Via online business online marketing online business opportunities Aritzia Inc. (ATZAF) CEO Brian Hill on Q1 2020 Results – Earnings Call Transcript

Via online business online marketing online business opportunities

Aritzia Inc. (OTC:ATZAF) Q1 2020 Results Conference Call July 11, 2019 4:30 PM ET

Company Participants

Helen Kelly – Vice President of Investor Relations

Brian Hill – Founder, CEO and Chairman

Jennifer Wong – President and COO

Todd Ingledew – CFO

Conference Call Participants

Mark Petrie – CIBC

Irene Nattel – RBC Capital Markets

Mark Altschwager – Baird

Lorraine Hutchinson – Bank of America Merrill Lynch

Patricia Baker – Scotiabank

Stephen MacLeod – BMO Capital Markets


Thank you for standing by. This is the conference operator. Welcome to Aritzia’s First Quarter 2020 Earnings 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. [Operator Instructions]

I will now like to turn the conference over to Helen Kelly, Vice President of Investor Relations. Please go ahead.

Helen Kelly

Thank you, Carl. And thank you all of you for joining us for Aritzia’s first quarter 2020 earnings conference call. My name is Helen Kelly/ and I recently joined Aritzia as Vice President of Investor Relations. I look forward to working with all of you.

Joining me today are Brian Hill, our Founder, CEO and Chairman; Jennifer Wong, President and COO; and Todd Ingledew, our CFO. We will begin today’s call with management’s discussion followed by a question-and-answer period open to analysts and investors.

Please note that remarks on this conference call may provide certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements. We would refer you to our most recently filed management’s discussion and analysis, which includes a summary of the material assumptions, as well as certain material risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.

The first quarter 2020 conference call, the earnings release, the related financial statements and the MD&A are available on SEDAR, as well as the Investor Relations section of our website at

Finally, all figures discussed on this conference call are in Canadian dollars unless otherwise noted.

I will now turn the call over to our Founder, CEO and Chairman, Brian Hill.

Brian Hill

Thank you, Helen, and thank you everyone for joining us today. On behalf of the entire Aritzia team, we’d want to give a warm welcome to Helen Kelly, our new VP of Investor Relations.

I would also like to take this opportunity to welcome, John Montalbano, as our newest member of our Board of Directors. He has an impressive background with over 30 years extensive experience in capital markets, international commerce and corporate affairs. We look forward to drawing on his broad range of knowledge and expertise. With the addition of John, Aritzia’s Board of Directors now has eight of 10 of its directors who are independent members.

Turning to business, we’re extremely pleased to have started the fiscal year with an exceptional first quarter. We delivered 17.8% growth in revenue and 24.8% increase in adjusted EBITDA, reflecting the sustained strength in our incredible business. This was our 19th consecutive quarter of comparable sales growth. Comparable sales increased 7.9%, following an increase of 10.9% in the first quarter of last year. The increase in comparable sales was driven by meaningful growth in our e-commerce business and consistently positive performance in our boutiques.

Our growth continues to be fueled by increased affinity to our unique brand of everyday luxury, beautiful high quality products, exceptional client service and an aspirational omni-channel shopping experience. Our balanced spring and summer product assortment was well received by our clients and drove revenue in the quarter despite unseasonably weather across most of North America. However, a strategically aggressive initial buy for our spring and summer merchandise, combined with the inclement weather, resulted in higher inventory levels at the end of the first quarter.

We expect the additional inventory to drive revenue during the quarter. Although, coupled with ongoing higher raw material costs will put some pressure on our gross profit margin. The new expanded repositioned boutiques that we’ve opened since the end of the first quarter last year contributed to revenue growth in this quarter. We’re extremely pleased with the performance of these boutiques, which continue to meet or exceed our expectations.

In the first quarter, we opened a new boutique in Hudson Yards in Manhattan and repositioned our Mapleview boutique in Greater Toronto. Overall, we continue to see robust incremental client acquisition through our boutiques and our online channel. This success was reflected in our U.S. business with revenues growing by 38%. The sustained momentum in the U.S. reflects accelerating brand awareness, driven largely by our new boutiques and the ongoing benefits of our influencer strategy and social media efforts.

