Ms. Jennifer Wong reports

ARITZIA REPORTS SECOND QUARTER FISCAL 2024 FINANCIAL RESULTS

Aritzia Inc. has released its financial results for the second quarter ended Aug. 27, 2023 (Q2 2024).

"Aritzia delivered second quarter net revenue of $534-million, an increase of approximately 2 per cent on top of outstanding growth of 50 per cent in the second quarter of fiscal 2023 and 75 per cent in the second quarter of fiscal 2022. As we highlighted last quarter, we believe our top line trend is being impacted by missed opportunities in the level of new styles in our product assortment as well as a mixed consumer environment," said Jennifer Wong, chief executive officer. "While our quarterly results do not meet our high standards, our performance was better than anticipated, and we made significant progress in executing against our fiscal 2024 priorities. As planned, we opened our new Toronto area distribution centre at the end of August and meaningfully improved our inventory position."

Ms. Wong continued: "Following two years of unprecedented growth that resulted in a 39-per-cent three-year net revenue CAGR in Q2 of fiscal 2024, we're continuing to position ourselves for the next phase of expected growth and invest in the scalability of our business. Entering the third quarter, our new styles for fall are resonating well with our clients, and we expect our assortment to be in a strong position for spring/summer 2024. Our new and expanded boutiques continue to deliver better-than-expected results, which provides us confidence as we enter into a period of rapid square footage expansion, as well as continue to advance our e-commerce 2.0 strategy and reaccelerate our adjusted EBITDA margin."

Second quarter highlights

• Net revenue increased 1.6 per cent from Q2 2023 (2) to $534.2-million, with a comparable sales growth (decline) (1) of (4.3) per cent.
• United States net revenue increased 6.0 per cent from Q2 2023 to $278.9-million, comprising 52.2 per cent of net revenue in Q2 2024.
• Retail net revenue increased 3.0 per cent from Q2 2023 to $362.0-million.
• E-commerce net revenue decreased 1.0 per cent from Q2 2023 to $172.2-million, comprising 32.2 per cent of net revenue in Q2 2024.
• Gross profit margin (1) decreased 690 bps (basis points) to 35.0 per cent from 41.9 per cent in Q2 2023.
• Net income (loss) decreased 112.9 per cent from Q2 2023 to $(6.0)-million.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 74.4 per cent from Q2 2023 to $21.2-million.
• Net income (loss) per diluted share of (five cents) per share, compared with 40 cents per share in Q2 2023.
• Adjusted net income per diluted share (1) of three cents per share, compared with 44 cents per share in Q2 2023.

(1) Certain metrics, including those expressed on an adjusted or comparable basis, are non-IFRS (international financial reporting standards) measures or supplementary financial measures.

(2) All references in this press release to Q2 2023 are to the company's 13-week period ended Aug. 28, 2022, to YTD 2023 are to the company's 26-week period ended Aug. 28, 2022, to YTD 2024 are to the company's 26-week period ended Aug. 27, 2023, to fiscal 2022 are to its 52-week period ended Feb. 27, 2022, to fiscal 2023 are to the company's 52-week period ended Feb. 26, 2023, to fiscal 2024 are to the company's 53-week period ending March 3, 2024, to fiscal 2025 are to the company's 52-week period ending March 2, 2025, and to fiscal 2027 are to the company's 52-week period ending Feb. 28, 2027.

Net revenue increased by 1.6 per cent to $534.2-million, compared with $525.5-million in Q2 2023. This is on top of strong net revenue growth over the last two years of 50.1 per cent in Q2 2023 and 74.9 per cent in Q2 2022, resulting in a three-year compound annual growth rate (CAGR) of 38.7 per cent. There was a comparable sales growth (decline) (1) of (4.3 per cent), compared with 28.3 per cent in Q2 2023. The company believes its second quarter net revenue trend was impacted by the level of new styles in its product assortment as well as a mixed consumer environment. In the United States, net revenue increased by 6.0 per cent to $278.9-million, compared with $263.2-million in Q2 2023. Net revenue in Canada decreased by 2.7 per cent to $255.3-million, compared with $262.3-million in Q2 2023.

• Retail net revenue increased by 3.0 per cent to $362.0-million, compared with $351.6-million in Q2 2023. The increase was driven by strong performance of the company's new and repositioned boutiques, which continue to generate better-than-expected results, partially offset by softer comparable sales. Boutique count (3) at the end of Q2 2024 totalled 116 compared with 112 boutiques at the end of Q2 2023.
• E-commerce net revenue decreased by 1.0 per cent to $172.2-million, compared with $173.9-million in Q2 2023, which was driven by softer traffic trends, particularly during the spring/summer sale period.

Gross profit decreased by 15.2 per cent to $186.8-million, compared with $220.3-million in Q2 2023. Gross profit margin (1) was 35.0 per cent, compared with 41.9 per cent in Q2 2023. The 690 bps decrease in gross profit margin was primarily due to inflation in product costs, 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 expenses increased by 16.3 per cent to $171.1-million, compared with $147.2-million in Q2 2023. SG&A expenses were 32.0 per cent of net revenue, compared with 28.0 per cent in Q2 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 (loss) was $(6.0)-million, a decrease of 112.9 per cent compared with $46.3-million in Q2 2023, primarily attributable to the factors described herein.

Net income (loss) per diluted share was (five cents) per share, a decrease of 112.5 per cent compared with 40 cents per share in Q2 2023.

Adjusted EBITDA (1) was $21.2-million or 4.0 per cent of net revenue (1), a decrease of 74.4 per cent compared with $82.6-million or 15.7 per cent of net revenue (1) in Q2 2023.

