astounding. It was astounding to me when I saw it. The floor, in some cases, are uneven by up to seven inches from one end to the other. So these things take times, and these are all on their individual cases. Normal occurrences that arise in construction of these. Of this nature, when I do want to give a shout out to our teams, who have done an extraordinary job masterfully managing all of these elements. But the sheer size and scale requires time to ensure things are built. So right now, when we say that we're...
Speaker Change: We're opening five, you know, five stores in Q3 and four to five in Q4 and the reposition's following suit. We're contemplating two of those flagships in Q3, but it will be towards the tail end. And, you know, things may slide into Q4 and we're giving you our best best visibility into what's happening.
Speaker Change: Yeah, thank you, Jen. I actually poke my head in a rock killer new store last three weeks ago and it looks brilliant. I agree with that. Can you quantify what that cost is on the flagship celebration and also the pre-leaf amortization?
Speaker Change: We are the budget for the marketing is roughly $3 million, but we haven't been 100% finalized, and then it could be less, I guess, my point. The amortization benefit next fiscal year will be roughly $50.
Speaker Change: Let's call it 50 basses points.
Speaker Change: Thank you very much.
Speaker Change: Hello, I'm Jennifer Wong. We have a follow-up question from Mauritius Urna with UBS. Please go ahead.
Mauritius Urna: Great, I just had a quick follow up, you know, now that you're lapping the, I mean, you would not be recurring on that long.
Mauritius Urna: Digital Archive Sale, like that
Speaker Change: You do you expect?
Mauritius Urna: from sort of like gross marketing benefit because of that. It could be quantified if possible. Thank you.
Speaker Change: Yeah, and he is.
Speaker Change: The impact, again, is roughly 50 basis points as well.
Speaker Change: God, thank you so much.
Speaker Change: This concludes the question and answer session of now let you turn the call back over to Beth Reed for closing remarks. Please go ahead.
Beth Reed: Thanks again to everyone for joining us this afternoon. We're available after the call to answer any follow-ups and we look forward to talking to you again next quarter. Have a good evening.
Speaker Change: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Speaker Change: Music Music