Q1 2026 Aritzia Inc Earnings Call
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Speaker Change: Thank you for standing by this is the conference operator, welcome to Earth T. S. First quarter 2026 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.
Speaker Change: So during 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.
Speaker Change: I will now turn the conference over to Beth Reed Ice President Investor Relations. Please go ahead.
Beth Reed: Thanks, operator, and thank you all for joining Auryxia as the first quarter of fiscal 2026 earnings call on the call today I'm joined by Jennifer Wong, Our Chief Executive Officer, and Todd <unk>, Our Chief Financial Officer. As a reminder, please note that remarks made on this call may include our expectations future.
Speaker Change: Plans and intention that may constitute forward looking information.
Speaker Change: 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.
Speaker Change: We would refer you to our most recently filed management's discussion and analysis and our annual information form which include a summary of the material assumptions as well as the risks and factors that could affect our future performance and our ability to deliver on the forward looking information our earnings release, the related financial statements and the MD&A.
Speaker Change: They 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: Good afternoon, everyone and thank you for joining us today, our results for the first quarter of fiscal 2026 exceeded the outlook. We provided in may and they highlight the strength and growing awareness of the Auryxia brand.
Jennifer: Fundamental to our performance with our spring summer assortment of high quality beautiful products, which resonated extremely well with our clients.
Jennifer: This combined with our optimized inventory position strategic marketing investments and new boutique opening growth continued strong momentum in e-commerce and accelerated growth in our retail channel.
Jennifer: For the first quarter, we achieved net revenue of $663 million or 33% increase over last year and above the top end of our guidance range.
Jennifer: Rose was consistent across channels with net revenue, increasing 34% in retail and 30% in E Commerce.
This underscores the broad strength of our multichannel business.
Jennifer: Comparable sales grew an outstanding 19% fueled by double digit positive growth in all channels and all geographies.
Jennifer: Our business in the United States continue to drive our results. This was fueled by the strong performance of our new and repositioned boutiques over the last 12 months.
Jennifer: In addition elevated demand for our spring summer product drove continued momentum in E Commerce we.
Jennifer: We supported this through strategic investments in marketing and we also generated strong comparable sales growth in our existing boutique.
Jennifer: During the quarter, we continued to drive brand awareness and fuel the growing appreciation for our everyday luxury offering our base of active clients in the U S increased by approximately 40% compared to Q1 last year.
Jennifer: All of this drove a 45% increase in first quarter net revenue in the United States.
Jennifer: We're also extremely pleased with our first quarter results in Canada building on our strong Q4 momentum.
Jennifer: In Q1, we drove a 17% increase in net revenue clients responded well to our product assortment and our marketing help keep a risky at top of mind when they were ready to shop.
Jennifer: Turning to our retail channel over the past 12 months, we grew our square footage by an unprecedented 25%.
Jennifer: During this time, we opened a total of 13, new and three repositioned boutiques, which included one new and one repositioned boutique in the first quarter both in Canada.
Jennifer: We also generated strong mid teens comparable sales growth in our existing boutiques.
Jennifer: This was fueled by elevated demand for our products and supported by our investments in marketing are successful real estate expansion strategy and strong comparable sales growth enabled us to deliver retail net revenue growth of 34% in the quarter.
Jennifer: Our real estate expansion strategy continues to yield strong results year after year.
Jennifer: Payback periods for even our newest boutiques are exceeding our target of 12 to 18 months.
Jennifer: The fiscal 2025 classes standard boutiques is cracking to pay back in less than 12 months.
Jennifer: Our Repositions also continued to perform well driving topline growth and profitability, while elevating the customer experience.
Jennifer: Our newly expanded and repositioned boutiques here in the greater Vancouver area has the distinction of being our largest boutique in Canada at 22000 square feet. It features the first E O K cafe on the West Coast of Canada.
Jennifer: Sales in the first few months are beating our expectations by 50% putting it on track to pay back well ahead of our target of 18 to 24 months for reposition.
Jennifer: Our boutique openings have a consistent track record as are most predictable driver of topline growth.
Jennifer: Help drive awareness and client acquisition in both new and existing markets.
Jennifer: This fiscal year, we plan to open a minimum of 12, new and five repositioned boutiques, including locations in five new markets across the United States in.
Jennifer: In Q2, we expect to open four new boutiques in the U S. This.
Jennifer: This includes locations in Raleigh, and Salt Lake City, which are new markets for us as well as in Miami and the Boston area. We also plan to open our newly expanded boutique in Orlando.
Jennifer: In ecommerce we delivered an increase in net revenue of 30% in the first quarter. This was driven by a robust demand for our spring summer assortment. In addition, our focus on full funnel marketing fueled an increase in e-commerce traffic of nearly 50% in the United States.
Jennifer: We also continued to drive meaningful growth in new and existing clients, both in Canada, and the United States.
Jennifer: In Q1, we completed the migration of all web site traffic to the new and improved Auryxia Dot com.