Aritzia celebrities and fashion influencers wearing Aritzia product continues to expand. This led to an increase in highly visible organic placements this quarter. We’ve also seen increased product exposure in a wide range of publications, including Vogue, InStyle and the Wall Street Journal. In summary, we’re very pleased with the strong start to the fiscal 2020.

Looking forward, our boutique network remains a key component of our growth strategy. Our boutiques drive sales and meaningful profits, build brand awareness, drive significant client acquisition, and fuels our e-commerce sales. All six of our new boutiques planned for fiscal 2020 are located in the United States. Two of these locations are in existing markets, including Hudson’s Yards Manhattan, which we opened in the first quarter and American Dream in East Rutherford that will open in the second half of the year.

Four other locations will be new markets for us, including Cherry Creek in Denver, Mall of America in Minneapolis, The Galleria in Houston and The Domain in Austin. All six of these new boutiques are located in AAA locations with top-tier shopping in top-tier shopping destinations. Our growing brand awareness and strong sales performance allows us to obtain premier locations and negotiate terms to deliver highly attractive returns. Our real estate pipeline remains strong and we’re making great progress in our lease negotiations for fiscal 2021 boutiques.

Our consistent financial performance illustrates our commitment to executing our powerful business model, and our ability to drive both top and bottom line growth. We are incredibly well positioned within the fashion industry and we remain committed to driving forward with our strategic investments as we continue to capitalize on the opportunities ahead.

Before I turn the call over to Jennifer, I want to share some exciting news about our enhanced partnership with SAP to execute on an integrated and expansive digital platform. This new initiative will enhance our omni-channel capabilities and elevate our client experience to a world class level across all channels with the potential to drive significant revenue growth. Through our partnership with SAP, we will leverage client data and increase personalizations to drive accelerated retail and e-commerce growth over the next several years.

With that, I’ll turn the call over to Jennifer, who will provide more details around some of these initiatives. Thank you.

Jennifer Wong

Thank you, Brian, and good afternoon everyone. As Brian just mentioned, let me give you further details on the investments we’re making to advance two of our e-commerce and omni-channel initiatives.

To grow our clienteling program and develop our omni-channel capabilities, we recently entered into an expanded strategic partnership with SAP to develop a comprehensive customer program, which we believe will be transformative for Aritzia. This is the first time Aritzia has invested in this way on front of house systems and processes. The program is designed to provide a seamless, consistent and personalized approach towards how we engage and service our clients to deliver an unparalleled experience when engaging with our brands.

Through advanced business intelligence and behavior analytics, we will be able to tailor unique shopping experiences, both in our boutiques and online while driving higher sales and client loyalty. The program is comprised of four projects; customer 360, marketing communications platform, digital sales tools and concierge. I’ll discuss each in turn. The customer 360 project builds on our new enhanced data and analytics platform. It will enable us to store, view and edit client information from all of our front end systems in real time. We’ll be able to gather an enhanced view of our clients and their preferences to help us create more personalized communications and recommendations across all channels.

Second, we are updating our marketing communications platform. While the project is primarily focused on replacing our existing e-mail service providers, it will deliver so much more for our clients. Once it’s up and running, it will allow us to personalize communications with our clients by creating campaigns targeting specific segments based on their attributes and preferences.

Third, we will be launching a new and exciting app for our 3,000 style advisors. The digital sales tool will equip them with real time enriched client information and product data. Our style advisors will be able to curate looks based on client characteristics, build recommendations and set up and manage personal shopping appointment. The tool will allow us to maximize each and every client interaction.

Our style advisors will be able to access our e-commerce site, add items to our clients’ baskets on their behalf and receive credit for the sale when the client checks out. This powerful tool is expected to generate significant revenue opportunities across all of our channels and elevate the overall shopping experience for our clients.

And lastly, we will be implementing concierge to replace the case management system for our contact center. This newer integrated solution will take our client experience to a new level. The concierge’s team will know who is calling or emailing and route it based on client type, language, or other characteristics we set in place. This project aims to connect to the hearts of our clients, providing them with the personalized and efficient experience through the life cycle of their concerns or questions.

