Ms. Jennifer Wong reports

ARITZIA REPORTS THIRD QUARTER FISCAL 2024 FINANCIAL RESULTS

Aritzia Inc. has released its financial results for the third quarter ended Nov. 26, 2023 (Q3 2024).

"Aritzia delivered third quarter net revenue of $654-million, an increase of 5 per cent on top of outstanding growth of 38 per cent in the third quarter of fiscal 2023 and 63 per cent in the third quarter of fiscal 2022. Although the consumer environment remains mixed, we generated sales growth across all of our geographies and channels, as clients responded well to our new styles and outerwear offering," said Jennifer Wong, chief executive officer. "As expected, we saw sequential margin improvement in the third quarter, and we made ongoing progress in executing against our fiscal 2024 priorities. Our new Toronto area distribution centre successfully ramped to accommodate record volume and we further improved our inventory position.

"As we continue to anniversary two years of unprecedented growth, resulting in a 33-per-cent three-year net revenue CAGR in Q3 of fiscal 2024, we remain focused on investing in the scalability of our business and setting the stage for our next level of anticipated growth. Looking ahead, we expect to launch spring 2024 with an improved product assortment and inventory position. We are also accelerating our real estate expansion strategy into fiscal 2025 and diligently working to increase our e-commerce momentum through strategic investments in leadership, digital marketing and technology," added Ms. Wong.

Third quarter highlights:

• Net revenue increased 4.6 per cent from Q3 2023 to $653.5-million, with comparable sales growth of 0.5 per cent.
• United States net revenue increased 4.2 per cent from Q3 2023 to $326.6-million, comprising 50 per cent of net revenue in Q3 2024.
• Retail net revenue increased 4.2 per cent from Q3 2023 to $441.1-million.
• E-commerce net revenue increased 5.5 per cent from Q3 2023 to $212.5-million, comprising 32.5 per cent of net revenue in Q3 2024.
• Gross profit margin decreased 180 basis points to 41.5 per cent from 43.3 per cent in Q3 2023.
• Selling, general and administrative expenses increased 14.4 per cent from Q3 2023 to $187.4-million.
• Net income decreased 39.1 per cent from Q3 2023 to $43.1-million.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 23.3 per cent from Q3 2023 to $91.8-million.
• Net income per diluted share of 38 cents per share, compared with 61 cents per share in Q3 2023.
• Adjusted net income per diluted share of 47 cents per share, compared with 67 cents per share in Q3 2023.

Net revenue increased by 4.6 per cent to $653.5-million, compared with $624.6-million in Q3 2023. This is on top of strong net revenue growth over the last two years of 37.8 per cent in Q3 2023 and 62.9 per cent in Q3 2022, resulting in a three-year compound annual growth rate (CAGR) of 32.9 per cent. Comparable sales growth was 0.5 per cent, compared with 22.8 per cent in Q3 2023. In the United States, net revenue increased by 4.2 per cent to $326.6-million, compared with $313.5-million in Q3 2023. Net revenue in Canada increased by 5.1 per cent to $326.9-million, compared with $311.1-million in Q3 2023.

• Retail net revenue increased by 4.2 per cent to $441.1-million, compared with $423.2-million in Q3 2023. The increase was driven by strong performance of the company's new and repositioned boutiques, which continue to generate better-than-expected results. Boutique count at the end of Q3 2024 totalled 117 compared with 113 boutiques at the end of Q3 2023.
• E-commerce net revenue increased by 5.5 per cent to $212.5-million, compared with $201.4-million in Q3 2023, driven by growth in Canada as well as the company's digital warehouse sale in Q3 2024.

Gross profit increased by 0.1 per cent to $270.9-million, compared with $270.7-million in Q3 2023. Gross profit margin was 41.5 per cent, compared with 43.3 per cent in Q3 2023. The decrease in gross profit margin of approximately 180 bps was primarily driven by higher markdowns to help optimize the company's inventory levels and preopening lease amortization costs for flagship boutiques. These impacts were partially offset by lower warehousing and freight costs.

SG&A expenses increased by 14.4 per cent to $187.4-million, compared with $163.7-million in Q3 2023. SG&A expenses were 28.7 per cent of net revenue, compared with 26.2 per cent in Q3 2023. The increase in SG&A expenses was driven by investments in talent made through the end of fiscal 2023, marketing initiatives and support office expansion to help support the company's growth.

