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spk07: We're standing by. This is the conference operator. Welcome to Aritzia's third quarter 2021 earnings call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Helen Kelly, Vice President of Investor Relations. Please go ahead. Thank you, Anastasia. And thank you all for joining Aritzia's Third Quarter 2021 Earnings Conference Call. On the call today, I'm joined by Brian Hill, our Founder, Chief Executive Officer and Chairman, Jennifer Wong, our President, Chief Operating Officer, and Todd Engledue, our Chief Financial Officer. Following management's discussion, we'll host a question and answer period open to analysts and investors. Please note that the remarks on this call may include our expectations, future plans, and intentions that may constitute forward-looking statements. The uncertain and dynamic nature of COVID-19 and its ongoing impact could continue to materially alter our performance. we would refer you to our most recently filed management discussion and analysis and annual information form, which include a summary of the material assumptions, as well as certain material risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements. Our earnings release, the related financial statements and MD&A, as well as our investor presentation are available on CDAR, as well as the investor relations section of our website, betteratseer.com. I will now turn the call over to Brian.
spk03: Thank you, Helen, and thank you everyone for joining us this afternoon. 2020 has been a year unlike any other we have experienced in our 37-year history at Aritzia. As a team, I am proud of what we have accomplished so far, despite the many challenges along the way. Looking beyond this pandemic, we're well positioned for meaningful growth, capitalizing on the unprecedented opportunities ahead. While we believe our results during fiscal 2021 have been impressive, given the circumstances, what's far more important, however, is what they signal about Aritzia's post-pandemic. Throughout this year, we progressively adjusted and adapted through the pandemic's vast challenges. Notwithstanding restrictions as a result of the virus's impact, we continue to grow our revenue, are in a much stronger financial position, and have accelerated our strategic investments in infrastructure across people, processes, and technology. Our four growth levers, digital innovation of e-commerce, retail, and omnichannel capabilities. Secondly, geographic expansion across the United States. Third, development throughout all our product divisions. And four, brand awareness in both the United States and international. drove our growth pre-pandemic, has ensured our success mid-pandemic, and will fuel our growth post-pandemic. We will emerge from COVID-19 poised to elevate our much-loved everyday luxury experience consisting of our engaging service provided by our outstanding boutique and concierge teams, our beautiful and expanding multidimensional product, our aspirational environments throughout our e-commerce and retail channels, and our captivating communications shared by world-class marketing campaigns. Together with Jennifer and Todd, I am pleased to report our Q3 results. In the third quarter of fiscal 2021, in the midst of this pandemic, we grew our revenue, we delivered meaningful EBITDA, and we strengthened our balance sheet. Todd will discuss the details shortly. At the start of the quarter, 93 of our 97 boutiques were open. However, we ended the quarter with 83 of our now 101 boutiques open. We had to close 18 boutiques in the heart of Toronto for the last week of the quarter. Unfortunately, this meant these boutiques were closed during our busiest week of the year. For health and safety reasons, capacity restrictions, and in anticipation of further boutique closures, we made the decision to pull forward the start of our Black Friday event to the week prior, stretching out demand in our boutiques. In hindsight, this was a fortuitous decision as we shortly thereafter received 48 hours notice of the boutique closures in Toronto. In spite of these closures, our decision to pull forward our Black Friday start resulted in a record event performance. For all our boutique employees impacted by these temporary closures, we have once again continued to ensure they have income continuity. This has proven invaluable in our ability to quickly reopen once the restrictions lift and continues to build loyalty within our team. I remain thankful for the commitment of our people during these times of uncertainty. Notwithstanding the impact of these closures had on our business, our open boutiques, despite severe restrictions, performed beyond our expectations. On average, at 81% of last year's productivity, an increase from the 70% productivity of Q2. Regional variation in performance endures depending on both the impact of COVID and the severity of government restrictions by geography and environment. Operating as our most effective yet profitable marketing tool, we continue to expand our boutique network thoughtfully, with fastidious location selectivity, exceptional business terms, and with downside safeguards in place. During the quarter, we successfully opened five new boutiques comprised of four ritzy boutiques, and most excitingly, our first super world boutique in Soho, New York, in the iconic former flagship Dean & DeLuca space. In addition, we expanded two of our existing boutiques, increasing our footprint in these highly successful locations. Appreciating the everyday luxury experience they've come to love and expect from us, our clients continue to enjoy our existing and new boutiques, while also showing a growing affinity to shop with us online. Client enthusiasm for our e-commerce channel sustained its accelerated momentum in the third quarter, with revenue up 78.5%, despite most of our boutiques being open. Ongoing investments online continue throughout the quarter, as Jennifer will speak to shortly. The ability to deliver new features and functions on our digital platforms allows us to thoughtfully expand our online capabilities, replicating the same everyday luxury experience our clients enjoy in our boutiques. Our boutiques and e-commerce channel complement one another. and our clients have a growing affinity to flexibly shop with us whenever, wherever. Our omnichannel clients spend three times more than both our retail-exclusive and our e-commerce-exclusive clients. Due to this, we will continue to both open boutiques and invest in our e-commerce channel, deepening our clients' loyalty. Across our boutiques and online, our fall winter assortment is arguably the best product season we've had ever at Aritzia. We have multiple programs across categories driving our businesses, resonating with our clients' evolving lifestyle. With a stronger than expected season and a purposefully conservative initial buy, we experienced sellouts across all our key programs. To capitalize on the demand, we did our best to mitigate these product shortages. However, with global transportation compromised due to the pandemic, we were somewhat inhibited in our ability to do so. Our wide assortment coupled with our product strategy of testing and reacting to highly productive programs has always served us well and will continue to do so into the future. In marketing, we continue to produce captivating campaigns, including our well-received holiday gift, which reflected and embrace our clients' current stay-at-home lifestyle. This is mirrored in our product catalog, where we continue to feature models at home with great efficiencies gained as we learn and adjust with each new season. Not only is this unique approach grounded in our prioritization of health and safety, it resonates with our clients' reality. During the quarter, we also introduced our With Love brand campaign, rooted in celebrating fearless individuality and our diverse Aritzia community, a reflection of our ongoing investment in diversity and inclusion. In short, I am proud of our entire team's achievements as we close another challenging yet successful quarter. I will now turn the call over to Jennifer to give you an update on some of the key areas of our operations. However, before I do, I would like to congratulate Jennifer on the November cover story in the Globe and Mail report on business, where she was duly recognized as one of those one of Canada's best executives.