Next, we have also embarked on an omni-foundations project with SAP. To support omni-channel growth and capture existing synergies, we are creating a platform to provide our clients a seamless experience, whether they shop online or in our boutiques. Building on the foundation of our new points of sales system, this SAP platform will allow for a centralized view of inventory availability to improve cost channel activity, such as buy online, pick-up in store and buy online to sale from store. Together, we are confident these tools will continue to set Aritzia apart and keep us on the forefront of providing exceptional client service and an aspirational shopping experience for which we are well known.

I’ll now turn the call over to Todd to discuss our financial results and outlook.

Todd Ingledew

Thank you, Jennifer, and good afternoon everyone. This is our first quarter reporting under IFRS-16, the new leasing standard. The net impact of IFRS-16 adoption to our net income in the first quarter of fiscal 2020 was a reduction of only $77,000. We do not expect the standard to have a material impact on net income for the remainder of the year.

So here’s on a reported basis include the adoption of IFRS-16. However, we have also provided certain metrics for fiscal 2020, excluding the impacts of the new standards. We’ll provide these comparable figures each quarter as we report our results during the fiscal year. In my review of our financial results, I will focus my commentary on the comparative figures, which exclude the impact of IFRS-16.

Turning to our results for the first quarter. We saw continued momentum in our business and are pleased with the strong start to fiscal 2020. Net revenue grew 17.8% to $196.7 million compared to $167 million in the first quarter last year. This growth was driven by both e-commerce, as well as our boutiques, particularly in the United States where we saw sustained momentum.

Comparable sales increased 7.9% on top of the 10.9% increase in the first quarter last year. Net revenue also benefited from the addition of six new boutiques and three expanded or repositioned boutiques since the end of the first quarter last year.

Gross profit margin, excluding the impact of IFRS-16, was 40.6% as compared to 40.4% in the first quarter last year. The 20 basis point increase in gross profit margin was primarily due to leverage on occupancy cost and benefits from our ongoing sourcing initiatives. This increase was largely offset by a 130 basis point impact related to the weakening of the Canadian dollar compared to the first quarter last year.

SG&A expenses, excluding the impact of IFRS-16, as a percent of net revenue were 27.7%. This was a 40 basis point improvement from 28.1% in the first quarter last year. The improvement was primarily due to leverage on fixed costs, partially offset by continued investments in people, technology and infrastructure.

Adjusted EBITDA, excluding the impact of IFRS-16, increased by 24.8% to $35.4 million, or 18% of net revenue compared to $28.4 million or 17% of net revenue in the first quarter last year. Adjusted net income grew 21.3% to $18.5 million compared to $15.2 million in the first quarter last year. Adjusted net income per diluted share grew 30.8% to $0.17 compared to 13% in the first quarter last year.

Our cash balance totaled $35.8 million at the end of the quarter as compared to $122.3 million at the end of the first quarter last year. Over the past year, we used free cash flow to repurchase $107 million of subordinate voting shares concurrent with the March 2019 secondary offering, repaid $43.7 million in long-term debt and repurchased $9.4 million of subordinate voting shares under our previous NCIB.

As you saw in our press release, we announced the intention to renew our normal course issuer bid through the facilities of the TSX to repurchase and cancel up to 5% or $3.6 million of our subordinate voting shares. Having an NCIB facility in place allows us to buy shares opportunistically as market conditions warrant and in the short-term, offset the dilution of option exercises. As our cash balance grows in the second half of the year, we will reevaluate our options for the use of excess cash.

Turning to our outlook. We expect positive comparable sales growth in the second quarter, driven by our strong brand momentum and the sell-through of the aforementioned spring summer purchases. We expect the flow-through of positive comparable sales will be impacted by higher markdowns and ongoing higher raw material costs, resulting in lower gross profit margin percentage for the second quarter compared to the same period last year.

For the full year in fiscal 2020, we continue to expect to deliver low double-digit revenue growth. We’re moving revenue from the additional week in fiscal 2019. Net revenue in fiscal 2020 is expected to grow in the low to mid teens.

Gross margin expectations for the second half of the year have not changed. We continue to expect gross margin in the second half of the year to be lower than last year due to ongoing higher raw material costs. This, combined with the gross margin pressure in the second quarter, will translate into a moderately lower gross profit margin for fiscal 2020 compared to 2019.

