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spk06: Thank you for standing by. This is the conference operator. Welcome to Aritzia's fourth quarter and full year fiscal 2022 earnings call. As a reminder, all participants are in 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. I would now like to turn the conference over to Carly Bishop, Executive Manager, Office of the CEO. Please go ahead.
spk10: Thank you, Tachi, and thanks for joining Aritzia's fourth quarter and full year fiscal 2022 call. On the call today, I'm joined by Brian Hill, our Founder, Chief Executive Officer and Chairman, Jennifer Wong, President and 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 remarks on this call may include our expectations, future plans, and intentions that may constitute forward-looking statements. Due to the material impact of COVID-19 on business operations in fiscal 2021, certain references to our pre-pandemic results in the fourth quarter of fiscal 2020 have been included where management deems to be a more meaningful measurement of performance. 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 our annual information form, which include a summary of the material assumptions as well as 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 are available on CR and the investor relations section of our website at arisia.com. I will now turn the call over to Brian.
spk03: Thank you, Carly. Thank you, everyone, for joining us today. Together alongside Jennifer and Todd, I'm excited to report on our Q4 and year-end results and share our outlook for the incredible year ahead. Our team did a fabulous job in Q4 capping off a tremendous fiscal 2022 where our business accelerated beyond our highest expectations. Our exceptional performance continued across all geographies and all channels as our boutiques once again surpassed pre-pandemic productivity levels by double digits and our business in the United States sustained its unprecedented growth. All accomplished despite the multitude of headwinds from the evolving global landscape. In fiscal 2022, we brought our everyday luxury experience to significantly more clients than ever before, with our active client base in the United States more than doubling. We also meaningfully expanded our boutique portfolio in the United States. This investment is continuing to pay off as these new boutiques are quickly becoming some of our top performing locations. In product, we expanded our assortment across depth, breadth, and new categories and completed our first ever acquisition and foray into menswear with reigning champ. We also bolstered our digital experience with investments into our e-commerce and omni-channel capabilities. All this while continuing to invest in the infrastructure required to scale for years to come. Looking back on fiscal 2022 and everything we accomplished makes me even more excited for the road ahead. We've never been better positioned to continue capitalizing on the incredible opportunities being presented to us. While Todd will provide you with the details of our Q4 and year-end financial results, I'm extremely pleased to share our performance highlights. In the fourth quarter of fiscal 2022, we delivered net revenue of $444 million. an increase of 66% from last year and 61% from two years ago. Our exceptional top-line growth was only outpaced by our bottom-line growth, as we delivered a justity bid of $66 million, or 15% of net revenue, an increase of 88% from last year and 57% from two years ago. We continued to make significant progress on our path to getting famous in the United States, As our sales growth is saying, it's unprecedented pace. Net revenue grew to 217 million Canadian, an increase of 109% from last year and 128% from two years ago. The United States accounted for 49% of our net revenues, almost half of our total business in Q4, compared to 39% last year and 35% two years ago. Our e-commerce business sustained its strong momentum as net revenue grew to $182 million, an increase of 21% from last year and 120% two years ago. E-commerce accounted for 41% of net revenues in the quarter. Our retail business continued to surge as net revenue grew to $262 million, an increase of 123% from last year and 36% from two years ago. with comparable sales growing 60% from last year, up 13% from pre-pandemic levels. For the full year of fiscal 2022, we delivered net revenue of $1.5 billion, an increase of 74% from fiscal 2021 and 52% from fiscal 2020. This manifested itself in the extraordinary adjusted EBITDA improvement, which grew to $289 million, or 19% of net revenue. an increase of 277% from last year and 68% from two years ago. Our United States business net revenue grew to $676 million Canadian, an increase of 132% from last year and 100% from two years ago. The United States accounted for 45% of net revenues in fiscal 2022. Our e-commerce business net revenues grew to $564 million, an increase of 33% from last year and 150% from two years ago. E-commerce accounted for 38% of net revenues for the full fiscal 2022. Our retail business net revenues grew to $930 million, an increase of 116% from last year and 23% from two years ago. Driving this exceptional performance is our continued investment in our sales channels. In Q4, we focused on sustaining our e-commerce growth by elevating our everyday luxury experience digitally. We enhanced Aritzia.com with new and improved features and functionalities across personalization and product discovery. In retail, our business continued to exceed our highest expectations across all geographies, particularly in the United States, where we opened seven new boutiques this past year, most recently Tysons in Virginia and Easton Town Center in Columbus, Ohio. Turning to product, in Q4 we launched our spring collection to an outstanding client response. Despite experiencing continued production challenges and logistic delays resulting in inventory pressures over the quarter, our use of strategic inventory management and expedited freight allowed us to somewhat mitigate the impact to our selection. Additionally, we were able to offset both revenue and margin pressure without raising our prices as we continue to grow our full price-selling business. In marketing, we continue to reach new and loyal clients through our captivating communications. This quarter, we delivered brand, feature, and trend-inspired campaigns that translated seamlessly across all our channels. In short, I'm proud of what our entire team accomplished as we close yet another challenging yet successful quarter and year, while we deliver everyday luxury to significantly more clients than ever before. I will now turn the call over to Jennifer to give you an update on some of the key areas of our business.