spk05: Thanks, Brian, for the very kind introduction. And good afternoon, everyone. I trust you had a peaceful holiday season with your families and a chance to reflect and take a moment as we step into the new year. Looking back, we knew this holiday would be far from normal due to the pressured conditions imposed by COVID-19. Yet I continue to be proud of what our team has achieved through tremendous adaptability, focus, and resilience. We successfully executed another strong holiday season while making considerable progress to advance our long-term strategies. And we achieved all of this while continuing to uphold our industry-leading health and safety standards and ensuring our people whose jobs were affected by mandated COVID measures had income continuity. I want to touch on three areas of focus within operations this quarter. First, the efficient and effective management of our distribution center and concierge teams to support our peak holiday period. Second, the continued investment in digital capabilities to elevate our omnichannel offering. And finally, the fulfillment of our responsibility as a corporate citizen by giving back to the communities where we live and work. We began prepping for our peak holiday period in mid-fall with the hiring and training of nearly 800 seasonal associates across our distribution centers and expanded our concierge team with the addition of almost 180 permanent and seasonal staff and redeploying 100 retail style advisors from temporarily closed boutiques. By all standards, it was an historic Black Friday for Aritzia. We achieved record-breaking performance on several fronts. On Black Friday alone, we recorded nearly 1 million visits on aritzia.com. And over the entire event, our distribution centers picked, packed, and shipped more than 1 million units, forging new all-time records at two of our DCs. while our concierge team facilitated more than 120,000 client interactions over email, chat, and phone. And in particular, I'm proud of the manner in which our DC and logistics operations pivoted in response to industry-wide carrier delays. Above and beyond our efficient daily operations, our teams acted with swift operational dexterity, making real-time adjustments to mitigate these carrier delays. Our omnichannel experience was another point of pride in the quarter. As our boutiques warmly welcomed our clients with exceptional service, our e-commerce team seamlessly mirrored that experience online with enriched functionality, while our concierge team engaged our clients with quality care across both channels. Our concierge function was established in 2012 with the startup of our e-commerce website. It has grown over the years alongside Aritzia.com including the migration to a new case management system under the SAP platform and a new integrated and vastly expanded phone system early this year. We also hired a seasoned vice president of concierge, just in time to lead through an exceptionally busy holiday period. Talk about hitting the ground running. And while our team has done a phenomenal job to date, we're further investing to take every aspect of this growing operation to the next level. We will evolve and integrate our people, processes, and technology in this critical area to support our accelerated e-commerce growth and elevate our omnichannel offering, to delight our customers. During the quarter, we continued to invest in our digital capabilities to enrich our multi-channel client relationship. We made enhancements to site navigation and invested in personalization. This included the opportunity for clients to customize their superpuff and an AI tool for size and fit, which has already been used by hundreds of thousands of clients. In addition, we introduced free shipping and free returns to support our continued U.S. expansion. And as I mentioned on the last call, we launched our Afterpay partnership in November. While the concept of buy now, pay later is relatively new in Canada, this payment option share of e-commerce transactions is growing globally, particularly amongst Gen Z and millennials. With limited marketing to date, we've already seen higher average order values and after-pays proving to be an attractive choice for our clients to transact with us. Our investment in our digital selling tool, the Clientel app, is also continuing to drive higher average order values and conversion. We remain excited about the app's potential and expect to roll it out across all of our boutiques in the coming months. And finally, we're planning additional Omni capabilities to integrate our boutiques with our e-commerce channel. As a result of the recent reclosure of our boutiques in Ontario and Quebec, we introduced a new call and collect service whereby our clients may purchase online through our concierge and pick up curbside at a closed boutique. And starting in fiscal 22, we will introduce functionalities such as store inventory visibility, buy online ship from store, and buy online pick up in store. These initiatives allow our clients to shop precisely where, when, and how they prefer, while driving sales and conversions as we optimize inventory across our network. With the impact of COVID-19 reducing many companies' ability to give during the holiday season, we were grateful to be able to sustain our corporate giving program. With the support of our people and our loyal clientele, we continued to give back to our communities where we live and work. Through our riskier community giving program, we donated holiday backpacks filled with comfort essentials to youth experiencing homelessness in Vancouver's downtown Eastside, and partnered with local agencies to gift a thousand supercuts to women and girls in need across Canada. And lastly, with COVID numbers escalating in many parts of Canada as the year drew to a close, we extended our Orixia Community Care Program to even more people on the virus's frontline. In 2020, we gifted a total of 110,000 clothing packages to healthcare heroes with our heartfelt appreciation. And despite the massive disruptive nature of COVID-19 this past year, we continue to successfully navigate the uncertainty with agility. We've redoubled our focus on managing through the virus resurgence, and it's been tremendously rewarding to see all that we've accomplished. While we could not have imagined this kind of strain pre-pandemic, it's made us all that much wiser and stronger. As Brian noted earlier, our performance under the weight of COVID is a compelling indicator of just what we can and will do once it's over. I'll now turn the call over to Todd to discuss our financial results.
