Mr. Brian Hill reports
ARITZIA REPORTS FIRST QUARTER FISCAL 2019 FINANCIAL RESULTS
Aritzia Inc. has released financial results for the first quarter fiscal 2019.
"We are extremely pleased to have started the year on an exceptional note with double-digit growth in both comparable sales and adjusted EBITDA [earnings before interest, taxes, depreciation and amortization]. Our strong first quarter results once again illustrate the effectiveness of our powerful business model, as we continue to delight our customers with beautiful, high-quality products and an aspirational shopping experience, both on-line and in stores," said Brian Hill, Aritzia's founder and chief executive officer.
Mr. Hill added: "Looking ahead, we remain focused on executing our key strategic growth initiatives, including accelerating our e-commerce growth, enhancing our store network and strengthening our infrastructure while delivering product that our customer wants. We continue to build our world-class team and remain on track and confident in our ability to achieve or exceed our long-term performance targets."
Certain metrics, including those expressed on an adjusted or comparable basis, are non-international financial reporting standard measures.
Highlights for the first quarter:
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Net revenue increased by 15.1 per cent to $167.0-million from $145.0-million in first quarter last year.
- Comparable sales growth (1) was 10.9 per cent, following 9.3-per-cent growth in first quarter last year.
- Gross profit margin was 40.4 per cent, compared with 39.7 per cent in first quarter last year.
- Adjusted EBITDA (1) increased by 18.4 per cent to $28.4-million from $24.0-million in first quarter last year.
- Net income increased by 51.2 per cent to $12.3-million from $8.1-million in first quarter last year.
- Adjusted net income (1) increased by 22.2 per cent to $15.2-million, or 13 cents per diluted share, from $12.5-million, or 11 cents per diluted share, in first quarter last year.
- The company opened two new stores (Babaton at Square One in Greater Toronto and Aritzia at Cross Iron Mills in Calgary) and expanded two Aritzia stores (Southgate in Edmonton and Soho in New York) during first quarter this year.
First quarter results
All comparative figures below are for the 13-week period ended
May 27, 2018, compared with the 13-week period ended
May 28, 2017.
Net revenue increased by 15.1 per cent to $167.0-million from $145.0-million in the first quarter last year. The net revenue increase was primarily driven by comparable sales growth (1) of 10.9 per cent, resulting from continued momentum in the company's e-commerce business, as well as strong performance in the stores. Net revenue growth also reflects the addition of six new stores and eight expanded or repositioned stores since the first quarter of fiscal 2018. Net revenue growth would have increased by an additional 160 basis points, or $2.6-million, on a constant currency basis.
Gross profit increased by 17.4 per cent to $67.5-million, or 40.4 per cent of net revenue, compared with $57.5-million, or 39.7 per cent of net revenue, in the first quarter last year. The 70-basis-point improvement was primarily due to a benefit from the strengthening of the Canadian dollar, in addition to continued improvement in product costs related to continuing sourcing initiatives. These improvements were partially offset by higher warehousing and distribution costs.
Selling, general and administrative (SG&A) expenses increased by 15.1 per cent to $47.0-million compared with $40.8-million in the first quarter last year. As a percentage of net revenue, SG&A was 28.1 per cent as compared with 28.2 per cent in the first quarter last year. SG&A as a percentage of net revenue during the quarter benefited from leverage of selling labour costs, partially offset by the impact of the company's continued investment in people.
Other income was $3.0-million compared with other income of $2.2-million in the first quarter last year. Other income this quarter primarily relates to unrealized foreign exchange gains on U.S.-dollar forward contracts of $1.2-million, unrealized and realized operational foreign exchange gains of $1.3-million, and interest income of $400,000.
Adjusted EBITDA (1)
increased by 18.4 per cent to $28.4-million, or 17.0 per cent of net revenue, compared with $24.0-million, or 16.5 per cent of net revenue, in the first quarter last year. Adjusted EBITDA in the quarter excludes stock-based compensation expense of $3.8-million and unrealized foreign exchange gains on U.S.-dollar forward contracts of $1.2-million. Adjusted EBITDA for the first quarter last year excluded stock-based compensation expense of $4.7-million, unrealized foreign exchange gains on U.S.-dollar forward contracts of $800,000 and other non-recurring items of $400,000.
Stock-based compensation
expense was $3.8-million compared with $4.7-million in the first quarter last year. This quarter's stock-based compensation expense primarily consists of $1.1-million in expenses related to the accounting for options under the legacy option plan and $2.6-million in expenses primarily related to the accounting for options under the new option plan.
