Ms. Jennifer Wong reports

ARITZIA REPORTS FIRST QUARTER FISCAL 2024 FINANCIAL RESULTS

Aritzia Inc. has released its financial results for the first quarter ended May 28, 2023 (Q1 2024).

• Q1 net revenue increased by 13.4 per cent to $462.7-million;
• Q1 net income decreased by 47.5 per cent to $17.5-million;
• Q1 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased by 54.6 per cent to $31.6-million.

"We delivered first quarter net revenue of $463-million, an increase of 13 per cent on top of strong growth of 65 per cent in the first quarter last year, driven by our growing brand awareness and new client acquisition. Results continued to be fuelled by our business in the United States, where first quarter net revenue grew 22 per cent on top of an 81-per-cent increase in the first quarter of 2023 and our active client base nearly doubled over the past two years," said Jennifer Wong, chief executive officer. "Our growth was balanced across channels, with net revenue increasing 14 per cent in retail and 13 per cent in e-commerce, highlighting the strength of our multichannel business."

Ms. Wong added: "While we are seeing a more challenging consumer environment to start the second quarter and have identified opportunities in the level of newness in our product assortment, we remain disciplined in making further progress against our fiscal 2024 priorities. These priorities include continuing to advance the strategic levers that we expect to fuel our future growth, scaling our infrastructure to match our recent, unprecedented growth, rightsizing our inventory position and optimizing economies of scale across the business. This will help ensure we are well positioned to deliver sustainable, profitable growth and create meaningful value for our shareholders."

First quarter highlights

• Net revenue increased 13.4 per cent from Q1 2023 to $462.7-million, with comparable sales growth of 4.1 per cent compared with Q1 2023;
• United States net revenue increased 21.8 per cent from Q1 2023 to $251.9-million, comprising 54.4 per cent of net revenue in Q1 2024;
• Retail net revenue increased 13.8 per cent from Q1 2023 to $327.6-million;
• E-commerce net revenue increased 12.5 per cent from Q1 2023 to $135.1-million, comprising 29.2 per cent of net revenue in Q1 2024;
• Gross profit margin decreased 540 bps (basis points) to 38.9 per cent from 44.3 per cent in Q1 2023;
• Net income decreased 47.5 per cent from Q1 2023 to $17.5-million;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 54.6 per cent from Q1 2023 to $31.6-million;
• Net income per diluted share of 15 cents per share, compared with 29 cents per share in Q1 2023;
• Adjusted net income per diluted share of 10 cents per share, compared with 35 cents per share in Q1 2023.

Net revenue increased by 13.4 per cent to $462.7-million, compared with $407.9-million in Q1 2023 with comparable sales growth of 4.1 per cent compared with Q1 2023. This is on top of outstanding net revenue growth of 65.2 per cent in Q1 2023. The company continued to see momentum in the United States, where net revenue increased by 21.8 per cent to $251.9-million, compared with $206.8-million in Q1 2023. Net revenue in Canada increased by 4.8 per cent to $210.8-million, compared with $201.1-million in Q1 2023.

• Retail net revenue increased by 13.8 per cent to $327.6-million, compared with $287.8-million in Q1 2023. The increase was led by strong performance of the company's new and repositioned boutiques. Boutique count at the end of Q1 2024 totalled 115 compared with 109 boutiques at the end of Q1 2023.
• E-commerce net revenue increased by 12.5 per cent to $135.1-million, compared with $120.1-million in Q1 2023, which was fuelled by the company's performance in the United States.

Gross profit decreased by 0.5 per cent to $180.0-million, compared with $180.9-million in Q1 2023. Gross profit margin was 38.9 per cent, compared with 44.3 per cent in Q1 2023. The 540 bps decrease in gross profit margin was driven by higher product-related costs primarily due to inflationary pressure, normalized markdowns, temporary warehousing costs related to inventory management, preopening lease amortization costs for boutiques and the company's new distribution centre, and foreign currency headwinds. These impacts were partially offset by lower expedited freight costs.

SG&A (selling, general and administrative) expenses increased by 27.6 per cent to $153.5-million, compared with $120.3-million in Q1 2023. SG&A expenses were 33.2 per cent of net revenue, compared with 29.5 per cent in Q1 2023. The increase in SG&A expenses was primarily due to investments in retail wages and support office labour made in the back half of fiscal 2023, as well as distribution centre project costs.

Net income was $17.5-million, a decrease of 47.5 per cent compared with $33.3-million in Q1 2023.

Net income per diluted share was 15 cents per share, a decrease of 48.3 per cent compared with 29 cents per share in Q1 2023.

Adjusted EBITDA was $31.6-million or 6.8 per cent of net revenue, a decrease of 54.6 per cent compared with $69.6-million or 17.1 per cent of net revenue in Q1 2023.

Adjusted net income was $11.2-million, a decrease of 72.6 per cent compared with $40.9-million in Q1 2023.

Adjusted net income per diluted share was 10 cents per share, a decrease of 71.4 per cent compared with 35 cents per share in Q1 2023.

Cash and cash equivalents at the end of Q1 2024 totalled $58.8-million compared with $179.4-million at the end of Q1 2023.

Inventory at the end of Q1 2024 was $485.0-million, an increase of 62.4 per cent compared with $298.6-million at the end of Q1 2023. The company remains on track for its inventory to normalize by the end of the second quarter of fiscal 2024 and expects normalized markdowns in fiscal 2024 to be no greater than prepandemic levels.