spk02: Thanks, Jennifer. And good afternoon, everyone. We're extremely pleased to have delivered positive revenue growth in the third quarter. The sustained strength in our e-commerce channel and the higher than expected demand in our reopened boutiques demonstrated our clients' enthusiasm for our fall-winter product. Our revenue growth contributed to meaningful cash flow generation, leaving us in a solid cash position at the end of the quarter. In the third quarter, we generated net revenue of $278 million, up 4.1% from $267 million last year. As Brian noted earlier, we are pleased with the sustained momentum in our e-commerce channel, which delivered 78.5% revenue growth year over year, driven by meaningful increases in both traffic and conversion. We had reopened all of our boutiques by September 9th at the start of the third quarter. Despite severe capacity restrictions and reduced operating hours, open boutiques in the quarter trended on average at 81% of last year's sales productivity levels, up from an average of 70% in the second quarter. We ended the quarter with a record Black Friday event. despite the resurgence of COVID-19 and the mandated reclosure of 18 boutiques in Ontario just five days before Black Friday. Gross profit in the third quarter was $126 million, and our gross profit margin was 45.3%, up 60 basis points from 44.7% last year. The improvement in gross profit margin is largely the result of higher than expected rent abatements and lower product costs. These benefits were partially offset by the deleverage from reduced retail revenue and higher warehousing and distribution center costs that were driven by the growth in our e-commerce business. SG&A expenses were $75 million, up $11 million at 26.8% of net revenue compared to 24% last year. The increase is driven by $5 million for health and safety protocols related to COVID-19, as well as continued investment in world-class talent across key areas of the business. Adjusted EBITDA was $55 million for the third quarter, compared to $58 million last year. Despite the ongoing impacts of COVID-19, we generated free cash flow of $68 million in the quarter, reflecting our strong revenue performance, as well as prudent inventory, expense, and working capital management. We ended the quarter with a cash balance of $174 million and access to the $100 million under our revolving credit facility, which was repaid in full during the quarter. Inventory at the end of the third quarter was $138 million, up 12.3% from the end of the third quarter last year. The increase year over year reflects higher inventory in transit associated with reorders of highly productive styles to meet demand in the fourth quarter. Due to the strength of our performance in the third quarter, we have less seasonal sale inventory compared to last year. Therefore, we are well positioned with clean inventory as we head into the end of the fall winter season and the launch of spring. Overall, the third quarter was indicative of the strength and resilience of our business. Given the uncertainty in the operating environment, will we not be providing specific guidance for the fourth quarter? Instead, I will share some recent trends in our business performance. Driven by our product offering, which is resonating with our clients' evolving lifestyle and our effective marketing strategies, our e-commerce channel has sustained its strong momentum. Productivity levels quarter to date in our open boutiques are trending similarly with those we saw in the third quarter. However, the severe capacity restrictions and evolving nature of COVID-19 makes it difficult to know if this trend will continue. Combining these factors with the mandated closure of 39 boutiques in Ontario and Quebec, we expect significant pressure on our retail performance. While the closures are expected to extend through the end of the fourth quarter, we believe our e-commerce business is well positioned to moderate the impact of these measures. Turning to gross profit, We expect continued higher warehousing and distribution center costs from growth in our e-commerce channel, and we have not factored in any benefit from further rent abatements. We also expect to incur higher air freight costs as we chase demand of highly productive styles, all putting pressure on gross profit year over year in the fourth quarter. Further, fourth quarter SG&A expenses are expected to see a similar year over year increase as compared to the third quarter. The increases are driven by our ongoing operating expenses of approximately $5 million per quarter related to our health and safety protocols, as well as continued investment in talent. These increases will be slightly offset by some variable cost savings from boutique closures. In addition to these puts and takes, we expect deleverage from reduced retail revenue in the fourth quarter will impact growth profit margin, and SG&A as a percentage of net revenue. Our strong financial position with $274 million of liquidity in place at the end of the third quarter enables us to weather further uncertainty while continuing to take advantage of unparalleled opportunities and strategically invest in critical infrastructure across our business. Despite near-term headwinds, our business model continues to prove resilient throughout the pandemic. Momentum behind our e-commerce channel remains strong and we are optimistic a recovery is in sight. As we look ahead, we remain confident that we are well positioned to capitalize on the opportunities to deliver profitable growth and create long-term value. With that, I'll now turn it back to Brian.