Jennifer: We're extremely pleased with the performance of our new site and enables us to offer our clients an elevated experience greater personalization and enhanced product discovery.
Jennifer: The balance of this year, we're launching additional functionality aimed at further boosting client engagement and encouraging omnichannel shopping.
Jennifer: We remain on track with the expansion of our digital commerce platforms, including International E. Commerce that will launch next month and the Auryxia mobile app launching in the back half of this fiscal year. These.
Jennifer: These platforms will provide clients with greater access to our product assortment, while reducing friction and increasing conversion and most importantly further fueling the momentum in our E Commerce business.
Jennifer: Turning to product drove the first quarter demand for our spring summer assortment with broad base clients responded well to our iconic franchises and exciting styles in lighter weight fabrics, we drove additional excitement through collaborations such as the Sperry a riskier co lab and seasonal drop.
Jennifer: That resonated with our clients.
Jennifer: To help grow awareness and further amplify our unique everyday luxury offering we continue to refine our marketing strategy by increasing the integration of marketing across the business. We've created a halo effect that spans all geographies, both online and in all of our boutiques.
Jennifer: Our teams across product marketing retail and digital are laser focused on initiatives that will elevate brand love for everyday luxury and in turn grow awareness.
Jennifer: In Q1, we continue to spotlight the core elements that make our brand iconic Leah rizzio high quality product beautiful and aspirational shopping environment and dedicated and engaged in client service.
Jennifer: Our increased investment in digital marketing has continued to fuel our growth both online and in our boutiques.
Jennifer: Just one year in we have already seen meaningful success, our focus remains on reinforcing our everyday luxury brand ethos growing awareness across U S demographics, and acquiring new clients and retaining existing clients to drive incremental revenue.
Jennifer: Our updated fiscal 2026 outlook reflects the substantial decrease in U S reciprocal tariffs on Chinese goods to 30% from 145%.
Jennifer: Well this is a positive development the impact from the tariffs remains meaningful.
Jennifer: I think it's important to note that without the pressure from reciprocal tariffs, we would have guided to an adjusted EBITDA margin in the range of 17% to 18%.
Jennifer: Todd will speak to our revised assumptions during his remarks, but first I want to provide an update on our approach to help mitigate the impact of tariffs and grow our margins.
Jennifer: First the diversification of our supply chain is well underway and has exceeded even our own expectations.
Jennifer: We expect our China sourcing mix to be in the mid single digit if not lower for spring 2026.
Jennifer: Second we've had productive conversations with our long standing supplier partners regarding cost sharing that said given the changing tariff landscape. This will have a smaller impact than initially anticipated third we're in year three of our smart spending initiatives and have implemented additional non client facing costs.
Jennifer: Reductions, we have been particularly thoughtful about ensuring a balance between growing our margins and investing for the future and finally, we're continuing to focus on our multi year initiative to improve I am you and as a reminder, nearly 40% of our business is not impacted by the tariffs because it is.
Jennifer: Generated outside the United States.
Jennifer: Macro uncertainty, including U S tariffs and broader consumer concern continues to pose unique challenges for virtually every company across all industries.
Jennifer: However, we remain confident given our strong fundamentals, we have an agile global supply chain our balance sheet is healthy our client base is extremely loyal the strength of the Auryxia brand has never been greater and adaptability and our ability to execute with excellence are built into our DNA.
Jennifer: Looking ahead, we are pleased with the start to our second quarter, where our momentum has continued across the business.
Jennifer: I am both optimistic and realistic and I reflect on our strong first quarter and the initiatives on deck for the balance of the year, yet mindful, we will be cycling our exceptional growth in the back half of last year.
Jennifer: We have a great pipeline of boutique openings for fiscal 2026 were in a strong inventory position to meet the demand for our product and we're launching international e-commerce as well as our mobile app.
Jennifer: We continue to navigate macro developments from a position of financial and operational strength as we adapt to the environment around us and execute across our three strategic growth levers geographic expansion digital growth and increase brand awareness.
Jennifer: Our recent results underscore the strength of our business model and growing appreciation for our brand and yet we still have a long runway for growth in the United States.
Jennifer: Even with the impact of tariffs, we're on the path to reaching our fiscal 2027, adjusted EBITDA margin target of approximately 19%.
Jennifer: This gives me great confidence in our ability to execute and capitalize on all of the opportunities that lie ahead.
Jennifer: In closing these tremendous results could not be possible without our world class team and I would like to thank all of our people for their dedication to excellence and commitment to growing the Auryxia brand.
Jennifer: With that I'll now hand, it over to Todd to discuss the details of our financial performance.
Todd: Thanks, Jennifer and good afternoon, everyone.
Todd: In the first quarter of fiscal 2020, we generated outstanding revenue growth as well as delivered meaningful gross profit margin expansion and SG&A leverage.
Todd: This resulted in our fifth consecutive quarter of substantial year over year growth in adjusted EBITDA.
Todd: Turning to the details of our first quarter performance.
Todd: We delivered net revenue of $663 million.