We continue to expect SG&A to grow faster than revenue in fiscal 2020 as we make strategic investments in technology and infrastructure. These investments will predominantly be cloud-based and are now expensed where they previously would’ve been capitalized.

Incremental SG&A expenses related to these initiatives in fiscal 2020 are expected to be approximately $7 million to $8 million, and occur primarily in the second and third quarters. We continue to plan net capital expenditures of $45 million to $50 million, which include costs related to new and expanded, or repositioned stores in addition to infrastructure investments.

In conclusion, we’re pleased with the strong quarter and the continued momentum in our business. We are confident our strategic investments we are making to advance our growth strategies will enable us to continue to deliver consistent revenue and profitable growth as we remain on track to achieve or exceed our fiscal 2021 financial targets.

With that, we will now welcome questions. Operator?

Question-and-Answer Session


Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mark Petrie of CIBC. Please go ahead, sir.

Mark Petrie

Good afternoon. Just regarding the higher inventory and the change to the gross margin outlook. How much of that inventory overhang have you progressed through to-date in the second quarter? And Brian, you noted that the inventory overhang was obviously somewhat weather driven, but also driven by an aggressive approach to buying for spring summer. Would you have any reason to take a different stance in terms of your approach in buying for fall winter?

Brian Hill

I’ll be able to tell you that after the quarter, because although it puts pressure on our gross margin percent, we’ve yet to determine if that actually adds gross margin dollars. We think it might be adding gross margin dollars. We don’t want to sustain this over a long period of time. But we went into the spring/summer season, understandably bullish with our product offerings, business being great and continues to be. And so we’re quite aggressive with our initial buy.

Despite strong regular price season, which we had in the quarter, we ended the quarter obviously with the elevated inventory levels. And it was partially resulting from the unseasonable weather. But we’ve been selling through the spring summer product extremely well so far this quarter, and expect this will contribute to our top line revenue growth as we mentioned.

Correspondingly, we’re going to put pressure on our gross margin, but we’re pretty confident in about another two to three weeks, we’re going to be exactly the same position we were last year. So, we’re going to be looking to see in hindsight. I mean, if you have inventory because you had a bad early season, that’s the problem. That means you had a bad season. We didn’t have a bad season, we had a fabulous season.

So, we just have a bit of an overbuy. And therefore, we’re going to work through that stock. And as I mentioned, I think we’re going to be through most of it in the next two to three weeks. And then at that point in time, we’ll be able to reflect back on our next call how that went. But I’m not losing any sleep over it at this point in time.

Mark Petrie

Okay, thanks. And in the past, you’ve given a sense of how the current quarter was tracking relative to the previous quarter on comps. This time you just said your outlook is for positive. How should investors interpret that?

Todd Ingledew

Mark, it’s Todd. We’re pleased with the current performance of our business, but we’re only five weeks into the quarter. So as Brian said, we still have a couple months ahead of us here. So, we do expect the momentum we’ve seen to continue, but too early in the quarter to put a stake in the ground.

Mark Petrie

And then just last. Brian, thanks for the color on the store opening plans for the rest of this year. But wondering if you could just give us a bit of an update in terms of how the negotiations are progressing for fiscal 2021? And what your expectations would be in terms of store opening pace?

Brian Hill

So things are rolling on pretty good, both on new stores and repositioned stores. And I just want to clarify something, so thanks for bringing this up. I want to make sure everybody understands why we’re opening boutiques and continuing to open boutiques, because there is a lot of — obviously, everybody’s talking about online sales. And our boutiques drive meaningful profits for us. Every single store we’ve been opening, certainly, since we’ve gone public and almost every single store we have drives meaningful profits for us.

It helps us build brand awareness in our new markets. It drives significant client acquisition. Quite frankly, we get more client acquisition from our stores than we do our e-commerce channels. And it fuels our e-commerce sales. And so the net benefit of opening the stores is incredible. So we’re going to continue open stores. And we think it’s a core competency of ours, obviously, and how much profit they drive. And we think it’s a strategic advantage we have over a lot of pure plays out there. So we’re continuing to open stores.