spk03: Thanks, Todd. As Todd mentioned, the resurgence of COVID-19 has led to the temporary reclosure of 39 boutiques across Ontario and Quebec during the fourth quarter thus far. We are working closely with our landlords for further rent abatements in light of the current closures, recognizing this is a difficult time for both parties. We are thankful for their ongoing support and their partnership. There's no playbook for managing through a global pandemic, and the last few months have proven yet again the virus's unpredictability. Effectively managing the ever-changing impacts of COVID-19 remains our number one priority as we continue to progress with the many exciting opportunities ahead. With our e-commerce business significantly expanding its footprint, it is not only a meaningful sales contributor, it drives significant in boutique traffic. and, in turn, our boutiques drive traffic online. As we expand our product offering and omnichannel capabilities, the seamless relationship between our online business and our boutiques is essential to our growth. They work together to service our clients whenever and wherever. To capitalize on this multichannel client relationship, in addition to continued digital investments online and in our boutiques, We're developing an even broader suite of omnichannel capabilities and further investing in our concierge services. Together, these contribute to an elevated everyday luxury experience. We're also continuing to open new boutiques across North America in increasingly available premier locations, capitalizing on the extraordinary financial terms being presented. By the end of the fiscal year, we will have opened a second Super World Boutique in Los Angeles and opened in a new market, Honolulu. And for fiscal 2022, we already have a healthy pipeline of new boutique openings with additional opportunities under consideration. We will continue to expand our product lines from new categories such as Intimates and Swim to extended depth, including sizes, colors, and lengths, and breadth, more new styles, building on our highly productive programs, all of this contributing to our five-year plan to double our current style count. And as always, we will invest in infrastructure. With the unique availability of world-class talent, we will continue to grow our high-performance team at all levels, evolve our processes for even greater efficiency, and expand our technology suite as required, as Jennifer shared earlier. Now that we have reached the end of our previous five-year plan, we are building a refreshed plan, which we hope to share with you in the foreseeable future. This understandably is a fluid process given the current uncertainty. We are confident, however, that fundamentally our strategic growth levers, as previously discussed, are on point, and we have the foundation in place to capitalize on our potential post-pandemic. I would like to thank our people and our clients. Our results over the past several months are testimony to the talent of our world-class team and our clients' enduring loyalty. I'm also very grateful that, through the enormous effort of our RITC community health and safety team, our people, our clients, to date, there continues to be no confirmed community spread of COVID-19 virus within any of our RITC's workplaces. Finally, I would like to thank our investors and everyone on the call. Your patience, support, and commitment to Aritzia through this uncertain period are deeply appreciated. I look forward to continuing to share our exciting story with you. Ellen?
spk07: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Mark Altrager with Baird. Please go ahead.
spk00: Good afternoon and really nice performance through this challenging time.
spk02: To start out, I was wondering if you could just give us a bit more detail on the revenue trends you're seeing quarter to date.
spk01: Were you able to sustain positive revenue growth through the holiday period? Sounds like response to the product has been great.
spk02: So I'm just trying to get a better sense of the ability to offset those reclosures with the digital business through December.
spk03: Yeah, thanks for that question. You know, it – It's devastating that, unfortunately, they timed the closures where the highest volumes are going to occur. And I don't think that's an accident, unfortunately, the same way there's a lot of places got shut down in New Year's. So for us, they did it. We had a bunch of stores, 18, I believe, Todd, closed just before our busiest week, Black Friday. And then they closed all the rest of Ontario and the rest of Quebec just in time for on December 25th. It was an early Christmas present for us on December 25th, just in time for Boxing Day and Boxing Week. So, you know, Ontario is our biggest market, and Quebec is a very solid market for us as well. And so we're going to feel that. I'll let Todd get into specifics, hand it over to him, but it hurts. I mean, we have a great e-commerce channel, but... We're an omni-channel retailer, and we think that's our competitive edge, and we think our customers like shopping and all channels, as I suggested. So the minute we shut down one of our main channels in our best markets, we feel it, that's for sure, Todd.
spk02: Yeah, Mark, obviously we had, as Brian was just saying, the 39 boutiques closed right as we started our holiday sale season. And those closures are expected to continue through the end of the quarter. But we have seen that the productivity levels in our open stores, that trend is continuing as it did in the third quarter, so right around 80%. And then our e-commerce channel has also continued with the strong momentum into the fourth quarter. So we're pleased with that. And we do expect that, again, the e-commerce channel will be able to moderate the impact of the boutique closures and, frankly, the severe restrictions that we're under in our open boutiques.
spk03: And what's encouraging, though, is how our boutiques bounced back when they did open after the initial closure back in the spring and how they bounced back and how they grew, even with these severe restrictions. As Todd mentioned, I mean, we're at 81%. Some of our stores have 25% capacity limitations on them. So a lot of them do, and they all have – almost all of them have capacity limitations – And that coupled with, you know, reluctance of a lot of customers to go out and leave their house and lockdown orders in different places and discouragement from the leadership, governments and political politicians for people to go out. So, you know, against all that and that backdrop, it's given us even more confidence that after these stores reopen and with hopefully this pandemic getting behind us with the vaccinations, that we will actually come, our business will see some pretty meaningful growth almost immediately with our e-commerce channels, as we mentioned, not going back to former levels, but staying close to where it has been. We're pretty darn excited. We're kind of looking past this period, partially because there's nothing we can do about it, and we don't really have a choice. But we're looking past this period and super excited about what we see in front of us.
