Release Date: October 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aritzia Inc (ATZAF, Financial) reported a 15% increase in net revenue to $616 million for the second quarter of fiscal 2025.
- The company saw a 24% increase in sales in the United States, driven by real estate expansion, e-commerce growth, and strong comp growth in existing boutiques.
- E-commerce returned to double-digit growth with a 10% increase in net revenue, driven by increased traffic in the US and a strong response to fall products.
- Aritzia Inc (ATZAF) plans to open an additional 9 to 10 new boutiques and reposition 2 to 3 boutiques by the end of the fiscal year, indicating a strong pipeline for growth.
- The company achieved a 520 basis point increase in gross profit margin to 40.2%, driven by better-than-forecasted markdown and IMU improvements.
Negative Points
- Sales growth in Canada was only 6%, attributed to a softer consumer environment.
- SG&A expenses increased by 17% to $200 million, driven by investments in digital marketing and infrastructure projects.
- Higher freight costs partially offset the gross profit margin improvements.
- The company is facing challenges with construction timelines for flagship store openings, which may impact the timing of revenue recognition.
- Aritzia Inc (ATZAF) is navigating a more challenging macro environment in Canada, which is expected to impact revenue growth in the back half of the year.
Q & A Highlights
Q: Can you explain the difference in performance between your Canadian and US clientele?
A: Jennifer Wong, CEO: The US market showed strong momentum, while Canada remained consistent until Q3, where we noticed some softness. The difference is mainly in volume and traffic, not in average order value or selling price. Canadian consumers are shopping less frequently but are more discerning when they do shop.
Q: Are the new boutiques opened during the quarter still achieving the expected 12-month payback period?
A: Todd Ingledew, CFO: Yes, the new stores, primarily in the US, continue to perform well, contributing significantly to our 24% revenue growth in the US. The new stores accounted for about 50% of our growth in the US this quarter.
Q: What changes have been made to the SG&A guidance, and what are the reasons behind them?
A: Jennifer Wong, CEO: We are continuing with investments in digital, including the replatforming of aritzia.com and developing a mobile app. These initiatives are part of our strategy to accelerate digital growth. We are also investing in infrastructure to support future growth.
Q: Can you clarify the trends for Q3, particularly in the US and Canada?
A: Jennifer Wong, CEO: The US market remains strong, while Canada has shown some deceleration starting in Q3. Our digital marketing efforts are focused on optimizing and building on current strategies to maintain momentum.
Q: Are there any delays in store openings, and what are the expectations for fiscal '26?
A: Todd Ingledew, CFO: There are no changes to our annual numbers for new stores, though some openings have shifted from Q3 to Q4. We expect to open 12 to 13 new stores this fiscal year and anticipate a similar or slightly higher number for fiscal '26.
Q: How do you plan to achieve the fiscal '27 EBITDA margin target of near 19%?
A: Todd Ingledew, CFO: We expect a straight-line improvement from this fiscal year to FY27, driven by IMU improvements, smart spending initiatives, and the growth of our US business, which is accretive to margins.
Q: What are the main drivers behind the expected 400 basis points gross margin expansion in Q3?
A: Todd Ingledew, CFO: The expansion is driven by IMU improvements, lower markdowns, and smart spending initiatives, although offset by higher freight costs.
Q: How will the removal of the digital archive sale impact gross margins?
A: Todd Ingledew, CFO: We expect a gross margin benefit in Q3 from the removal of the digital archive sale, offset by freight costs. The impact is roughly 50 basis points.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