spk02: Thanks, Brian, and good afternoon, everyone. Just as Brian mentioned earlier in the call, I am also incredibly proud of our team's unwavering dedication and ability to adapt and successfully deliver results that continue to propel us forward at a phenomenal pace. I'd like to give a shout out to the Aritzia frontline team who kept us fully operational during the holiday season despite the impact caused by the Omicron variant. There was one day during one of the busiest weeks of our entire year where we had 1,200 people unable to work due to illness or exposure. The teams responded immediately, pivoted, and maneuvered to ensure continuity in our operations, preventing us from having to close a single store during our busiest period, unlike many of our peers. Kudos to the team for ensuring the last quarter was successful. We continue to make considerable progress on our long-term strategies. Today, I will provide an update on the four areas of focus within operations this quarter. First, our supply chain and distribution center. Second, our infrastructure investments in data and analytics. Third, the integration of Raining Champ. And fourth, our continued commitment to our communities. Our product and supply chain teams did a phenomenal job to fuel the surging demand throughout the fiscal year and especially in this quarter. They have been managing the situation exceptionally well and we have worked hard to maximize the availability of our product which is reflected in our sales results. However, it has been difficult and will continue to affect timelines and will require us to continue using expedited freight. We have been asked about the recent roving lockdowns in China, and I can confirm they have not materially impacted our production. That said, the local trucking services have, and this has added more pressure to our freight timelines. We have been building our inventory and are confident we're on track to be well positioned through the fall season. In the distribution centers, the strength of our teams and the network itself have unequivocally bolstered our outstanding results. We continue to invest in this critical infrastructure to ensure we have the network to support our ongoing growth. Last month, I had the opportunity to spend some time with the landlord developing our new facility. I am pleased to report that our new Toronto Area DC is on track for completion in the spring of 2023. This is now our largest infrastructure investment to date and is a clear indicator of our continued success and growth. The new 550,000 square foot DC will replace our existing 150,000 square foot facility. The site also affords us the option to build out an additional 200,000 square feet in the future. The facility is designed to support several years of growth and will service retail and e-commerce for Eastern Canada and will fulfill e-commerce orders for the Eastern United States. In the coming months, we will be hiring hundreds of positions to support the new DC, which will feature world-class amenities, including a fitness facility and our signature AOK commissary. With our current growth trajectory, we also anticipate expanding our distribution footprint on the West Coast over the next two years. Data and analytics have always played a critical role in our decision-making. And over the last year, we have significantly invested in our data and analytics infrastructure and more than doubled the size of our team. This increased depth of talent has resulted in continued progress in several key areas of the business, including client, sales, and concierge. Our client dashboard provides us with timely insights into the drivers of our business performance as it relates to the client. We have previously shared that our Omni clients spend and shop approximately three times more than clients who shop exclusively in one channel. Insights like this inform the strategies used to maintain our accelerated client growth and increase client loyalty. Our detailed sales analytics provides us with a 360-degree view of our clients and their shopping behaviors. For example, we are tracking when a client checks an item's availability online and subsequently purchase the item in a boutique. With this data, we can adapt our strategies to enhance client experience across all channels and increase client transaction frequency and conversion. We conducted an overhaul of our concierge reporting and created dashboards that have increased the efficiency of our operations. The reporting allows us to optimize concierge staffing and scheduling to deliver our world-class everyday luxury service. In turn, this deepens our client loyalty while maximizing client value. We continue to move forward with our integration of reigning champ. We are working with the reigning champ team to formalize both the product and the marketing strategies to accelerate brand growth as we scale the business. From an operations standpoint, we are working diligently toward a seamless integration of our back office infrastructure. We look forward to including further details about our men's product expansion through reigning champ when we share our long range strategic plan in the fall. To deliver everyday luxury for today and tomorrow, we continue to strengthen our environmental and social efforts that amplify the positive impact we're making across our value chain. Over the last several years, we have used the HIG facility environmental module to measure the environmental performance of finished goods facilities and strategic fabric suppliers. We have also increased the assortment of our products that respect the boundaries of our planet. As of this season, 63% of our products are now made with more sustainable attributes and fabrics, up from 40% in 2021. And last but not least, we have developed a new program that expands our social impact audit. And over the next year, we will include Tier 2 fabric and trim facilities into our supplier monitoring program. Finally, we were incredibly proud to continue our support of women and girls through our International Women's Day campaign this year. We collaborated with artist Leah Colombo to create a limited edition collection. All proceeds were donated to UN Women to help women of Ukraine find peace and security during the ongoing humanitarian crises. These remain incredibly difficult times for many, and our thoughts are with everyone impacted. It has been an absolutely exceptional year. Every earnings call, I commend our team for their outstanding contributions to our business performance, and this call is certainly no different. It has been a historic year for Aritzia in so many ways, experiencing challenges and growth in ways we have not experienced before. And as our business continues to accelerate beyond our own high expectations, I am deeply grateful for the support of our people. It is their dedication to excellence year over year, and particularly this year, that enables us to continue to grow at such a phenomenal pace. I'll now turn the call over to Todd to discuss our financial results.
spk03: Thanks, Jennifer, and good afternoon, everyone. We delivered another quarter of exceptional results. even exceeding our own high expectations. We generated net revenue of $444 million, an increase of 66% from last year, and 61% from two years ago. This outstanding growth was the result of several factors. First, we continued to see unprecedented growth in the United States, with net revenue in USD of $170 million in the quarter. growing 109% versus last year and 136% versus two years ago. Our business in the United States comprised 49% of net revenue, up significantly from 39% in the fourth quarter last year. The sustained momentum in our U.S. business is reflective of the significant acceleration in our U.S. client base, which has more than doubled in the last 12 months, as more clients discover and become loyal to the Aritzia brand. Second, our e-commerce business remains robust and delivered another strong quarter with net revenue of $182 million, an increase of 21% on top of 81% last year. E-commerce penetration increased to 41% from 30% in the fourth quarter two years ago. Third, retail revenue in the fourth quarter was $262 million, an increase of 123%. This growth was driven by comparable store sales and new boutiques in the United States, as well as the recovery to pre-pandemic levels in Canada, despite restrictions from Omicron wave during our peak holiday selling period. We delivered gross profit of $180 million, up 74% from the fourth quarter last year. Gross profit margin was 40.4% in the quarter, expanding 190 basis points from 38.5% last year. This improvement was achieved even with approximately 400 basis points of erosion from the use of expedited freight in the quarter. When compared to fiscal 2020, our gross profit margin expanded 310 basis points. This was the result of lower markdowns leverage on occupancy costs, and the strengthening of the Canadian dollar, also partially offset by the impact from the higher expedited freight. SG&A expenses in the quarter were $120 million, or 27.1% of net revenue, compared to 27% last year. This reflects ongoing investments in talent and technology to fuel our growth. Overall, adjusted EBITDA in the fourth quarter was $66 million, an increase of 88% from last year and 56% from two years ago. The outstanding performance in the fourth quarter capped off a record year of both top and bottom line results. The momentum in our business reflects both growing brand awareness and affinity for Aritzia in the United States and the strength in our e-commerce channel. What makes the results for the year so remarkable is that they were accomplished in spite of ongoing impacts from pandemic-related restrictions and closures, as well as escalating global supply chain disruptions throughout the year. For the full year, net revenue was $1.5 billion, an increase of 74% from last year and 52% from two years ago. This remarkable growth was led by an unprecedented 144% acceleration of sales in the United States, with Canada delivering 45% increase in sales compared to last year. Our e-commerce business delivered revenue growth of 33% on top of an 88% increase last year. And e-commerce now comprises 38% of net revenue, up