spk02: That's really helpful. And I guess along those lines, Brian, could you speak to some of the biggest learnings you've had from this massive acceleration in the digital business this year? How does that impact the strategy moving forward in terms of stores versus digital and how you're looking to invest in areas like digital marketing?
spk03: Well, I think that we got a lot of the learnings in the spring because, once again, when all our stores closed, we didn't really have a choice. So that was – we started learning. And the biggest one, and which has fueled all our product initiatives, is the fact that when we're online, we don't have limitations – for the breadth of our product and the types of product mix. And that's why we're out pursuing these initiatives, which we think, coupled with the world-class talent that's out there, is enabling us to do so. I mean, even if we wanted to do it three years ago, I'm not sure that talent was available. They're all in other places. But a lot of the industry is struggling. A lot of retailers are either bankrupt or on the verge of bankruptcy. We've managed to bring in talent and understand that. and be able to expand our product base. So that's probably the biggest one is the fact that our e-commerce channel doesn't have the walls and those restrictions that our retail has. On the other hand, what is so encouraging for us is how good our retail is being. I mean, to think that with all these restrictions, all the health orders in place, all the capacity limitations in place, that our business and our stores were performing at 81% of their capacity of last year is just shocking to us. If you listed to me a year ago that we're going to have, you know, capacity limitations at 15% or 25% and 50% in different places, and we're going to have a pandemic, which is going to keeping people in and everything else. And then with all the hassles of health and safety precautions and everything else, that we'd be at 81%. We'd just be like, no, not a chance. So, you know, it's made us recognize that our customers, in particular our big customers, as we mentioned, that spend three times the amount of money of our single-channel customers, our dual-channel customers and multi-channel customers spend so much more money that they want. They want, our best clients want that ability to shop in all our channels and will continue to do so. So... I think, you know, initially with the pandemic, it was a big aha with e-commerce. However, as it's continued, it's been more of a big aha back with retail saying, hey, it's not going anywhere. And certainly for Ritzia, it's not going anywhere. And that coupled with the opportunities that we've seen out there with real estate and even just the locations that are available to us, that perfect storm is, we think, is going to lay us a foundation for... the next decade plus.
spk01: That's great. Thanks for taking my questions and best of luck this year.
spk07: The next question comes from Irene Mattel with RBC Capital Markets. Please go ahead.
spk06: Thanks and good afternoon and really congratulations on a heroic performance this quarter. Wondering, just thinking about You talked a little bit, Ryan, about some of the changes that you're seeing and pivoting or the learnings for online. But in terms of how the boutiques operate and how the two of them integrate and how the increased concierge is performing, how does that make you think about the business on a post-pandemic basis and maybe any changes or sort of shifting that you'll do?
spk03: You know, thanks, Irene. I think first and foremost, you know, what our clients want is that everyday luxury experience, and that's not going to change, and that's shown not to change pre-pandemic, during the pandemic, and we think post-pandemic. We think our product offering, the value of our offering, and customer service levels, and the product, and everything else that we do, and environments they shop in, They still want to be. I mean, I think, you know, when we opened our Super World store, there's not a lot of exciting things happening in the world and opening and things like that and positivity around. So now when we do do it and we do do some of these things and we've offered incredible new product because we did such a great job of, I'm not tooting our own horn so much, but we did such a great job of cleaning out our spring and summer merchandise that we entered fall with a massive position of strength with a brand new collection and no lingering effects of the spring and summer collection that your customers respond to that. you know, people are still going to wear clothes. People are still going to want exciting new product. People are going to still want innovation and things, and so they're still going to do that. And then as on a multi-channel perspective, you know, they're going to want to have all this flexibility of buy online, pick up in store, and see store visibility and all the different things that Jennifer and her team are working on as far as ensuring that we – we continue to be flexible and allow customers to enjoy this rich experience anywhere. So, you know, ironically, I don't, you know, I think, I'm not sure people, some people's habits will certainly change and change forever, but I'm not sure people will change. And I'm not sure people will change how they go about and what excites them and what they want to do and, and, and what, what thrills them. And, and, So I don't think people will change. I think their habits will change. And we've already seen how they're going to change. So we think we're extremely well positioned here to continue to prosper post-COVID.
spk06: That's great. Thank you. And, yes, what will thrill us will be to get out of the house finally. So as you're preparing for the spring and summer season, and then particularly with what is likely to be, please God, some reopening. How are you positioning the mix, order levels, et cetera, given all of this uncertainty around timing?
spk03: You know, it's interesting. I mean, we've been fortunate to have our e-commerce be so strong so that the dichotomy of our sales between all our stores and our e-commerce channel functioning and just the e-commerce channel functioning and operating and the stores closed, the dichotomy of that sales revenue isn't that great. that we can't sort of go in with a more conservative buy, assuming everything's going to be up and running, which will also be perfect amount of inventory for whatever reason things are limited. So we're making sure from a product perspective that we're well-positioned, we're able to chase. As I mentioned, we had a little bit harder time chasing our product this season, and it was not primarily the factories and the mills. It was the transportations. And the clogs in transportation that we had challenged, you know, airfreights, there isn't as many airplanes flying. So the ones that were, were full. And so even those were taking longer. There wasn't as many ships going across the ocean. So, you know, they were taking longer and everything was taking longer. So it didn't give us the opportunity to respond. You know, we went in with a conservative vibe, which I do a thousand times over because who knew what was going to happen. And then we had such a great response. We tried to scramble, as we normally do, to repeat and as we test and repeat, and we tried to facilitate these orders, but it was actually the transportation which ended up being more of a challenge than not, and prices and everything else in that transportation were, in some cases, five and ten times what they normally were, depending on where it was coming from and the timing of it. We're going to continue to buy. From a fashion perspective, it's a good question. If people change how they're shopping for clothing and the stay-at-home kind of wardrobe is where it's at. If you read some of the fashion magazines, they'll suggest that. They've had it with this home, you know, stay-at-home product mix, and they want something, you know, a little bit, you know, certainly women want something a little bit more fashionable and perhaps even sexier and everything else. So it'll be interesting to see what happens. We're ready for it, though, and we're going to embrace it, and we think what's going to happen after is going to play right into our sweet spot of what we do at Aritzia.
