Ms. Jennifer Wong reports

ARITZIA REPORTS FOURTH QUARTER AND FISCAL 2024 FINANCIAL RESULTS

Aritzia Inc. has released its financial results for the fourth quarter and full year ended March 3, 2024 (Q4 2024 and fiscal 2024). Except for comparable sales, results for the fourth quarter and full year fiscal 2024 are inclusive of an additional week compared with fiscal 2023.

"Aritzia delivered fourth quarter net revenue of $682-million, an increase of 7 per cent on top of outstanding growth of 44 per cent in the fourth quarter of fiscal 2023 and 66 per cent in the fourth quarter of fiscal 2022. As expected, we also delivered further sequential margin improvement. Although the consumer environment remains mixed, clients responded well to our product launches and to the improved level of newness in our assortment," said Jennifer Wong, chief executive officer. "Throughout fiscal 2024, we focused on investing in the scalability of our business and improving our inventory position, enabling us to return to our proven operating model and setting the stage for our next phase of anticipated growth and margin recovery.

"In fiscal 2025 we expect our revenue growth to improve, fuelled by our real estate expansion strategy, including 20-per-cent to 25-per-cent square footage growth, as well as momentum in e-commerce. In addition, we expect to generate meaningful margin expansion, while also continuing to invest in our future infrastructure. Our brand is strong, our financial position is solid and we have a tremendous, multiyear runway in the U.S. I am optimistic and excited about all of the opportunities on deck for fiscal 2025, as we bring everyday luxury to more clients than ever before," concluded Ms. Wong.

Fourth quarter highlights

• Net revenue increased 7.0 per cent from Q4 2023 to $682.0-million, including the benefit from the 53rd week, with comparable sales decline of 3.0 per cent, compared with growth of 32.2 per cent in Q4 2023.
• United States net revenue increased 9.4 per cent from Q4 2023 to $369.1-million, comprising 54.1 per cent of net revenue in Q4 2024.
• Retail net revenue increased 14.7 per cent from Q4 2023 to $416.4-million.
• E-commerce net revenue decreased 3.2 per cent from Q4 2023 to $265.6-million, comprising 38.9 per cent of net revenue in Q4 2024.
• Gross profit margin increased 30 bps (basis points) to 38.3 per cent from 38.0 per cent in Q4 2023.
• Selling, general and administrative expenses as a percentage of net revenue increased 200 bps to 28.9 per cent from 26.9 per cent in Q4 2023.
• Net income decreased 35.2 per cent from Q4 2023 to $24.2-million.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) decreased 8.6 per cent from Q4 2023 to $72.5-million.
• Net income per diluted share of 21 cents per share, compared with 32 cents per share in Q4 2023.
• Adjusted net income per diluted share of 34 cents per share, compared with 40 cents per share in Q4 2023.

Strategic accomplishments for fiscal 2024

• Drove 6-per-cent growth in net revenue, lapping comparisons of 47 per cent in fiscal 2023 and 74 per cent in fiscal 2022, resulting in a strong three-year compound annual growth rate (CAGR) of 40 per cent.
• Opened six new boutiques and repositioned three existing boutiques in premier real estate locations, with new boutique payback periods tracking ahead of expectations of 12 to 18 months.
• Normalized inventory levels, ending the year with inventory down 27 per cent compared with fiscal 2023.
• Launched buy on-line, ship from store in Canada and in the United States, with early results exceeding expectations.
• Opened a new 550,000-square-foot distribution centre in Vaughan, Ont., to accommodate increased order volume.
• Executed a smart spending initiative, resulting in annualized run-rate savings of more than $60-million from process optimizations, vendor negotiations and KPI (key performance indicators) improvements.
• Appointed Aritzia's first chief impact officer with oversight of equity, diversity and inclusion initiatives across the company's organization and culture.

Net revenue increased by 7.0 per cent to $682.0-million, including net revenue from the additional week of $32.5-million, compared with $637.6-million in Q4 2023. This is on top of strong net revenue growth over the last two years of 43.5 per cent in Q4 2023 and 66.1 per cent in Q4 2022, resulting in a three-year CAGR (compound annual growth rate) of 36.6 per cent. Comparable sales decreased 3.0 per cent, compared with growth of 32.2 per cent in Q4 2023. Due to the company's improved inventory position and mix, it saw increases from the sale of new styles, partially offset by a lower volume of markdown sales in Q4 2024 compared with Q4 2023.

In the United States, net revenue increased by 9.4 per cent to $369.1-million, compared with $337.5-million in Q4 2023. Net revenue in Canada increased by 4.2 per cent to $312.8-million, compared with $300.1-million in Q4 2023.