Todd: An increase of 33% from last year.
Todd: This was above our guidance range of 24% to 28%.
Todd: Comparable sales grew 19% driven by double digit growth in all channels and across all geographies.
Todd: This strong performance was driven by the following factors.
Todd: First our spring summer product resonated extremely well with our clients and we were in an optimal inventory position to respond to that elevated demand.
Todd: Our growth was further fueled by a 25% year over year increase in total retail square footage and finally, our increased investments in digital and brand marketing amplified our everyday luxury offering and resulted in traffic growth across both channels.
Todd: In the United States net revenue increased 45% to $413 million in the first quarter.
Todd: Our U S e-commerce business was driven by meaningful traffic growth.
Todd: In U S retail our performance was driven by the opening of highly productive new and repositioned boutiques as well as strong comparable sales growth in our existing boutiques.
Todd: Our U S performance underscores the strength of our business model and the ongoing success of our strategic initiatives.
Todd: This gives us confidence in our ability to capitalize on our long runway for continued growth.
Todd: We are also incredibly pleased with our performance in Canada, where accelerated comparable sales growth both online and in stores drove a 17% increase in first quarter net revenue to $250 million.
Todd: Turning to our sales channels.
Todd: Net revenue in our retail channel was $480 million an increase of 34%.
Todd: This was driven by the strong performance of our new and repositioned boutiques.
Todd: Which drove more than half of the retail net revenue growth.
Todd: And our existing boutiques, we also delivered exceptional results with comp growth in the mid teens.
Todd: In E Commerce net revenue was $183 million, an increase of 30% driven.
Todd: Driven by strong profit growth that was fueled by the response to our product our inventory position the halo effect from the opening of our new boutiques and our digital marketing.
Todd: We delivered gross profit of $313 million, an increase of 42% compared to the first quarter last year.
Todd: Gross profit margin expanded 320 basis points to a record 47, 2%.
Todd: The increase was primarily driven by leverage on store occupancy cost lower warehousing costs and savings from our smart spending initiatives.
Todd: These benefits were partially offset by higher freight costs.
Todd: SG&A expenses for the quarter were 222 million leveraging 190 basis points as a percentage of net revenue to 33, 5%.
Todd: The improvement was primarily driven by expense leverage and savings from our smart spending initiatives.
Todd: Adjusted EBITDA in the first quarter was $95 million, an increase of 77% from last year.
Todd: Adjusted EBITDA margin expanded 360 basis points to 14, 4%.
Todd: This was driven by our ongoing efforts to deliver multi year margin expansion as well as SG&A expense leverage.
Todd: Excluding a non operational FX impact adjusted EBITDA margin would have been 16%.
The margin improvements we've delivered for five consecutive quarters continue our progress toward achieving our previous EBITDA margin levels in the high teens.
Turning to the balance sheet inventory was $409 million at the end of the first quarter up 3% from last year.
Todd: Our optimized inventory position continues to be a driver of our exceptional performance.
Todd: Our liquidity position is strong with $293 million in cash no debt and zero drawn on our $300 million revolving credit facility at the end of the first quarter.
Todd: I will now shift to our outlook for the second quarter and fiscal year 2026.
Todd: We continue to see strong momentum in our business in the second quarter.
Todd: Given quarter to date trends, we expect net revenue in the second quarter to be in the range of $730 million to $750 million.
Todd: This represents growth of 19% to 22%.
Todd: Our net revenue outlook for the second quarter is based on continued outperformance in the United States as well as strength in Canada.
Todd: The anticipated revenue growth is driven by our boutique openings comparable sales growth in our existing boutiques and strength in our E Commerce business.
Todd: We expect gross profit margin in the second quarter to increase approximately 100 basis points compared to the second quarter of fiscal 2025.
Todd: This improvement is driven by leverage on occupancy costs.
Todd: Lower distribution costs and IMU improvements.
Todd: Partially offset by the impact of U S tariffs.
Todd: We forecast SG&A as a percentage of net revenue to improve approximately 100 basis points in the second quarter.
Todd: Driven primarily by expense leverage from our revenue growth.
Todd: We now forecast net revenue for the full fiscal year in the range of $3 $123 billion to $5 billion.
Todd: <unk> growth of 13% to 19% from fiscal 2025.
Todd: Our momentum across channels and geographies remain strong.
Todd: Given the dynamic macro environment, our outlook continues to accommodate for a range of scenarios.
Todd: Turning to tariff impacts our updated guidance reflects the following assumptions based on U S for cyclical tariffs in place today.
Todd: Tariffs on Chinese imports reduced from 145% to 30% and tariffs on the rest of the world remaining at 10%.
Todd: Assuming these percentages stay in place for the remainder of the year. We now expect the tariffs to impact gross margin by approximately 150 basis points for fiscal 2020.
Todd: A meaningful improvement from the approximate 400 basis points previously anticipated.
Todd: As Jen said, our mitigation efforts are well underway.