In the following year, our pipeline looks super healthy, as I mentioned, both on new stores and repositioned stores, primarily new stores in the United States, repositioning stores in Canada. But we have a long way to go in the United States and the landlord’s — there’s no shortage of landlords and locations clamoring to have an Aritzia store in their market. So our pipeline looks super healthy for next year. And some of them are finalized. I don’t wish to share them at this point. And some of them are still in negotiations. But we’re not going to have any problem fulfilling our objectives next year.


The next question comes from Irene Nattel of RBC Capital Markets. Please go ahead.

Irene Nattel

Thanks, and good afternoon everyone. First of all, really impressed to see that same-store sales number notwithstanding the weather. But I really was intrigued by the partnership that you guys were talking about and the investments you’re making around customer experience and e-commerce and this 360 view. And I was just wondering if you could elaborate a little bit, walk us through how that actually plays out from the perspective of the customer? And over what time period we’re going to see you roll out these initiatives?

Jennifer Wong

Irene, its Jennifer. And we are very excited about the customer program, because we do think it has the ability to transform the way we do business and ultimately, set us apart from our competitors. And so, I would say of all of the — for work streams in the overall program, we are not disclosing a hard date but we do expect to see some of that up and running in the next fiscal year. And so, I think what you’ll see on the front end is you’ll see the aspirational shopping experience and it will crossover on to online.

Irene Nattel

And, if I am a customer going into your store with what you’re going to do in the next year? How am I going to see experience this and I guess is what I’m really getting at?

Brian Hill

Well, Jennifer, Irene hi, It’s Brian.

Jennifer Wong

This is we trying to get, because I think this is really cool.

Brian Hill

Yes, and we think it’s really cool too. And actually on a side note, not only we’re mentioning SAP and I don’t know, if they’ll mention in their earnings call, but they phoned us this week and asked us in the SAP earnings call next week if they can talk about Aritzia and the partnership with Aritzia, which is pretty specialized, because SAP is a pretty big organization and the CEO wants to talk about us in their calls. So we’ll see if it manifests itself in that.

But so the way we looked at it is we have between 3,000 and 4,000 frontline style advisors. And we need to empower them and give them the data and the tools to be able to really excel at their job and fulfill that everyday luxury goal that we have as an organization. So what we’re giving them is data and that data will start off with just knowing exactly who their customer is, when they’ve communicated with those customers, what that customer has purchased, all the data necessary around them having all the facts at their disposal.

As we start to develop those, it allow us to do product recommendations, communicate with them on product recommendations, communicate them on events and things that are happening at Aritzia, as well as then the next tier would probably be more artificial intelligence around recommendations on product based on their past purchase history and other items that they have in their wardrobes and how we can wardrobe and bring in the whole AI thing.

So we’re looking — this as a multi-phased approach. And we just think that, from a customer perspective, it’ll allow them through our style advisors to be able to have a whole different level of experience in our stores, because it’ll be cognizant of their time to give recommendations that we think will resonate with them more. It’ll allow us to track communications. So they’re getting communicated at the appropriate times. And just allow us to make better informed decisions when we’re communicating them. Whether it’d be offline and they’re outside of the store, whether when they come into the store.

And if somebody such as yourself walks in the store and you see your preferred style advisor, and they will know all about what you purchase, not just in the store but online as well. And this will allow us to help things online and eventually personalize online and allow us to have personalized online experiences as well. So, we’re super excited. It’s not going to happen overnight. It’s a big commitment on our part. And quite frankly, it’s a big commitment on SAP’s part. And it’s obviously an important — we’re an important client for SAP, because we’ve done such a great job of implementing all the previous work streams we’ve done with them. So they’re super excited and confident and partnering with us on this.

And I think they’re really excited as well, because of who we are and what we do and what we mean in the fashion business. I think that’s important to them, too. So, we’ve created a great partnership. I know, I went — few weeks ago I met with Bill McDermott in New York, the CEO and made a big effort to come see us. So, we’re excited about everything, it’s going to really propel both our retail and bricks and mortar business, but also e-commerce business for many years to come.

Irene Nattel

And so it sounds as though, Brian, this is if I think of a three-year process. Is that reasonable?