• Retail net revenue increased by 14.7 per cent to $416.4-million, compared with $363.1-million in Q4 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 Q4 2024 totalled 119 compared with 114 boutiques at the end of Q4 2023.
• E-commerce net revenue decreased by 3.2 per cent to $265.6-million, compared with $274.5-million in Q4 2023. E-commerce is impacted more heavily by the lower volume of markdown sales, partially offset by the performance of new styles.

Gross profit increased by 7.9 per cent to $261.2-million, compared with $242.2-million in Q4 2023. Gross profit margin was 38.3 per cent, compared with 38.0 per cent in Q4 2023. The increase in gross profit margin of approximately 30 bps was primarily driven by select pricing adjustments and lower warehousing and distribution costs, partially offset by inflation in product costs and preopening lease amortization costs for flagship boutiques.

SG&A expenses increased by 14.9 per cent to $196.8-million, compared with $171.3-million in Q4 2023. SG&A expenses were 28.9 per cent of net revenue, compared with 26.9 per cent in Q4 2023. The increase in SG&A expenses was driven by continued investments made in talent through the end of fiscal 2023, as well as technology and marketing initiatives to drive momentum in e-commerce.

Net income was $24.2-million, a decrease of 35.2 per cent compared with $37.3-million in Q4 2023, primarily attributable to the factors described above and an increase in stock-based compensation expense mainly due to the effect of mark-to-market changes, partially offset by an increase in other income.

Net income per diluted share was 21 cents per share, a decrease of 34.4 per cent compared with 32 cents per share in Q4 2023.

Adjusted EBITDA was $72.5-million or 10.6 per cent of net revenue, a decrease of 8.6 per cent compared with $79.4-million or 12.4 per cent of net revenue in Q4 2023.

Adjusted net income was $38.2-million, a decrease of 18.1 per cent compared with $46.7-million in Q4 2023.

Adjusted net income per diluted share was 34 cents per share, a decrease of 15.0 per cent compared with 40 cents per share in Q4 2023.

Cash and cash equivalents at the end of Q4 2024 totalled $163.3-million compared with $86.5-million at the end of Q4 2023, with strong operating cash flows funding the company's capital investments.

Inventory at the end of Q4 2024 was $340.1-million, a decrease of 27.3 per cent compared with $467.6-million at the end of Q4 2023.

Capital cash expenditures (net of proceeds from lease incentives) were $41.7-million in Q4 2024, compared with $38.5-million in Q4 2023. The capital investments are primarily driven by new and repositioned boutiques and support office space expansion.

Net revenue increased by 6.2 per cent to $2.33-billion, including revenue from the additional week of $32.5-million, compared with $2.20-billion in fiscal 2023. This is on top of strong net revenue growth over the last two years of 46.9 per cent in fiscal 2023 and 74.3 per cent in fiscal 2022, resulting in a three-year CAGR of 39.6 per cent. Comparable sales decreased 1.0 per cent, compared with growth of 28.2 per cent in fiscal 2023. In the United States, net revenue increased by 9.4 per cent to $1.23-billion, compared with $1.12-billion in fiscal 2023. Net revenue in Canada increased by 2.9 per cent to $1.11-billion, compared with $1.07-billion in fiscal 2023.

• Retail net revenue increased by 8.5 per cent to $1.55-billion, compared with $1.43-billion in fiscal 2023. The increase in revenue was led by strong performance of the company's new boutiques in the United States, partially offset by softer comparable sales.
• E-commerce net revenue increased by 2.0 per cent to $785.3-million, compared with $769.9-million in fiscal 2023.

Gross profit decreased by 1.6 per cent to $899.0-million, compared with $914.0-million in fiscal 2023. Gross profit margin was 38.5 per cent compared with 41.6 per cent in fiscal 2023. The 310 bps decrease in gross profit margin was primarily due to normalized markdowns, inflation in product costs, and preopening lease amortization costs for boutiques and the company's new distribution centre. These impacts were partially offset by select pricing adjustments and lower expedited freight costs.

SG&A expenses increased by 17.6 per cent to $708.8-million, compared with $602.5-million in fiscal 2023. SG&A expenses were 30.4 per cent of net revenue compared with 27.4 per cent in fiscal 2023. The increase in SG&A expenses was primarily due to investments in support office labour and retail wages made through the end of fiscal 2023, as well as support office space expansion, marketing, technology and other initiatives to help support the company's growth.