Todd: We will remain agile and as the situation evolves, we will continue to balance investing in our future growth with delivering ongoing margin improvement.
Todd: With this in mind, our adjusted EBITDA margin for the year has increased and is now expected to be approximately 15 five to 16, 5% in fiscal 2026 compared to 14, 8% in fiscal 2025.
Todd: This is driven by strong top line growth <unk>.
Todd: <unk> improvements great tailwind.
Todd: Savings from our smart spending initiative and expense leverage.
Todd: Importantly, excluding the 150 basis points of tariff related pressure, our adjusted EBITDA margin for fiscal 2026 would be in the range of 17% to 18%.
Todd: In closing we are extremely pleased with our exceptional performance.
Todd: The strength of our operating model the momentum we have created in our business and our healthy financial position gives us confidence in our path forward.
Todd: We remain agile and are well positioned to navigate macro developments.
Todd: While remaining focused on advancing our key strategic levers to drive long term profitable growth.
Thank you.
Todd: With that operator, let's please open up the line for questions.
Todd: Okay.
Todd: Thank you joining the question queue you May Press Star then one on your telephone keypad.
Todd: Your tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys.
Todd: The majority of your question. Please press star two.
Speaker Change: So that we can get to everyone on the call today. Please limit yourself to one question and a related follow up.
Todd: The first question comes from.
Speaker Change: Mark Petrie with CIBC. Please go ahead.
Mark Petrie: Hey, good afternoon.
Speaker Change: Obviously the momentum.
Speaker Change: <unk> remains excellent well balanced so I'm just interested to hear a little bit more about your thinking about the revenue.
Speaker Change: This range.
Speaker Change: Obviously, you brought up the lower end of the range, but just given the strength that seems like the ceiling is.
Speaker Change: It's probably also been raised so hoping you can expand on the rationale as you compose that range and then the assumptions embedded particularly at the top of it.
Mark Petrie: Sure. Thanks Mark.
Mark Petrie: We're continuing to see strong momentum in both countries and in both channels.
Mark Petrie: Quarter to date, now and obviously through Q1, but our outlook accommodates for a range of scenarios due to all the uncertainties related to the broad macro environment, including changes in the tariffs and the potential for a consumer slowdown.
Mark Petrie: From a cadence perspective.
Mark Petrie: For Q2, as you've seen our guidance at the midpoint of the range assumes total comp growth in the low double digits.
Mark Petrie: For the back half of the year, our guidance assumes trends moderate in each quarter.
Mark Petrie: As we annualize obviously, the strong topline growth in the back half as well as the potential for a slowdown in the pace of the consumer spending.
Mark Petrie: And that's why we've maintained.
Mark Petrie: Relatively broad range at $150 million.
Mark Petrie: Our assumptions for the year at the top end of the range assumes basically business as usual and low double digit comp for the entire year. The bottom of the range assumes a meaningful deceleration still.
Mark Petrie: Which it would be in the mid single digit comp growth.
Mark Petrie: And then the midpoint of our guide assumes total comp growth in the high single digits and I think it's important to remember that our our guide is underpinned by our new and repositioned boutiques as well as that comp growth.
Mark Petrie: And again, we're extremely pleased with the strength that we're seeing today and the momentum into the second quarter, but it's still very early in the year and we've got.
Mark Petrie: A lot of a long way to go ahead of us.
Mark Petrie: Yes fair enough.
Mark Petrie: And just thinking about the fiscal 'twenty, 719% EBITDA margin aspiration.
Mark Petrie: And trying to bridge that versus the <unk>.
Mark Petrie: 17% to 18% guide that you would've mentioned for this year excluding tariffs.
Mark Petrie: How much of the.
Mark Petrie: The gap between your current guidance in that 19% would be further tariff mitigation efforts versus the natural margin expansion and margin recovery that that you would have otherwise expected.
Mark Petrie: Yes.
Mark Petrie: Again.
Mark Petrie: <unk> remains a dynamic so it's hard to pin down specifically, but.
Mark Petrie: We do anticipate the next year, we will benefit.
Mark Petrie: From the lowering of the impact of the tariffs through our sourcing diversification.
Mark Petrie: We continue to have our multi year IMU opportunity as our business mix expands in the United States.
Mark Petrie: And as well as expense leverage as our revenue growth. So it's really still underpinned by those key factors.
Mark Petrie: And you know it is the dynamic environment, we are using the facts as of today from a tariff perspective and that could change, but with where we're sitting today, we still see a path to that high teens adjusted EBITDA margin.
Irene: The next question comes from Irene <unk> with RBC capital markets. Please go ahead.
Speaker Change: Thanks, Ed and good afternoon, everyone great quarter congratulations.
Speaker Change: Just continuing on the.
Speaker Change: The outlook can you talk about your current inventory position as we move into fall winter how much has been onshore as we come up to the important sort of end of the tariff approval.
Irene: Yes, Hi, Irene.
Speaker Change: First off we're extremely pleased with our inventory position.