Capital cash expenditures (net of proceeds from lease incentives) were $26.5-million in Q1 2024, compared with $24.4-million in Q1 2023. The increase is primarily due to capital investments in new boutiques, expanded or repositioned boutiques, distribution centres, support offices, and technology infrastructure.

Outlook

Aritzia saw a deceleration in traffic trends beginning the first week of June, which management believes reflects macroeconomic pressure on the consumer as well as opportunities in the level of newness in its product assortment. The company expects net revenue in the second quarter of fiscal 2024 to be flat to slightly down compared with the second quarter of fiscal 2023 on top of strong growth of 50 per cent in the second quarter last year and 75 per cent in the second quarter of fiscal 2022. The company also expects gross profit margin to decrease by 750 bps and SG&A as a percent of net revenue to increase by 550 bps in the second quarter of fiscal 2024 compared with the second quarter of fiscal 2023.

Given trends in the second quarter to date and the macro uncertainty for the remainder of the year, Aritzia currently expects the following for fiscal 2024:

• Net revenue in the range of $2.25-billion to $2.35-billion, representing an increase of approximately 2 per cent to 7 per cent from fiscal 2023 including the 53rd week. This reflects macroeconomic pressure on the consumer, as well as opportunities in the level of newness in its product assortment, and includes the contribution from retail expansion with:
  • Eight new boutiques, including one boutique already opened in Q1 2024, and four boutique expansions or repositions, all of which are located in the United States. Six of the eight new boutiques are expected to open in the second half of the fiscal year, including three in the last month of the fiscal year.
• Gross profit margin to decrease by approximately 300 bps compared with fiscal 2023, reflecting continuing inflationary pressures, normalized markdowns, temporary warehousing costs and preopening lease amortization, partially offset by lower expedited freight costs. The additional pressure compared with the prior outlook is a result of the deleverage on fixed costs due to the lower net revenue forecast.
• SG&A as a percent of net revenue to increase by approximately 300 bps compared with fiscal 2023, driven by the annualization of investments in support office labour and retail wage inflation, as well as distribution centre project costs. The additional pressure compared with the prior outlook is a result of the deleverage on fixed costs due to the lower net revenue forecast.
• Capital cash expenditures (net of proceeds from lease incentives) of approximately $220-million. This includes approximately $120-million related to investments in new, repositioned and expanded boutiques expected to open in fiscal 2024 and fiscal 2025, as well as $100-million primarily related to the company's distribution centres and support office expansion.

Normal course issuer bid

On Jan. 18, 2023, the company announced that the Toronto Stock Exchange had accepted the company's notice of intention to proceed with a normal course issuer bid to repurchase and cancel up to 3,860,745 of its subordinate voting shares, representing approximately 5 per cent of the public float of 77,214,916 subordinate voting shares, over the 12-month period commencing Jan. 20, 2023, and ending Jan. 19, 2024.

On Feb. 3, 2023, the company announced it had entered into an automatic share purchase plan with a designated broker for the purpose of permitting the company to purchase its subordinate voting shares under the 2023 NCIB during predetermined blackout periods.

Between Jan. 20, 2023, and July 10, 2023, the company repurchased a total of 282,300 subordinate voting shares for cancellation at an average price of $35.36 per subordinate voting share for total cash consideration of $10.0-million under the 2023 NCIB.

Early 100 per cent acquisition of CYC

On May 26, 2023, the company acquired the remaining 25-per-cent ownership interest in CYC Design Corp. (CYC). As part of the CYC transaction, the company revalued the non-controlling interest in exchangeable shares liability to $20.5-million as at May 26, 2023, which resulted in a $15.0-million gain recorded in other expense (income). Subsequent to the remeasurement, the non-controlling interest in exchangeable shares liability was settled and reduced to nil (Feb. 26, 2023 -- $35.5-million). The company issued 419,047 subordinate voting shares to the selling shareholders on May 26, 2023, with a value of $15.4-million based on the market closing price of the subordinate voting shares on such date. In addition, the company may issue to the selling shareholders, by March 31, 2026, additional subordinate voting shares with an estimated value of up to $9.4-million based on certain operational performance metrics of the Reigning Champ brand.

Conference call details

A conference call to discuss the company's first quarter results is scheduled for Tuesday, July 11, 2023, at 1:30 p.m. PT/4:30 p.m. ET. To participate, please dial 1-800-319-4610 (North America toll-free) or 1-416-915-3239 (Toronto and overseas long distance). The call is also accessible via webcast. A recording will be available shortly after the conclusion of the call. To access the replay, please dial 1-855-669-9658 and the access code 0239. An archive of the webcast will be available on Aritzia's website.

About Aritzia Inc.

Aritzia is a vertically integrated design house with an innovative global platform, home to an extensive portfolio of exclusive brands for every function and individual aesthetic. It is about good design, quality materials and timeless style that endure and inspire -- all with the well-being of the people and planet in mind. It calls this everyday luxury.

Founded in 1984, in Vancouver, Canada, it creates and curates products that are both beautiful and beautifully made, cultivates aspirational environments, offer engaging service that delights, and connects through captivating communications. It prides itself on providing immersive and highly personal shopping experiences at the Aritzia website and in its 100-plus boutiques throughout North America to everyone, everywhere.

We seek Safe Harbor.