spk07: Next question comes from Stephen McLeod with BMO Capital Markets. Please go ahead.
spk04: Thank you. Good afternoon, and congrats on a great, solid performance. Just had a couple questions. Lots of great color so far, so thank you. I just wanted to turn a little bit on the closed stores. Brian, I think in your prepare remarks you mentioned, or maybe it was Todd, I can't remember, but you mentioned something about curbside pickup and buy online, pick up in store. Are those new offerings for Ritzia? I was always under the impression that you didn't have curbside pickup previously.
spk03: Yeah, you know, we didn't have it previously. I mean, this is just efforts we're making here. It's not meaningful enough to our business at this point in time, and I think partially because our e-commerce channel is so good and that, you know, our distribution center, I can't remember the KPIs, but we're getting an order before noon today, and I think it's getting shipped out or prepared, packed, and everything before the end of the day. Is that correct? cutoff is what for five the end of the day when the trailer comes yeah and so you know our e-commerce i think curbside pickup is is certainly meaningful to some it hasn't been as meaningful us we are we are offering it um we think some of the buy online pick up in store and some of these other uh opportunities that we're going to be working on early in the year are going to be more meaningful but uh you know i think jen just shared that um it's not particularly meaningful to our business at this point in time and i think it's just generally because uh you know it's ontario and quebec only where our stores are closed and uh and the customers still like coming into our stores that are open there's no question with that and and our e-commerce is so effective at turning and you know if you're in toronto and you order something before noon today you could potentially get it by tomorrow morning. And so, you know, we just found that our e-commerce channel is so efficient that people just prefer that meaningfully over curbside pickup and things.
spk04: Right. Okay. No, I see that. That's great. Thank you. And I was just curious if you could give a little bit of color around rent abatements in the quarter. Are you able to quantify sort of what that number was? The what?
spk02: Yeah, the rent abatement, Steve, they were approximately 330 basis points of benefit in the quarter.
spk04: Okay, that's helpful. And then I just wanted to get a little bit of color around, Jennifer, you mentioned the clientele app, and it sounded like it was something that was being rolled out. I was wondering if you could give an update on where you are in terms of that as a specific investment.
spk05: Yeah, I've been talking about that app for a few quarters now, and I just wanted to give an update that we are still rolling it out in, respectively, Phase 2. I think maybe it was the last quarter or the quarter before I mentioned that we had piloted it with only 25 style advisors. I believe we're up to closer to 500 to 1,000 style advisors, or we're working our way towards closer to 1,000 style advisors, and certainly with the store's Closing and reclosing, it's been a really valuable tool for us to continue to connect with the customer and still service her. So I just wanted to remind everyone that that's still a really important aspect of our omni-channel offering and that we continue to roll it out. And, you know, our goal is to be able to roll it out to all of the boutiques eventually.
spk04: Right. Okay, that sounds great. And then maybe just finally, Thomas, I missed some of your commentary around the gross margin outlook, and you had highlighted some of the puts and takes, and I was just wondering if you could just quickly gloss over that.
spk02: Sure. So maybe I'll start because Brian has alluded to it, but we did start the quarter in a very healthy inventory position and have lower seasonal sale products. So we do expect that that will drive lower markdowns and continue to improve product cost margins in the fourth quarter. So there's a positive there, showing the underlying health of the business. But we do expect to continue to have higher warehousing and distribution center costs from our growth in our e-commerce volume and additional air freight from the chasing of demand of our highly productive styles from the last few months. And then, obviously, the closure of the 39 boutiques in Ontario and Quebec, that will generate some deleverage. But I think... Putting it all together, net-net, we are expecting to see slightly more pressure on gross profit in Q4 and then removing the rent abatements. So when you look at it as a whole, we will see more pressure than we did with all the puts and takes in the third quarter. But, again, that's before taking off the rent abatements, and then we're not anticipating at this point the same level of rent abatements that we got in the third quarter.
spk04: Okay, that's great, Tyler. Okay, that's great. Thank you. That's it for me.
spk07: The next question comes from Derek DeLay with Canaccord Genuity. Please go ahead.
spk00: Yeah, hi there. Just a couple quick ones for me. So just in terms of your commentary on store openings next year, just given the really favorable lease rates you guys are seeing, can you sort of help us quantify what you expect? Should we expect a similar number of store openings in 2022 as we saw in 2021?