Speaker Change: We're in a strong position today and our fall winter receipts are coming in on time.
Speaker Change: By the beginning of August we would anticipate approximately 35% of our fall winter inventory would be.
Speaker Change: In North America.
Speaker Change: And so thats where were sitting today, but we are again extremely pleased in the door.
Speaker Change: Inventory continues to be a key driver of our revenue or our optimized inventory positioning continues to be a key driver. So.
Speaker Change: Pleased with where we're sitting and there would be depending on the timing of tariff changes.
Speaker Change: Benefits.
Speaker Change: From the inventory be already being onshore.
Speaker Change: That's very helpful. Thank you.
Speaker Change: And just related question.
Speaker Change: When you think about where you are today on inventory versus spring summer.
Speaker Change: Relative to the anticipated demand how would you describe it.
Speaker Change: And have you seen any differences in terms of price point or category in terms of sell strips.
Irene: Hi, Irene Thank you for your question.
Speaker Change: I can't underscore enough. In addition to what Todd said is we are in a great inventory position, we've done a lot of work over the past year and a half two years to refine our playbook and are.
Speaker Change: Ensure that our inventory is productive and efficient and I think we've we're in a fantastic place right now very well positioned.
Speaker Change: Very well positioned overall quite frankly in terms of our overall assortment.
Speaker Change: And the optimized levels of inventory in terms of breadth and depth and the timing you brought up timing in your in your previous question. So as it relates going into fall.
Speaker Change: Couldn't be better positioned at this point in time from what to what we have visibility into and looking forward to the fall launch.
Speaker Change: The next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.
Luke Hannan: Thanks, Good afternoon, and congratulations on the results Jennifer you touched in your prepared remarks on the success that youre seeing within your digital marketing initiatives over the course of the last year can you share with us what it is.
Luke Hannan: Does that you've learned I guess from those initiatives and what it is that youre going to be deploying over the next coming quarters that you think is going to help build your brand awareness, particularly in the U S.
Speaker Change: Thanks Luke.
Speaker Change: We have certainly added more ways to speak to our clients to our overall toolset.
Speaker Change: This is something that we've been working on now for the better part of the year just getting into it for the better part of the year and we started investing in digital marketing to complement our broader marketing efforts, we've always had brand marketing and ensuring that we're elevating our everyday luxury brand that's true interesting and creative ways.
Speaker Change: But adding this digital marketing is something that's newer for us and <unk> during the year, we increased our efficiency and return on spend it's as simple as that.
Speaker Change: We tested each component of our digital campaigns to understand what resonates with our customer we leverage this data to ensure that we have precision and are targeting a relevance in our creative.
Speaker Change: Present, where the customer is spending their time online and so all of these things that we've refined over the year combined with having the right assortment the right product and the right inventory is what field.
Speaker Change: Both online and not just online, but also theres been a halo effect in our boutiques.
Speaker Change: That's great. Thanks, and then as my follow up as well you touched on the expanded boutique that you.
Speaker Change: In Vancouver, and mentioning that the economics unit economics are exceeding expectations that youre seeing for Repositions does that give you any thought as to whether perhaps there might be a longer term opportunity to modernize the fleet of boutiques that you have in Canada and if so is there opportunity just purely from a real estate.
Speaker Change: <unk> perspective to be able to undertake that.
Speaker Change: Yeah, we are absolutely thrilled with what we're seeing in this in this latest boutique opening part of our real estate expansion strategy is about repositioned and expansions and so that's just.
Speaker Change: A prime example of a recent not a reposition well it is a slight repositioning in the mall.
Speaker Change: And expansion and in particular the expansion parts and so you know we explore every scenario on a case by case basis.
Speaker Change: There is always opportunities that are presented to us and depending on the location depending on the productivity of the existing location, depending on the economics of what's being presented to US we will always capitalize on on an opportunity that comes our way and certainly there's lots that present themselves and so.
Speaker Change: Again. This is just a fantastic example of our reposition an expansion play.
Speaker Change: Play.
Speaker Change: The next question comes from Martin Landry with Stifel. Please go ahead.
Speaker Change: Hi, good afternoon, and congrats on your results.
Speaker Change: I would like to dig into your Canadian revenues.
Speaker Change: They were up 17% year over year, that's quite strong.
Speaker Change: I'm trying to <unk>.
Speaker Change: Better understand where does the growth come from are you gaining new clients or is it your existing client base that spending more at your stores.
Martin Landry: Great question Martin.
Martin Landry: Thank you for that Canada has certainly strengthened.
Martin Landry: We were asked about this last quarter you know a few quarters ago, we were talking about a bit more of a muted environment in Canada, and we're super pleased to see the momentum here in Canada.
Martin Landry: We continue to grow our active client base, both in the U S and in Canada. So there our client base continues to grow.
Martin Landry: But at the very start if at all you know our success at Auryxia starts with having what the customer wants and that doesn't end in Canada. In spite of the fact that we have as many stores as we do in Canada. So our customer is responding well to the product first and foremost our inventory.