Net income was $78.8-million, a decrease of 58.0 per cent compared with $187.6-million in fiscal 2023, primarily attributable to the factors described herein as well as an increase in stock-based compensation expense and a decrease in other income.

Net income per diluted share was 69 cents, a decrease of 57.7 per cent, compared with $1.63 in fiscal 2023.

Adjusted EBITDA was $217.1-million, or 9.3 per cent of net revenue, a decrease of 38.2 per cent, compared with $351.2-million, or 16.0 per cent of net revenue in fiscal 2023.

Adjusted net income was $105.6-million, a decrease of 50.9 per cent, compared with $214.8-million in fiscal 2023.

Adjusted net income per diluted share was 92 cents, a decrease of 50.5 per cent, compared with $1.86 in fiscal 2023.

Capital cash expenditures (net of proceeds from lease incentives) were $155.3-million, compared with $112.1-million in fiscal 2023. The increase is primarily due to capital investments in new and repositioned boutiques, distribution centres and support office space expansion.

Outlook

Based on quarter-to-date trends, Aritzia expects net revenue in the range of $475-million to $495-million in the first quarter of fiscal 2025, representing growth of approximately 3 per cent to 7 per cent. The company expects gross profit margin to increase approximately 450 bps and SG&A as a percentage of net revenue to increase approximately 250 bps for the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024.

Aritzia expects the following for fiscal 2025:

• Net revenue in the range of $2.52-billion to $2.62-billion, representing growth of approximately 8 per cent to 12 per cent from fiscal 2024 (excluding the 53rd week in fiscal 2024, this represents growth of approximately 10 per cent to 14 per cent). This includes the contribution from retail expansion with 11 to 13 new boutiques and three to four boutique repositions. Other than one new boutique and one boutique reposition in Canada, all openings are expected to be in the United States. One boutique reposition has already opened in the first quarter.
• Gross profit margin to increase by approximately 400 to 450 bps compared with fiscal 2024, reflecting IMU improvements, lower warehousing costs, lower markdowns and savings from the company's smart spending initiative.
• SG&A as a percentage of net revenue to be approximately flat to down 50 bps compared with fiscal 2024, driven by savings from the company's smart spending initiative and leverage on fixed costs, offset by investments in digital marketing.
• Adjusted EBITDA as a percentage of net revenue to increase by approximately 400 to 500 bps.
• Capital cash expenditures (net of proceeds from lease incentives) of approximately $230-million. This includes approximately $190-million related to investments in new and repositioned boutiques expected to open in fiscal 2025 and fiscal 2026, as well as $40-million primarily related to the company's distribution centre network and technology investments.
• Depreciation and amortization of approximately $80-million.

The foregoing outlook is based on management's current strategies and may be considered forward-looking information under applicable securities laws. Such outlook is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions and the competitive environment. This outlook is intended to provide readers management's projections for the company as of the date of this press release. Readers are cautioned that actual results may vary materially from this outlook and that the information in the outlook may not be appropriate for other purposes.

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

On Jan. 18, 2024, the company announced that the Toronto Stock Exchange (TSX) had accepted its notice of intention to proceed with an NCIB (2024 NCIB) to repurchase and cancel up to 3,515,740 of its subordinate voting shares, representing approximately 5 per cent of the public float of 70,314,808 subordinate voting shares, during the 12-month period commencing Jan. 22, 2024, and ending Jan. 21, 2025.

On Feb. 21, 2024, 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 2024 NCIB during predetermined blackout periods.

Between Jan. 22, 2024, and May 2, 2024, no subordinate voting shares were repurchased for cancellation under the 2024 NCIB.

The company's prior NCIB commenced on Jan. 20, 2023, and expired on Jan. 19, 2024. Between Jan. 20, 2023, and Jan. 19, 2024, the company repurchased a total of 1,089,641 subordinate voting shares for cancellation at an average price of $27.51 per subordinate voting share for total cash consideration of $30.0-million (including commissions) under the 2023 NCIB.

Conference call details

A conference call to discuss the company's fourth quarter results is scheduled for Thursday, May 2, 2024, at 1:30 p.m. PT/4:30 p.m. ET. To participate, please dial 1-844-763-8274 (North America toll-free) or 1-647-484-8814 (Toronto and overseas long distance). The call is also accessible via webcast at the company 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 0772. An archive of the webcast will be available on Aritzia's website.

About Aritzia Ltd.

Aritzia is a design house with an innovative global platform. The company comprises creators and purveyors of everyday luxury, 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 -- all with the well-being of its people and the planet in mind.

We seek Safe Harbor.