from 23% in fiscal 2020 pre-pandemic. We delivered gross profit of $655 million, up 110% from last year. Gross profit margin was 43.8%, expanding 730 basis points from 36.5% last year and 270 basis points from 41.1% in fiscal 2020. These improvements were in spite of approximately 250 basis points of erosion from the use of expedited freight in the year. SG&A expenses were $393 million, or 26.3% of net revenue compared to 29.2% last year. The 290 basis point improvement was primarily driven by leverage from increased revenue. Adjusted EBITDA was $289 million, up 277% compared to $77 million last year and up 68% compared to $173 million in fiscal 2020. Adjusted EBITDA was 19.4% of net revenue, expanding from 9% last year and 17.6% two years ago. The expansion in adjusted EBITDA margin is a testament to the strength of our business and our ability to drive profitable growth in spite of significant macro headwinds. At the end of the fiscal year, inventory was $208 million, up 21% from last year. Our team has done an incredible job of managing our inventory to deliver our revenue growth in light of the global supply chain disruptions. As Jennifer noted, we continue to build our inventory position and are confident we are on track to have the product to meet demand through the fall. We ended the year with a cash balance of $265 million, a 78% increase compared to $149 million last year. During the year, we repaid our $75 million term loan and funded the $33 million initial payment for the CYC acquisition. We continue to generate significant cash flow and have a strong balance sheet. Since the implementation of our NCID on January 12th, and through the end of the fourth quarter, we repurchased 164,000 shares, returning $9 million to shareholders. We plan to continue purchasing shares opportunistically throughout fiscal 2023 to offset the dilution of option exercises. Turning to our outlook, the momentum in our business has continued into the first quarter of fiscal 2023. As such, we expect net revenue for the first quarter to be approximately $375 million, representing just over a 50% increase compared to last year. This reflects continued strength in the United States in both retail and e-commerce, as well as a strong recovery of our business in Canada. Please note that 50% of our Canadian boutiques were closed for approximately two-thirds of the first quarter last year. For the full year, we expect net revenue to be approximately $1.8 billion, representing growth of approximately 20% from fiscal 2022. We plan to open 8 to 10 boutiques, with all but one in the United States, and to expand or reposition 4 to 5 boutiques. We expect gross profit margins to decline by approximately 100 basis points compared to last year, reflecting ongoing impacts from global supply chain disruptions inflationary pressure, and discontinued COVID relief subsidies. SG&A as a percent of net revenue is expected to increase approximately 50 to 100 basis points compared to last year, reflecting continued investments in talent and technology to fuel our future growth. We expect capital expenditures in the range of $110 to $120 million, comprised primarily of new and repositioned boutiques, our new distribution center in the Toronto area, and the expansion of our support office. In summary, our consistent growth reflects the strength of our business model and our proven ability to execute across the organization. We still have a long runway in front of us, and we continue to leverage our strong balance sheet to make strategic investments that will support continued growth in our business. We are confident we are well positioned to maximize on the opportunities ahead and to drive profitable growth and deliver meaningful shareholder value. With that, I'll now turn the call back to Brian. Thanks, Todd. We're incredibly pleased with our Q4 and QN and year end results, but even more excited for the road ahead. As we are now well into Q1 of fiscal 2023, we're seeing the strong momentum we generated in fiscal 2022 continue across all geographies and all channels. continuing to be led by the United States. In focus on sustaining our accelerated growth, and as Todd mentioned, we're on track to deliver net revenue of $375 million in the first quarter, representing a 50% increase from last year. We kicked off the 2023 fiscal year by continuing to deliver on our exciting new growth-driving initiatives. A particular note, we launched our first ever swim collection and deepened our presence in the United States through new boutique openings in Las Vegas and Miami, both so far surpassing our expectations. We're continuing to capitalize on the extraordinary opportunities we see in the United States, and I'm excited to announce that we recently signed our next global flagship on Fifth Avenue in Manhattan. Although we remain cautiously optimistic as we continue to monitor and navigate persistent global pressures, we could not be more excited for the future. Today, we are better positioned than ever to capitalize on this extraordinary growth opportunities being presented to us as we continue to deliver everyday lecture