Martin Landry: <unk> levels are optimized to maximize sales.
Martin Landry: And and capitalize on that and then we've mentioned the marketing amplifying all of that and in particular in Canada are keeping a ritzy are top of mind when the customer is ready to buy and I think that's an important piece for us in Canada.
Speaker Change: Thank you and just maybe a follow up on your product assortment.
Martin Landry: You have started to.
Martin Landry: To showcase the aerogel name and logo on some of your products.
Martin Landry: Can you just talk to us a little bit about how successful that is and is there an intend to extend that to the broader assortment.
Speaker Change: Clients know and love Auryxia and have now for quite some time and we saw that this was an opportunity to propel our brand our name on our own product franchises and it's something that we initiated a few.
Speaker Change: Does it go it simply increases brand awareness and elevate our rigs yeah and elevate the brand itself.
Speaker Change: Promote everyday luxury goods, particularly through the product, which is our primary driver and it's an important aspect as we grow in the U S and so so far we're seeing a great response.
Speaker Change: Most importantly, we are seeing lifts in sales in addition to the propelling of our brand and we're continuing to evaluate this as we go and certainly is the opportunity expands we will we will ensure that we capitalize on it.
Speaker Change: The next question.
Speaker Change: <unk> comes from Brian Morrison with TD Cowen. Please go ahead.
Speaker Change: Got it thanks very much first question for Todd.
Speaker Change: What percentage of Paul Winter has now landed for H, two and then on the unmitigated tariff exposure the 150 basis points.
Speaker Change: We think about it 70 basis points of mitigation action in 200 basis.
Speaker Change: Points of operating leverage.
Speaker Change: And then lastly can you confirm the margin guide includes the other FX headwind there was a notable benefit last year, but an $8 million headwind to start this year.
Speaker Change: Okay, well first off the yes. The revenue guide is based off of 1137 as the exchange rate. So that's embedded in the guidance.
Speaker Change: That would be a headwind in the fourth quarter it'll be relatively neutral in Q2 and Q3.
Speaker Change: And then from from a EBITDA perspective, how you can think about that 150 basis points of expansion is that prior to tariffs as I said, we had 200 basis points expected for this fiscal year from a margin expansion perspective.
Speaker Change: 50 basis points to that is still being used to offset.
Speaker Change: The tariffs along with all of our mitigation strategies. So.
Speaker Change: They equal roughly 100 basis points and that leaves therefore 150 basis points.
Speaker Change: Of the previously anticipated expansion for this year and that's why we've increased our range from 14% to 15% to 15 five to 16, 5%.
Speaker Change: EBITDA for the year.
Speaker Change: Obviously, it was a meaningful change in the tariffs from China and our results for the year are benefiting from that.
And then the first question that you asked about inventory by the beginning of August we anticipate we would have approximately 35% of our inventory landed at that point.
Speaker Change: Okay and then my second question Jim are you on track with respect to timing for the introduction of your hand enhanced international website and the introduction of your mobile App.
Speaker Change: And what is a realistic penetration rate of e-commerce sales from mobile and should we expect an immediate lift as it goes live.
Speaker Change: Hum.
Speaker Change: Great question I mentioned in my prepared remarks at the International ecommerce website is scheduled to go live next month.
Speaker Change: The digital team is probably cringing, a little bit it's scheduled to go live next month I know it is in testing as we speak and assuming everything goes according to plan. It will go live next month.
Speaker Change: But in any event.
Speaker Change: Got it to go live in Q2 as far as the mobile App had a great update on the mobile App project are Super excited about the launch of that that is scheduled to go live in the back half of this fiscal year.
Speaker Change: And likely before the holiday time, we envision meaningful digital business running through this channel.
Speaker Change: Peers.
Speaker Change: Our peer set is show or they showed anywhere from 20% to 40% of their digital business running through their app I would see us being at least on par with this if not best in class eventually so.
Speaker Change: No.
Speaker Change: Lots of excitement in terms of how this will allow us to connect with the customer across all of our ecosystem and create more frequency and more engagement deepen the loyalty with our clients is going to be a huge brand and and sales generator NFL effectively.
Speaker Change: Our digital flagship.
Speaker Change: The next question comes from Dylan Carden with William Blair. Please go ahead.
Speaker Change: Thank you.
Speaker Change: I'm, just kind of it's thinking about lapping that.
Speaker Change: Current period, it would seem that a lot of the things that are driving the performance today.
Speaker Change: I actually have a lot longer tail on them and are laughable anniversary of all have you want to think about it and particularly when you mentioned just the app and other things, you're probably going to have going into the back half of the year. So.
Speaker Change: Are there any things that sort of more nuanced in how you might have to lap this period and I guess something like the new flagship store openings being supported by a ton of marketing or marketing generally are those are sort of a negative initial waterfall.
Speaker Change: Or anything like that.
Speaker Change: And then Todd I'm, just curious the 10% rest of world assumption in the.
