Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aritzia Inc (ATZAF, Financial) delivered an 8% increase in net revenue to $499 million for the first quarter of fiscal 2025.
- US net revenue increased by 13%, driven by new and repositioned boutiques and growing brand awareness.
- Retail channel net revenue increased by 9%, supported by positive comparable sales growth and real estate expansion.
- E-commerce net revenue grew 4%, with sales trends accelerating throughout the quarter.
- Gross profit increased by 22%, with gross profit margin improving by 510 basis points to 44%.
Negative Points
- SG&A expenses increased by 15%, driven by investments in digital marketing and technology initiatives.
- SG&A as a percentage of net revenue increased by 220 basis points to 35.4%.
- Despite positive trends, the company maintained a cautious outlook due to the dynamic macro environment.
- Airfreight costs are expected to be higher this year, impacting overall expenses.
- Pre-opening lease amortization costs for flagship boutiques partially offset gross profit improvements.
Q & A Highlights
Q: Can you elaborate on the performance of new stores, particularly the Boca Raton location, and how it compares to other new stores in recent years?
A: In the first week, 60% of clients at the Boca Raton store were new to Aritzia. This is consistent with other recent store openings, such as Sacramento, where 50% of clients were new in the first month. This trend highlights the effectiveness of new stores in client acquisition in the US. — Jennifer Wong, CEO
Q: Can you explain the Q2 sales guidance of 7% to 10% growth, given the 8% growth in Q1 and the acceleration in trends?
A: The top end of our guidance range aligns with the trend seen as we exited Q1. Given the significant portion of the quarter still ahead, including the launch of fall collections, we felt it prudent to provide a range. New store openings are predominantly scheduled for late July and early August, so they won't contribute a full quarter of sales. — Todd Ingledew, CFO
Q: Can you share specifics on the digital marketing campaigns and their performance metrics like return on ad spend and conversion rates?
A: We started meaningful digital marketing at the beginning of this year, focusing on paid influencer, search, social, and affiliate marketing. Early indicators show a higher return on ad spend than industry averages, with consistent conversion rates and accelerated e-commerce sales. — Jennifer Wong, CEO
Q: What drove the better-than-expected gross margin performance in Q1, and how do you see freight costs impacting margins?
A: The 510 basis points expansion in gross margin was driven by higher sales leverage and lower markdowns due to improved inventory. Freight costs, particularly airfreight, are expected to be higher this year but are factored into our guidance. — Todd Ingledew, CFO
Q: Can you provide more color on the types of new products introduced and their impact on sales?
A: We have returned to our historical balance of new styles and client favorites. New items are introduced each season, and our optimized inventory has positively impacted sales, with trends accelerating throughout the quarter. — Jennifer Wong, CEO
Q: Why is there no upward revision in the fiscal 2025 guidance despite the positive momentum?
A: Q1 represents only 20% of our annual revenue, and given the dynamic macro environment, we believe it prudent to reaffirm our annual guidance. We will revisit this as we progress through the year. — Todd Ingledew, CFO
Q: Are new stores achieving payback in less than a year, and how do they perform in terms of sales per square foot?
A: Yes, new stores are paying back in less than 12 months and exceeding $1,000 per square foot in sales, which is why they are surpassing our payback expectations. — Todd Ingledew, CFO
Q: With significant net cash expected by year-end and declining CapEx, is an active NCIB a priority?
A: After considering CapEx and business investments, our next priority is to buy back shares. We anticipate using the NCIB more meaningfully as we build our cash position in the back half of the year. — Todd Ingledew, CFO
Q: Can you clarify the cadence of new store openings for the rest of the year?
A: We have opened two stores year-to-date and plan to open four new stores in Q2, eight in Q3, and one in Q4. Additionally, we have one reposition in Q1, two in Q3, and one in Q4. — Jennifer Wong, CEO and Todd Ingledew, CFO
Q: How should we think about inventory levels for the rest of the year?
A: Inventory will continue to decline year-over-year in Q2 but will grow in line with revenue growth in the back half of the year, consistent with pre-pandemic levels. — Todd Ingledew, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