Brian Hill

Well, I think it’s going to be ongoing. We look at this as very many phases. And I think I’ll go back to Jen as far as the phases go.

Jennifer Wong

We do know with the digital selling tools that right now we’re planning it to be launched in three phases. And so not unlike many of the other systems that we implement, we do it over a period of time to make sure that the change is absorbed appropriately, because it will introduce a lot of change, particularly with the style advisors in the store. So, yes, I would say its multi-year. I don’t know if I could say three, or two, or four or what, but I think — with any system that we implement we’re always optimizing it once it’s in.

Brian Hill

And then I’ll add a bit, for the next several years, I think SAP will have more capabilities and have more tools at our disposals, they continue to develop too. So, there’s probably going to be some implementation of — further implementation of products and tools from SAP that they haven’t completed even — that we don’t even have on our menu yet. So we think that’s going to continue to evolve over long period of time. And we have a great relationship with SAP. They’re an incredible company and they fueled our growth up to this point in time and backstopped it. And we like to think they’re going to continue to do so for us for many years to come.


The next question comes from Mark Altschwager of Baird. Please go ahead.

Mark Altschwager

Good afternoon. Thanks for taking my question and nice start to the year. Just circling back on the Q2 outlook just with respect to the gross margin commentary. Any further color on the magnitude or pressure you’d expect? And given that plan pressure, are there any offsets on SG&A we should be thinking of as we adjust our models?

Brian Hill

As far as further commentary, I think we provided some specifics around the year. And we expect the gross profit pressure from Q2. We haven’t changed our outlook for Q3 and Q4. But we do expect the growth profit decline for the year to be moderately down. We are providing specifics on Q2. And we’re always ensuring that we’re spending appropriately. But as we’ve discussed we do have these initiatives that are being spent in Q2. So there aren’t any offsets beyond where we’ve already forecasted SG&A.

Mark Altschwager

And then the SAP project sound very exciting. Also sounds like a lot of change from a systems’ perspective. So maybe talk about what you’re doing from a risk management perspective to protect against disruption in the business and the momentum in the business as these tools are implemented?

Jennifer Wong

That’s going back in 2008, we’ve had I would to say, tremendous track record of putting in large scale systems. So, if you just go back. starting with the SAP implementation, our first WMS implementation launching e-commerce, putting in two points of sales, the last point of sales being probably the most impactful and one might say highest risk, which affected all of our stores we have done very successfully.

There’s one thing that we have honed it’s our project management methodology. We have a fantastic project management team and broader business team that knows how to do these things. And so whenever we’re going about putting in these projects, we apply our project methodology and we take into account all of the different business impacts and we have a running tally of how to mitigate that. And we apply basically the what, when and how much philosophy that we do with our entire business and making sure that what we do is right and when we do it is right, and how much it cost is appropriate. And if we stick to our guiding business principles, we usually achieve success.

Mark Altschwager

And then finally just a bigger picture, the earnings outlook this year calls for slower growth given some of the heavier investment spend on systems and infrastructure. How should we be thinking about the key drivers to earnings re-acceleration in fiscal 2021? I guess back to the rates implied by your 2021 plan, it is between top line gross margin, SG&A leverage. How would you characterize the big drivers there?

Brian Hill

Well, the big drivers will continue to be what they have been and frankly what they were in Q1. Our new stores are expanded and re-positioned boutique, as well as our e-commerce continues to show significant strength. We also have our ongoing influencer program that we have been spending or are planning to spend increasing dollars in. And then the Phase 1 of these investments that we’re making this year will benefit us from a revenue growth perspective in fiscal ’21, as well as beyond.

And then from a COGS and SG&A perspective, we have been seeing raw material pressures. This year and last year, the Canadian dollar had been working against us. It’s starting to strength a little bit right now. So depending on how that moves, we could see some positive benefits even in the second half of this year from that. And SG&A, well, we have the incremental $7 million to $8 million of investments. And we’ll likely continue to have investments going forward. I’m not anticipating they would be at that level, because of the significance of what we’re implementing this year.


The next question comes from Lorraine Hutchinson of Bank of America Merrill Lynch. Please go ahead.

Lorraine Hutchinson

Thank you. Good afternoon. As you look to your fall and winter receipts, are you happy with the level and contents of those? Once you get through this spring inventory, do you feel like you’re back on track to match that inventory with sales?