Net income for the quarter was $12.3-million, compared with net income of $8.1-million in the first quarter last year. The 51.2-per-cent increase in net income during the quarter was primarily driven by the factors described herein.
Adjusted net income (1)
increased by 22.2 per cent to $15.2-million, or 13 cents per diluted share, compared with adjusted net income of $12.5-million, or 11 cents per diluted share, in the first quarter last year. Adjusted net income excludes the impact of stock-based compensation expense, unrealized foreign exchange gains/losses on U.S.-dollar forward contracts and other non-recurring items, net of related tax effects.
Normal course issuer bid
On May 10, 2018, the company announced the commencement of a normal course issuer bid (NCIB) to purchase and cancel up to 5,429,658 subordinate voting shares over the 12-month period commencing May 15, 2018, and ending May 14, 2019. The total number of shares repurchased for cancellation under the company's NCIB during the 13-week period ended May 27, 2018, amounted to 52,100 shares, at an average price of $13.65 per share, for a total cash consideration of $700,000.
Subsequent events
On June 28, 2018, the company amended its credit facilities with its syndicate of lenders to, among other things, reduce the term credit facility from $118.7-million to $75.0-million and increase the revolving credit facility from $70.0-million to $100.0-million. The amended credit facilities have no amortization payments and mature on May 22, 2022.
Outlook
The second quarter of fiscal 2019 is off to a strong start. This performance is attributable to an enthusiastic response to the company's spring/summer product offering. The company looks forward to delivering its 16th consecutive quarter of comparable sales growth in the second quarter of fiscal 2019.
For fiscal 2019, the company remains on track to deliver low- to mid-teen revenue growth and a consistent adjusted EBITDA margin, as compared with fiscal 2018. This assumes:
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Six new stores, including the two opened in the first quarter, as well as two new Aritzia stores at the end of the second quarter, one in Westfield UTC in San Diego and the other in Conestoga Mall in Greater Toronto; the remaining two new stores are expected to open in the second half of the year;
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Five store expansions or repositions, including the two opened in the first quarter, as well as the expansion of Mayfair Shopping Centre in Victoria at the end of the second quarter; the remaining two expansions or repositions are expected to open in the second half of the year;
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Three pop-up Aritzia stores planned for the second quarter, including one in Santana Row in San Jose, which is already opened, and two additional locations, one in Chicago, Ill., and another in Georgetown, Wash.;
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Gross profit margin benefit from sourcing initiatives will be offset by higher raw material costs for the fall/winter season;
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SG&A growth proportionate with revenue growth as the company continues to make strategic investments in people, technology and infrastructure.
Over all, the company remains on track to meet or exceed its stated fiscal 2021 performance targets.
Conference call to discuss results
A conference call to discuss first quarter results is scheduled for July 11, 2018, at 1:30 p.m. PDT/4:30 p.m. EDT. A replay of the conference call can be accessed shortly after the conclusion of the call. To access the replay, please dial 1-855-669-9658 and use replay access code 2430. A replay of the webcast will be available at the conclusion of the call and will remain on Aritzia's investor relations website.
(1) A non-international financial reporting standard.
About Aritzia
Inc.
The company designs apparel and accessories for its collection of exclusive brands. The company's expansive and diverse range of women's fashion apparel and accessories addresses a broad range of style preferences and lifestyle requirements. Aritzia is known and deeply loved by its customers in Canada with increasing customer awareness and affinity in the United States and outside of North America. Aritzia aims to delight its customers through an aspirational shopping experience and exceptional customer service that extends across its more than 85 retail stores and e-commerce business.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars, unless otherwise noted)
Q1 2019 Q1 2018
13 weeks 13 weeks
Net revenue $ 167,011 $ 145,046
Cost of goods sold 99,468 87,508
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Gross profit 67,543 57,538
Operating expenses
Selling, general and administrative 46,993 40,843
Stock-based compensation expense 3,819 4,667
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Income from operations 16,731 12,028
Finance expense 1,391 1,266
Other income (2,955) (2,226)
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Income before income taxes 18,295 12,988
Income tax expense 6,005 4,859
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Net income $ 12,290 $ 8,129
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Other performance measures
Year-over-year net revenue growth 15.1% 14.7%
Comparable sales growth 10.9% 9.3%
Capital cash expenditures (excluding proceeds from leasehold inducements) $ 15,142 $ 16,450
Number of stores, end of period 87 81
New stores added 2 2
Stores expanded or repositioned 2 1
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We seek Safe Harbor.
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