Speaker Change: Tariff impact it looks like some of these countries might be coming out higher than that sort of how youre thinking about why are you using that number at this point. Thanks.
Speaker Change: Okay.
Speaker Change: Yeah from a.
Speaker Change: The tariff perspective.
Speaker Change: We've just gone with what's in place today.
Speaker Change: Yes.
Speaker Change: Obviously things are still extremely fluid and I would say up in the air.
Speaker Change: If Vietnam, where to go to 20% it would be approximately 30 basis points of pressure for the rest of the year.
Speaker Change: Of course, depending on when the changes implemented.
Speaker Change: And then Cambodia, if that were to go to 20% it would be 20 basis points of impact or if Cambodia, where to go to 36, it would be roughly 40 basis points. So just.
Speaker Change: For your information.
Speaker Change: Yes.
Speaker Change: Those would be the impact, but I think it's still again very much up in the air and nothing official has been communicated so we've stuck with what has been officially communicated.
Speaker Change: And then as far as our revenue guide for the rest of the year I think I've walked through the puts and takes.
Speaker Change: <unk> Q4, specifically.
Speaker Change: That's where we have accounted for the wide range in our in our guide because.
Speaker Change: We are at that point.
Speaker Change: Don't know where where the consumer will be at we also.
Speaker Change: You know, we're lapping 26% comp growth, but as you said our business continues to be extremely strong we have.
Speaker Change: Growth foundations from all of the new stores, we open.
Speaker Change: Or are opening this year as well as some of the ones that opened late in the year last year, so that creates a great base and.
Speaker Change: We're extremely excited about how we're a business that today and.
Speaker Change: We're doing everything we can from an e-commerce perspective to ensure that we have accelerated performance through that period end.
Speaker Change: We'll be working hard to drive that.
Speaker Change: Excellent. Thank you very much.
Speaker Change: The next question comes from Michael Glen with Raymond James. Please go ahead.
Speaker Change: Hi.
Speaker Change: Good afternoon.
Speaker Change: Just going back to margins as we think about that 19% in fiscal 2007.
Speaker Change: Todd can you give some indication like how we should.
Speaker Change: <unk> you provided some buckets earlier, but how should we think about.
Speaker Change: The increase between gross margin and SG&A leverage should we be thinking about more SG&A leverage coming into the model.
Speaker Change: I would say it will be from from both it'll be a balance between both.
Speaker Change: And obviously.
Speaker Change: It's predicated on the tariff environment, but we continue to expect gross profit margin expansion as well as SG&A leverage to get us to that high teens EBITDA margin level.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Jennifer circling over to Paul is there is there anything that you can share with us regarding the assortment and how you feel about the product do you think you have the right depth on the right product for the season, just any of the qualitative commentary you can provide about how you feel about like what youre coming out with for fall.
Michael Glen: Thanks, Michael.
Paul: Yeah, I'm Super excited about what we have coming on line for fall.
Michael Glen: Spring summer was any indication.
Michael Glen: No for a fact, our clients loved what we had to offer in spring summer when I was in our stores the product looked amazing in the stores merchandise beautifully I was hearing directly from clients and our staff in our stores about how wonderful our product, we're showing up at our stores and I see that continuing on.
Michael Glen: Into fall I'm very very excited for what we have in store in fall and I think you know as we said earlier in this call were in a great position both in terms of having the right product at the right time and the right amount at the right place. So you know all of all of that is coming together.
Michael Glen: It is due to a lot of effort and great dedication from the team and I think we're in as good of a position as any for our fall launch and I guess, what I'm. Most excited about is is the transition into fall. We're launching just in a couple of weeks with an earlier launch it to catch the back to school.
Michael Glen: Our momentum and can't wait to see how it performs when it hits the floor.
Speaker Change: The next question comes from Stephen Macleod with BMO capital markets. Please go ahead.
Stephen Macleod: Thank you good evening everyone.
Stephen Macleod: Lots of great color, so far but I just wanted to.
Stephen Macleod: Ask about two things specifically just around your digital marketing.
Stephen Macleod: Jennifer you talked a lot about just kind of a strong returns youre seeing.
Stephen Macleod: And how it is positively impacting your numbers. So I was just curious if you could give some color as to kind of what your digital investments are running as a percent of sales and given the strong returns youre seeing would you would you seek to potentially move that higher over time.
Stephen Macleod: Great question, Stephen Thank you our digital marketing are we.
Stephen Macleod: We still remain quite prudent with our marketing as encouraging as a result, our we have said in the past that it is a low single digit percentage of our overall sales. It is something that we will keep at similar levels. It is an amplification.
Stephen Macleod: <unk> of everything that we do is not a main driver of what we do I think it just adds.
Stephen Macleod: It adds an additional.
Stephen Macleod: Component to our overall integrated marketing in this integrated brand.
Stephen Macleod: Proposition so yes, our efficiency in our spend has increased.
Stephen Macleod: Increased quarter over quarter and year over year I'm quite pleased with that.