Net income was $43.1-million, a decrease of 39.1 per cent compared with $70.7-million in Q3 2023, primarily attributable to the factors described above.

Net income per diluted share was 38 cents per share, a decrease of 37.7 per cent compared with 61 cents per share in Q3 2023.

Adjusted EBITDA was $91.8-million or 14 per cent of net revenue, a decrease of 23.3 per cent compared with $119.6-million or 19.2 per cent of net revenue in Q3 2023.

Adjusted net income was $52.7-million, a decrease of 31.2 per cent compared with $76.6-million in Q3 2023.

Adjusted net income per diluted share was 47 cents per share, a decrease of 29.9 per cent compared with 67 cents per share in Q3 2023.

Cash and cash equivalents at the end of Q3 2024 totalled $140.8-million compared with $131.9-million at the end of Q3 2023, with strong operating cash flows financing the repayment of the $100-million drawn on the company's revolving credit facility from the end of Q2 2024 and the company's capital investments.

On Oct. 27, 2023, the company refinanced its revolving credit facility, increasing the limit from $175-million to $300-million and extending the term to Oct. 27, 2026.

Inventory at the end of Q3 2024 was $397-million, a decrease of 21.9 per cent compared with $508.4-million at the end of Q3 2023. The company is pleased that the inventory balance continues to normalize and expects inventory levels to be optimized by the end of fiscal 2024.

Capital cash expenditures (net of proceeds from lease incentives) were $41.4-million in Q3 2024, compared with $26.4-million in Q3 2023. The increase is primarily due to capital investments in new boutiques, expanded or repositioned boutiques, distribution centres, and support office expansion.

Net revenue increased by 5.9 per cent to $1.7-billion, compared with $1.6-billion in year to date (YTD) 2023 with comparable sales growth (decline) of (0.2 per cent). Results continued to be driven by performance in the United States, where net revenue increased by 9.4 per cent to $857.4-million, compared with $783.5-million in YTD 2023. In Canada, net revenue increased by 2.4 per cent to $793-million, compared with $774.5-million in YTD 2023.

• Retail net revenue increased by 6.4 per cent to $1.13-billion, compared with $1.06-billion in YTD 2023. The increase in revenue was led by strong performance of new boutiques in the United States, partially offset by softer comparable sales.
• E-commerce net revenue increased by 4.9 per cent to $519.7-million, compared with $495.4-million in YTD 2023.

Gross profit decreased by 5.1 per cent to $637.7-million, compared with $671.8-million in YTD 2023. Gross profit margin was 38.6 per cent compared with 43.1 per cent in YTD 2023. The 450 bps decrease in gross profit margin was primarily due to normalized markdowns, inflation in product costs, temporary warehousing costs related to inventory management, preopening lease amortization costs for boutiques and a new distribution centre, and foreign currency headwinds. These impacts were partially offset by lower expedited freight costs.

SG&A expenses increased by 18.7 per cent to $511.9-million, compared with $431.2-million in YTD 2023. SG&A expenses were 31 per cent of net revenue compared with 27.7 per cent in YTD 2023. The increase in SG&A expenses was primarily due to investments in retail wages and support office labour made through the end of fiscal 2023, as well as support office expansion, distribution centre project costs and other initiatives to help support the company's growth.

Net income was $54.6-million, a decrease of 63.7 per cent compared with $150.3-million in YTD 2023, primarily attributable to the factors described above.

Net income per diluted share was 48 cents, a decrease of 63.1 per cent, compared with $1.30 in YTD 2023.

Adjusted EBITDA was $144.5-million, or 8.8 per cent of net revenue, a decrease of 46.8 per cent, compared with $271.8-million, or 17.4 per cent of net revenue in YTD 2023.

Adjusted net income was $67.3-million, a decrease of 59.9 per cent, compared with $168.1-million in YTD 2023.

Adjusted net income per diluted share was 59 cents, a decrease of 59.6 per cent, compared with $1.46 in YTD 2023.

Capital cash expenditures (net of proceeds from lease incentives) were $113.6-million, compared with $73.5-million in YTD 2023. The increase is primarily due to capital investments in new boutiques, expanded or repositioned boutiques, distribution centres, and support office expansion.