Adjusted net income (1) was $3.4-million, a decrease of 93.3 per cent compared with $50.6-million in Q2 2023.

Adjusted net income per diluted share (1) was three cents per share, a decrease of 93.2 per cent compared with 44 cents per share in Q2 2023.

Cash and cash equivalents at the end of Q2 2024 totalled $76.5-million compared with $65.4-million at the end of Q2 2023. The cash position at the end of Q2 2024 reflects a $100.0-million drawdown on the company's revolving credit facility.

Inventory at the end of Q2 2024 was $500.9-million, an increase of 10.1 per cent compared with $455.1-million at the end of Q2 2023. The company is pleased that the inventory balance continues to normalize and expects the year-over-year comparison to further moderate for the remainder of fiscal 2024.

Capital cash expenditures (net of proceeds from lease incentives) (1) were $45.7-million in Q2 2024, compared with $22.8-million in Q2 2023. The increase is primarily due to capital investments in new boutiques, expanded or repositioned boutiques, distribution centres, support office expansion, and technology infrastructure.

(3) There were four Reigning Champ boutiques as at Aug. 27, 2023, and Aug. 28, 2022, which are excluded from the boutique count.

Net revenue increased by 6.8 per cent to $996.9-million, compared with $933.4-million in YTD 2023 with a comparable sales growth (decline) (1) of (0.7) per cent. Results continued to be driven by performance in the United States, where net revenue increased by 12.9 per cent to $530.8-million, compared with $470.0-million in YTD 2023. In Canada, net revenue increased by 0.6 per cent to $466.1-million, compared with $463.5-million in YTD 2023.

• Retail net revenue increased by 7.8 per cent to $689.6-million, compared with $639.5-million in YTD 2023. The increase in revenue was led by strong performance of the company's existing and new boutiques in the United States, partially offset by softer comparable sales.
• E-commerce net revenue increased by 4.5 per cent to $307.3-million, compared with $294.0-million in YTD 2023. The increase in revenue was driven by growth within the United States.

Gross profit decreased by 8.6 per cent to $366.8-million, compared with $401.2-million in YTD 2023. Gross profit margin was 36.8 per cent compared with 43.0 per cent in YTD 2023. The 620 bps decrease in gross profit margin was primarily due to inflation in product costs, 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 expenses increased by 21.4 per cent to $324.6-million, compared with $267.4-million in YTD 2023. SG&A expenses were 32.6 per cent of net revenue compared with 28.7 per cent in YTD 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 $11.5-million, a decrease of 85.6 per cent compared with $79.5-million in YTD 2023, primarily attributable to the factors described herein.

Net income per diluted share was 10 cents, a decrease of 85.5 per cent, compared with 69 cents in YTD 2023.

Adjusted EBITDA (1) was $52.7-million, or 5.3 per cent of net revenue, a decrease of 65.3 per cent, compared with $152.2-million, or 16.3 per cent of net revenue in YTD 2023.

Adjusted net income (1) was $14.6-million, a decrease of 84.0 per cent, compared with $91.5-million in YTD 2023.

Adjusted net income per diluted share (1) was 13 cents, a decrease of 83.5 per cent, compared with 79 cents in YTD 2023.

Capital cash expenditures (net of proceeds from lease incentives) (1) were $72.2-million, compared with $47.2-million in YTD 2023. The increase is primarily due to capital investments in new boutiques, expanded or repositioned boutiques, distribution centres, support office expansion, and technology infrastructure.

Outlook

Based on quarter-to-date trends, Aritzia expects net revenue in the third quarter of fiscal 2024 to be flat to slightly down compared with the third quarter of fiscal 2023 on top of strong growth of 50 per cent in the third quarter last year and 75 per cent in the third quarter of fiscal 2022. The company also expects gross profit margin to decrease by approximately 200 bps and SG&A as a per cent of net revenue to increase by approximately 300 bps in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023.

Aritzia continues to expect 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 missed opportunities in the level of new styles in the company's product assortment as well as a mixed consumer environment, and includes the contribution from retail expansion in the United States with:
  • Eight new boutiques, including two boutiques already opened in the first half of fiscal 2024, and four boutique expansions, including two boutique expansions already opened.
  • 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.
• SG&A as a per cent 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.
• Capital cash expenditures (net of proceeds from lease incentives) (1) 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.

A discussion of the company's long-term financial plan is contained in the company's press release dated Oct. 27, 2022, "Aritzia presents its fiscal 2027 strategic and financial plan, powering stronger." This press release is available on SEDAR+ and on the company's website.

Normal course issuer bid

Between Jan. 20, 2023, and Sept. 27, 2023, the company repurchased a total of 699,341 subordinate voting shares for cancellation at an average price of $28.39 per subordinate voting share for total cash consideration of $19.9-million under its 2023 normal course issuer bid.

Conference call details

A conference call to discuss the company's second quarter results is scheduled for Thursday, Sept. 28, 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 at the company's website. 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 0396. 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. The company is about good design, quality materials, and timeless style that endures and inspires -- all with the well-being of people and the planet in mind. Aritzia calls this everyday luxury.

Founded in 1984, in Vancouver, Canada, Aritzia creates and curates products that are both beautiful and beautifully made, cultivates aspirational environments, offers engaging service that delights, and connects through captivating communications. The company prides itself on providing immersive and highly personal shopping experiences on the Aritzia website and in its 115-plus boutiques throughout Canada and the United States to everyone, everywhere.

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