Stephen Macleod: Data does show, we have more room to grow with that.
Stephen Macleod: That said I don't see it growing more than in line with revenue at this point in time, but we're constantly monitoring work I have to tell you we are constantly testing everything.
Stephen Macleod: And we do know, it's a lever that we can pull and we see appropriate.
Speaker Change: That's great. Thank you and then just one other question my second follow up would be regarding some of the collaborations that you've done and you referenced this in your prepared remarks.
Speaker Change: Is this something that you would continue to do going forward and I guess as you think about collaborations obviously you want to collaborate with very strong brands.
Speaker Change: But is it kind of a way to get into categories, where you currently don't participate kind of like.
Speaker Change: Yes.
Speaker Change: We had on eyeglasses.
Speaker Change: Or is the sunglass collaboration and then you mentioned Sperry as well so just wondering how to think about that going forward.
Speaker Change: Yes, we have gotten more product collaborations.
Speaker Change: This past year, it's something that it's been an initiative within our product marketing group.
Speaker Change: Is a fad.
Speaker Change: Fabulous way to.
Speaker Change: Create more activations to speak to our customers and tell them about something interesting. It does allow us to get into adjacent categories and explore that it is it is really meant to continue to enhance our rigs yet as a brand and enhance our everyday luxury offering and be able to show a.
Speaker Change: <unk> done more.
Speaker Change: Our lifestyle off back to the everyday luxury ethos and they think that they are really exciting things that we can talk about and keep our customer interested and engaged and so far you know, particularly that the Sperry auryxia one as been hugely successful.
Speaker Change: The next question comes from Maurice you, Sir now with UBS. Please go ahead.
Speaker Change: Great.
Maurice Yue: Good afternoon. Thanks for taking my questions I wanted to know about the Q2 guidance.
Maurice Yue: Implies you talked about the comp sales growth implied or low double digits. It implies some deceleration two questions on that how are you running quarter to date.
Maurice Yue: On comps and.
Maurice Yue: And that this alteration worse, where do you expect that to come down because of Canada U S channel. How are you thinking about that thank you.
Speaker Change: Hi, Mary So we're extremely pleased with the momentum that we're seeing across the business really all channels all geographies continue to perform exceedingly well.
Speaker Change: On a two year stack comp basis quarter to date trends are in line with Q1.
Speaker Change: From a guidance perspective, when you look at the total revenue growth. There is really three factors that you do have to consider.
Speaker Change: One is that two year stack so the comp in Q2 last year with stronger than Q1.
Speaker Change: Q1, this year benefited from a two.
Speaker Change: Approximately 250 basis points from FX.
Speaker Change: And we aren't expecting any FX benefit in Q2, and then the dollar benefit from the new stores is roughly consistent quarter over quarter, but the growth in Q2 is obviously measured off of higher comp base because of the larger quarter than this.
Speaker Change: In Q2, so our guide does incorporate all of that and and it also incorporates some conservatism as we're only five weeks into the quarter and as John has said fall is launching at the end of July. So we still have a long way to go for this quarter, but we're extremely.
Speaker Change: <unk> pleased with the momentum that we're seeing in our business.
Speaker Change: Got it and then just a couple of follow ups on that.
Speaker Change: Youre seeing adjusted EBIT.
Speaker Change: <unk>.
Speaker Change: Youre seeing Youre embedding 200 is improved.
Speaker Change: This guidance is only going up.
Speaker Change: Keybanc.
Speaker Change: I wanted to make this motion.
Speaker Change: I'll just point difference.
Speaker Change: Related to this FX impact.
Speaker Change: <unk>.
Speaker Change: That's the only thing really right.
Speaker Change: For all the listeners on the call I believe it or not I did catch the question.
Speaker Change: It is.
Speaker Change: Why is our basically resold asking why is the guide not going up 200 to 250 basis points, because that's how much pressure has come off from the tariffs in China, but.
Speaker Change: The math doesn't work exactly that way Mario because obviously with the meaningful reduction in the tariffs from China is that naturally meaningfully reduces the benefit from our accelerated diversification strategy. So when the tariffs are a $1 45.
Speaker Change: Our diversification out of China has a higher benefit than it does at 30 so.
Speaker Change: You need to take that into account when you're doing the math.
Speaker Change: But again, we're pleased with the meaningful reduction.
Speaker Change: In the tariffs and the 150 basis points.
Speaker Change: Of expansion that we've put into the guide compared to where we were.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Two months ago, when we provided our full year guidance and we do remain agile and if the reciprocal tariffs change as we were discussing for other countries, we will assess and work to mitigate both in the short and the long term.
Speaker Change: This concludes the question and answer session and today's conference call.
Speaker Change: Thank you for joining and have a pleasant day you may now disconnect your lines.
Speaker Change: Goodbye.
Speaker Change: Okay.
Speaker Change: We will receive.
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Speaker Change: Sure Shlomo.
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Speaker Change: Hi, Paul.
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Speaker Change: Hi, Paul.
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