Outlook

Based on quarter-to-date trends, Aritzia expects net revenue in the range of $670-million to $690-million in the fourth quarter of fiscal 2024, including the addition of approximately $30-million from the 53rd week. This represents growth of approximately 5 per cent to 8 per cent on top of strong growth of 44 per cent in the fourth quarter last year and 66 per cent in the fourth quarter of fiscal 2022. The company expects gross profit margin to be flat to slightly up and SG&A as a percentage of net revenue to increase approximately 250 bps for the fourth quarter of fiscal 2024 compared with the fourth quarter of fiscal 2023.

Aritzia expects the following for fiscal 2024:

• Net revenue in the range of $2.32-billion to $2.34-billion, representing growth of approximately 6 per cent to 7 per cent from fiscal 2023, including the 53rd week, compared with the company's previous outlook of $2.25-billion to $2.35-billion. This includes the contribution from retail expansion in the United States with six new boutiques and three boutique expansions. Five new boutiques as well as the three boutique expansions have already opened. Compared with the company's prior outlook of eight new boutiques and four boutique expansions, two new boutiques are now expected to open in fiscal 2025.
• Gross profit margin to decrease by approximately 300 bps compared with fiscal 2023, reflecting inflationary pressures, normalized markdowns, temporary warehousing costs and preopening lease amortization, partially offset by lower expedited freight costs.
• SG&A as a percentage 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) of approximately $180-million. This includes approximately $100-million related to investments in new, repositioned and expanded boutiques expected to open in fiscal 2024 and fiscal 2025, as well as $80-million primarily related to distribution centres and support office expansion. The reduction compared with the prior outlook of approximately $220-million primarily reflects the timing shift of improvements to the company's distribution centre in Columbus, Ohio, and certain store openings into fiscal 2025 from fiscal 2024.

In addition, 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

The company intends to file with the Toronto Stock Exchange (TSX) a notice of intention to commence a normal course issuer bid (NCIB) for its subordinate voting shares for a one-year period. If accepted by the TSX, the company would be permitted under the 2024 NCIB to purchase for cancellation, through the facilities of the TSX and/or alternative Canadian trading systems, up to 5 per cent of the public float (calculated in accordance with TSX rules) of the company's issued and outstanding shares during the 12 months following such TSX acceptance. Subject to TSX acceptance, Aritzia currently anticipates the 2024 NCIB commencing on or about Jan. 22, 2024, and in any event, at least two trading days after TSX acceptance of the 2024 NCIB. The exact amount of shares subject to the 2024 NCIB will be determined on the date of acceptance of the notice of intention by the TSX.

All shares purchased by the company under the 2024 NCIB will be purchased at prevailing market prices in accordance with the rules and policies of the TSX and applicable securities laws. The actual number of shares that may be purchased, and the timing of any such purchases, will be determined by the company, subject to the applicable terms and limitations of the 2024 NCIB (including any automatic purchase plan adopted in connection therewith). All shares acquired by the company under the 2024 NCIB will be cancelled.

The 2024 NCIB will terminate one year after its commencement, or earlier if the maximum number of shares under the 2024 NCIB have been purchased. Although the company presently intends to purchase shares under its 2024 NCIB, there can be no assurances that any such purchases will be completed. The company may also enter into an automatic purchase plan with a designated broker during the NCIB. The automatic purchase plan would allow for purchases by the company of Shares during certain predetermined blackout periods, subject to certain parameters and approval of the TSX.

Aritzia's board of directors believes that an NCIB represents an appropriate and desirable use of its available cash, after prioritizing investments in boutiques and strategic infrastructure, to increase shareholder value and is in the best interest of Aritzia, including its shareholders. As at Nov. 26, 2023, the company had approximately $140.8-million of cash and cash equivalents.

The company's prior NCIB commenced on Jan. 20, 2023, and expires on Jan. 19, 2024. Between Jan. 20, 2023, and Jan. 9, 2024, the company repurchased a total of 1,089,641 shares for cancellation at an average price of $27.52 per share for total cash consideration of $30-million under the 2023 NCIB.

Conference call details

A conference call to discuss the company's third quarter results is scheduled for Wednesday, Jan. 10, 2024, 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 on the company's. 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 0600. An archive of the webcast will be available on Aritzia's website.

About Aritzia Inc.

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

We seek Safe Harbor.