Brian Hill

Yes, I mean we got to keep in mind that we were on track. We plan for some meaningful increases and we’ve gotten. We’ve received meaningful increases. We may be got a little ahead of skis and maybe if the weather was a little cooperative, little bit better, we would have done even better. But I don’t want to use weather as an excuse. We always try to avoid it. And we had a great quarter. So, I’m not — you don’t win a championship and then start making excuses on why you won the championship. So, we had a great quarter.

And for fall, we’re once again making strategic decisions on our inventory and buying some areas in depths. And we would like to think that we’re going to be incredibly successful in those areas and hopeful that we’ll continue to fuel our same-store, positive same-store sales growth. So, we have a very systemic, organized systemic inventory system that’s being in place for a long time and how we go operate it. And we don’t really make oversights or expose ourselves to risk nor the amount of risk, and we’ve talked about that from the get-go. And so, I don’t see that changing. We don’t see our systems changing.

We’re obviously developed, continue to fine-tune and hone every system, not just inventory systems and purchasing decisions but throughout every decision throughout our organization. So we’re always improving these things. But the only way and I learned a long, long time ago decades ago that the only way you’re ever going to get an increase is if you are going to get an increase, you have to buy for an increase, because you’re never going to get an increase if you buy for a decrease. So we’re going to continue to buy for increases, because our business is really great and the momentum is incredible.

So, we’re going to continue to buy for these increases and we have a great system of liquidating any excess purchases through our stores and through our e-commerce channels that doesn’t cause us enormous amount of problems. But we just thought we’d identify and call out that we were sitting on more inventory than traditionally we have, but that was strategic in nature. And we’re going to continue to make strategically positive inventory decisions, going forward.


The next question comes from Patricia Baker of Scotiabank. Please go ahead.

Patricia Baker

I had some key questions around the projects that Jennifer was talking about, but you’ve provided enough of an overview there and I also wanted to ask about the inventory, but that’s been covered. But if I may, Brian, you had 7.9% same-store sale comp against up, quite a nice showing against a very strong comp last year. Can you talk to us about what items or what products might have been particularly successful in the first quarter?

Brian Hill

Yes, I think, I wouldn’t say we had any items or products that were success — particularly successful in the first quarter. We have certain fabrications that we continue to develop fabrications in partnership with mills in Italy and Japan and places like that. And we’ve seen the fruits of some of those partnerships and the development of some of those fabrics, pay dividends for us. We’re seeing some growth in some of our collections.

And specifically some of our collections that are professional collections and are little bit more structured and more finely constructive products have been trending extremely well for us, which is great because those are a lot harder to duplicate for other organizations that look to us. And so, I think that we didn’t necessarily have any products or items. And so that we just go to add some categories of fabrications that are doing extremely well in certain direction of clothing and more constructive clothing that’s actually performing extremely well for us.

Patricia Baker

Would you say that that performance is indicative that we would see those fabrications and that structures be in collections going forward for the rest of the year?

Brian Hill

Some of them for sure but other ones are specific to spring and summer. So, the various linens and things like that, rayon’s are specific to spring and summer. And we’ll see a whole new assortment of fabrications and rules and various silks and things like that for fall winter. So, that changes obviously as the seasons change. And what’s great about our business is that we’re not seasonal per se. I mean, we have great spring and summer fabrics and styles. And we have great fall and winter styles and fabrics. And as you know, we don’t, unlike a lot of organizations that excel in one season or into the other, we’d like to approach it with a balanced view and make sure that we are balanced throughout the course of the year.


Next question comes from Stephen MacLeod of BMO Capital Markets. Please go ahead.

Stephen MacLeod

I just want to follow up on two things. Brian, you gave a lot of good color around the excess inventory level that you’re currently sitting on. And I just wanted to clarify, and I know part of it is related to a higher initial buy. But did you also see a slowdown in traffic, in foot traffic? And if so, have you seen that rebound quarter-to-date, or subsequent to when you saw it — if you saw traffic weakness peak as it rebounded?