spk03: You know, that's an interesting question. So the fact that we've actually, in this year of the pandemic, will have by the end of the year, I believe, have seven new stores and three repositionings. you know, probably test more to us during deals pre-COVID. I know the first three, four months of this year, we, you know, we didn't do a ton of deals. I did a couple because we, you know, I signed off on a couple because I couldn't resist because the deals were so good. But, you know, So we've been sort of a little bit more bullish in the back half of the year as far as signing deals. I don't know where we are. Once again, we're not going to rush things as well and take secondary locations or do deals that we don't feel comfortable with from a financial perspective, nor deals that we're not getting proper protection and language, which has been a bit of a challenge with an ongoing pandemic or a further additional pandemic, we want to make sure we have language protecting, covering us there that we're at least, if nothing else, sharing the burden of, of a situation in the future. Um, that said, we, uh, there's, I mean, if we thought previous, there wasn't that many people out looking for new locations. Now there's, you know, even less. So, uh, we're one of the few people out there and we're opening as many stores as we can. Um, You know, I haven't had a real estate update since really November. We've talked on some things, but a full, full-scale one. So we hope to have one in the next week or two to find out what the team's been working on. And, you know, I think we've approved a few deals so far, but there's a bunch that are approvable. So we'll see how that shakes out and what ends up coming to fruition and not. And we'll go from there and we'll let you know. We'll have probably a better handle on it our next update.
spk00: Okay, that's helpful. And then just thinking about the holiday selling season that you guys just went through, a number of other retailers kind of pointed to how it was much more of an extended selling season, started earlier, probably ended earlier as well compared to past years. Did you guys see something similar? Are you talking about off-price portion of that season? Yeah, I guess I'm talking about the sales portion of the holiday season, and I guess just when the incremental demand came in, was it a bit more?
spk03: Yeah, so as I mentioned in my... In my commentary that we broke early this year. We were anticipating. The governments were mulling over shutting things down in Toronto and Peel and also for health and safety reasons. We wanted to spread it out a little bit. So we started a week earlier than we had in the past. It's not something we want to continue to do in the future, but we thought based on the environment that was out there, we thought we'd do that. And so we did that. We haven't really ended things any sooner, although we did go back to full price on all our product that we're carrying over a week sooner than we typically do. We're cognizant of the off-price activity we've had in the last 12 months. Obviously, when the When the virus hit, we went off price a couple weeks after the stores closed down online. We had our regular Spring, summer sale, it probably extended a little longer than we normally do because we did have a lot of inventory and we wanted to start the new season fresh. We've now started the fall promotional period a little week sooner. So we are cognizant of how much off-pricing we've been doing, and we want to get back and think we can get back to our normal price. our normal process and calendar, off-pricing calendar sort of from here on in. And so, you know, we have been off-priced a little bit more. You know, we saw because of that, we saw the uptake a little sooner, but from a sales perspective, from timing. And then, of course, closing those 39 boutiques before Boxing Week in Canada, which is a big deal, you know, that hurt a little bit. So, you know, but we hope to be off price next year, and we think the sales channels and the sales periods will start reflecting very similarly than they have in the past.
spk00: Okay, terrific. Thank you.
spk07: The next question comes from Megan Annette with TD Securities. Please go ahead. Thank you. Good afternoon. Could you talk a bit more about how traffic patterns at the boutiques trended through the quarter? And at what level did you see store productivity peak?
spk03: affect yeah and then store productivity peaking when did it peak well typically we used to have our store productivity and our store traffic everything we used to peak around Boxing Week and the week before Christmas and the week after Christmas so the last two weeks of December you know with the advent in Canada and but the US was almost so we kind of used to refer to it not too long ago as a single hump camel versus a two hump camel in the US we had the two hump camel because we had the the Christmas last two weeks rush, and then we also had the Black Friday event. And then in Canada, when we introduced the Black Friday event – we got with Canada now. And so we, we do see this two hump, uh, which we actually think works a little bit better because it doesn't burn all our teams out right at a time when they want to be spending time with friends and family and things like that too. So we've, uh, we've seen this, uh, two hump camel per se with, with the, uh, with, with, with our, our sales. And so from a peaking perspective, it, that hasn't changed. It's, It's kind of the same. Now, are you referring to stores and productivity based on COVID, or are you talking about selling periods in general, and has the day changed this year?
spk07: That was more so a question as to where store productivity was when we saw cases really come down, and perhaps people were turning back to stores to, you know... get out of the house and whatnot during that period? Did we see productivity get back up to 100% at any point in time?
spk03: Do I see it getting back up to 100%? I don't think it will get back up to 100% because I just think people, as I say, people haven't changed what their habits have, and I think people, you know, a lot more people will be shopping online going forward. So I suspect that... We won't see the same numbers we have, although I don't see this catastrophic collapse either. And we've shown that even during COVID, we're at 81% productivity in our stores. So we think after COVID, it could get up close to 100. And I'd love to see it to 100 and our e-commerce channel stay with its same growth that it's been on since COVID. But realistically, I don't really see it going back to 100. You know, I don't know if it's going to be at 80 or 70, but I agree there was a little bit after the stores had been closed for so long, there was a little excitement to get back out in the stores. On the other hand, COVID was still around and still persisting and people were still getting out there. So I don't know where we're going to net out at this point in time. You know, we run models at 70% up to 90%. We haven't been bullish in running them at 100 and we haven't We don't see any reason why they'd be below 70 at this point in time, but that's where we kind of predicted it would probably be 70 to 90, and the average there is 80, which is very close to where we were prior to our stores closing down.
spk07: that's that's very color thank you and then wondering if you give any details on the progress being made maybe more so internally with respect to product expansion is there anything to note that maybe the consumer isn't seeing it can you talk specifically about any new categories you might be introducing in the near term well the near term we're not introducing any new categories
spk03: uh, this fiscal year, which, you know, six weeks left in this fiscal year per se. Uh, we hope to be introducing, uh, one of our new categories, uh, uh, in the, in Q4, just in time for Q4, just before Q4 next year. And the other one to the late Q4 early, uh, uh, Q1 next year are two main initiatives being swim and, uh, and intimates. We've already seen, we've already been adding colors and lengths, and we hope to have that in full-blown by this spring, in our spring launch. We're going to have more colors and more lengths in our stores, and we've already introduced more sizing last year, or this year that we're in now. So, you know, we see some of those, and then as far as some of the other categories we're expanding, just, you know, expanding styles and existing lines and and things like that. We're already doing some of those, but not all of those. So, you know, if you look at the chart and we think we're going to double our breadth of product within five years, and we're kind of arguably a year in, and we're probably 20% of the way to that new goal, and we hope to be another – 20%, maybe even slightly ahead. We've been very successful in putting the teams and the infrastructure together, and we're right on our calendars of what we put in place as far as these introductions. So we're pretty optimistic that we'll be able to achieve all our aspirations on the product side here.
spk07: That's great. Thank you. Once again, if you have a question, please press star then one. The next question comes from Mark Petrie with CIBC. Please go ahead.
spk01: Yeah, good afternoon. I just wanted to follow up on a couple things. First, just with regards to, you know, your sort of purchasing and planning for spring, summer, Would you say you're similarly conservatively positioned as you were heading into fall, winter? Or have you been able to adjust just given, you know, sort of the strong sustained demand you've seen, particularly in e-commerce even amidst the lockdowns?
spk03: I would say we're probably a little less conservative for spring, summer than we were for fall, winter. You know, we were... bullish in some of our areas of our business for fall, winter, and conservative in others, and now we're probably a little less conservative. You know, we're still working through our e-commerce, and we still need to be conservative, not only because of the virus, but the composition of our e-commerce and retail sales. Our buys on e-commerce look different than our buys in retail. As I mentioned earlier, our retail, we have four wall limitations as far as the breadth of product we can supply, and online we don't. And so we're still sort of a little reticent in committing too much one way or the other because the buys look slightly different between the two channels. So understanding that and then also understanding COVID. But we're certainly not conservative when it comes to thinking from a fashion perspective and where we think fashion is going and what the consumer and our customer clients outlook will be and what kind of product they're buying. Ironically, fashion and trends and things, although people have had to stay at home, you know, colors and styles and shapes and fits and things, they've been evolving as we've gone along because people have still been posting on Instagram and people are still, there's still new things happening in the world. They just probably reflect a different reality from a styling perspective than they would have if the pandemic hadn't hit and But that certainly hasn't stopped. And ground to a halt, there is still as much innovation and desire for different and new fresh styles and things as there ever was.
spk01: Okay, thanks. And how does your success sort of just in developing the online experience affect how you think about international growth opportunities. I think the last time you talked about it, you know, it's understandably fallen down the pecking order of priorities just given the magnitude of the opportunity in the U.S. But I'm just curious how you're thinking about international today. And, you know, can you accelerate brand building without stores or do you need that physical presence in order to launch that more materially?
spk03: Well, I mean, I think the world has proven and e-commerce only players have proven that they don't need stores to do that. That said, we're believing that if you actually accompany things with stores, it actually has a better experience and a faster uptick. We're picking off as much of the low-hanging fruit on our international e-commerce market. opportunity now. We've identified all the low-hanging fruit. I would say we're probably 20% of the way through it. We had a discussion prior to the holiday season that we just weren't still, it wasn't growing to the rate we think it, we wanted, nor the rate we think it should have been growing. So we've identified we had a full audit of what we're doing and not doing and doing well and not doing well. And we've put some of those measures in place, but we think over the next three, four months, we're going to put all those measures of the low-hanging fruit in place, at which point in time then comes a little bit more of the workout. If we need to want to continue to expand, we're going to need to be doing certain things. So we're going to have to make shipping, you know, low-hanging fruit is things like making shipping and duties and things like that easier, you know, making currencies easier and things like that. A little bit of the higher hanging fruit and heavier lifting is creating localized websites with content and changing product mixes and things for different markets and things like that. We think there's a meaningful opportunity with the low hanging fruit and we'll see where that nets out and then we'll decide. along with everything else we do and plan, what makes the most sense as far as a little bit more of the workout stuff, high-hanging fruit that we're going to need to chase and put a bit more effort into it and whether things get in that pecking order of other initiatives or not. Low-hanging fruit we're just going to do. That other stuff is a little bit different.
spk01: Understood. Appreciate all the comments today and all the best. Okay. Thanks, Mark. Thank you.
spk07: Thank you. This concludes the question and answer session. I would like to turn the conference back over to Helen Kelly for any closing remarks. Thank you, Anastasia, and thanks again to everyone for joining us this afternoon. We'll be available after the call to answer any questions you may have. As usual, please take care, and we look forward to speaking with you again very soon. Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant
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