Brian Hill

No, we’ve actually haven’t seen a slowdown in traffic. Our stores continue to see the same traffic in Canada. And we actually are seeing somewhat anecdotal but basically, we’re seeing increased traffic in our stores in United States. And our e-commerce channels continue, both Canada, the U.S. and international, we’re seeing increased traffic. So we’re not seeing any decrease in traffic whatsoever anywhere in our stores or in our ecommerce channels at this point in time.

I think the weather did affect, perhaps maybe we would have seen even more traffic in certain areas and regions if the weather cooperated a little bit more. But at the end of the day, we’re seeing increases already across in that in our business and traffic.

Stephen MacLeod

And when you think about wherever our excess inventory lies. Are there specific categories that that are causing it, or is it just broad based, I guess?

Brian Hill

Its broad based. Truthfully, we’re spending quite a bit of time talking about the inventory on this call. We suspected we would. We were discussing earlier today that if we had this call and released our financial numbers to-date two to three weeks from now, we won’t even be in a position of being over inventory. So, this situation of having a little too much inventory, ironically, was a perfect storm of when it was peaking right around the end of the first quarter. And as I mentioned, if we by the end of July, we don’t expect that we’re going to have any more excess, we’re going to be in exact same inventory position as we were the same time last year in two weeks, two to three weeks.

Stephen MacLeod

Well, that’s an interesting way to think about it, and thank you. And then just finally in terms of the SAP partnership and some of the investments you’re making around customer loyalty. Is there some loyalty program that you expected to launch?

Brian Hill

Yes. I mean, we’ve discussed loyalty programs. We’ve discussed also which seem somewhat unrelated but are related is Aritzia app and things like that. And so, that will be all part of this digital selling tool as a loyalty program. I mean, are we going to have a traditional, you know, buy two get a third one free loyalty program? No, that’s not how we do things, we’re everyday luxury. But we’re going to define what that loyalty and what a loyalty program looks like at Aritzia. And I’d like to be sitting here, I don’t know, if it’s maybe a year from now is certainly a little aggressive, but maybe couple years from now, two, three years from now and discussing the strength and the performance of this loyalty program putting in.

However, regardless, it will reflect whatever that loyalty program is. It will reflect what beyond brand and the everyday luxury that we want to do, it will reflect that. That said we already do have some forms of loyalty program in our stores. We have client events and gifting and things like that with clients existing. So, we’ve had a loyalty program and forms of loyalty program in Aritzia for over a decade now. It just isn’t fueled by the sales tools that SAP can help us with. And so we’re going to up the ante, so to speak, on the loyalty program at some point in time here, but we already do have one in place right now.


There are no more questions at this time. This includes the question-and-answer session. I would now like to turn the conference back over to CEO, Brian Hill, for any closing remarks.

Brian Hill

Thank you. And thank you everybody for joining us today. In closing, our business continues to be incredible, and we’re well positioned to capitalize on this next phase of growth we’ve discussed here today. We’re extremely excited about the year ahead as we continue to grow our e-commerce to expand our new boutiques, particularly in the United States and drive our exclusive brands and product innovation. And finally, further grow our brand awareness and enhance our long-term profitability. So, I’d like to thank everybody for participating on our call today. We look forward to speaking with you again soon. Thank you.


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

via online business online marketing online business opportunities SeekingAlpha

Read More

Related posts:

Gunman in Aurora shooting 'went ballistic' using pistol with green laser sight, witness says
‘Long overdue’: Unifor standing behind 25,000 Mexican auto workers who’ve walked off the job
business opportunity online marketing online business opportunity opportunities PSFK Tracker Shows How Purposeful Brands Won 2018 and Will Play 2019" style="background: transparent url( no-repeat scroll 0% 0%; width: 150px; height: 150px;">
Via online business online marketing online business opportunities PSFK Track...
Shoes to Masks: Corporate Innovation Flourishes in Coronavirus Fight
Dow Futures Wobble as U.S.-China Trade War Escalates Ahead of Critical Talks
Via online business online marketing online business opportunities BiggerPock...

Be the first to comment on "Via online business online marketing online business opportunities Aritzia Inc. (ATZAF) CEO Brian Hill on Q1 2020 Results – Earnings Call Transcript"

Leave a comment

Your email address will not be published.