experiences for our new and loyal clients. Whenever we look to the future, I like to reflect on what we started and how far we've come. In my 38 years at Aritzia, I've not only gained valuable perspective on our business, but more so an incredible appreciation for our people and the contributions each of them have had made to our tremendous success. No one more so than Jennifer Wong. Without her, we would not be in the position we are in today. Jennifer and I began our partnership 35 years ago. She knows our business inside and out. Over those 35 years, Jennifer has run most all departments within the organization. She has been instrumental to our accelerated growth and has delivered many of the milestones that we have shared with you on these calls over the years. Jennifer's unparalleled leadership style and dedication to excellence exemplifies our values, which she was integral in developing and deeply resonates and inspires our people. That is why I'm thrilled to announce that Jennifer Wong will be taking over as our next CEO. There is no better time and no one better to lead Aritzia. With her long-term, lasting approach to strategic growth, Jennifer is perfect for leading us into the future. This transition will be seamless as Jennifer has taken on more and more CEO responsibilities over the years. Today, we simply recognize her for all the incredible work she has already done and knows she will continue to do. With Jennifer stepping into the role of CEO, I will become our executive chair. I will continue to contribute to Aritzia's long-term growth and maintain my full-time leadership role in the areas where I bring the most value, product, marketing, real estate development, and business development. I'm just as dedicated to and passionate about Ariti as I was 38 years ago, and I could not be more excited to continue to participate in driving our growth and supporting Jennifer and our team into the future. Everyone, please join me in congratulating Jennifer and our exciting future ahead. Thank you.
spk02: Brian, a heartfelt thank you. I am truly honored to lead Aritzia and our people into the future with you and our senior leadership team. I'm looking forward to building on the foundation of an extraordinary business we have built over decades. And I want everyone on the call to know that for 35 years I have had the privilege of working alongside Brian. I have seen firsthand his commitment to Aritzia's values, our people, clients, and the communities we serve. I would like to thank our dedicated team who have been pivotal to our success and our board who have diligently laid the foundation for a seamless transition. And of course, thank you to Brian for his ongoing mentorship and trust. I am excited to continue advancing Aritzia's business and delivering on the incredible growth opportunities we see ahead. Thank you everyone for joining the call this afternoon. I will now turn the call over to the operator to take questions.
spk06: Thank you. 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're 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 is from Lorraine Hutchinson from Bank of America. Please go ahead.
spk08: Hi, this is Alice Xiao on for Lorraine. Thanks for taking our question. Our first question is for Jennifer. What aspects of the business are you most excited about for this upcoming fiscal 23 and what challenges do you anticipate to navigate And secondly, a quick one on e-commerce. Do you have a long-term penetration target and how soon do you see normalization to it? And is there a difference in the e-commerce penetration in the U.S. versus in Canada?
spk02: Okay, hi there. All right, let me see if I can start at the top. Well, first of all, I have a fantastic portfolio as it is in what we call business support, a fantastic team there who have done an incredible job executing on our operations as our results can attest to. And certainly I'll just echo what Brian has said as well as what Todd has said about the future and I'm most excited about e-commerce growth and in particular our USA growth in both retail and e-commerce. And so I look forward to working with the team and continuing to grow in those areas And I can't remember your last question, but I can remember your last question.
spk03: I can take that. penetration yeah we haven't provided a specific e-commerce penetration target you know but I think over time we expect that it will likely become you know over 50% of our business and you know that's over multiple years but we were 23% pre-pandemic 50% penetration during the pandemic and then this last year we were at 38 in in an environment where we had most of our stores open there We still had a period in Canada where our stores were closed at the beginning of the year. So we likely expect that we'll be in that range again for this year in the high 30s. But over time, as we look at our long-range plan, we expect e-commerce to grow to over 50% of our business. Great. Thank you so much.
spk06: The next question is from Mark Petrie from CIBC. Please go ahead.
spk01: Yeah, thanks. Good afternoon. And first, congratulations, Jennifer, on being the CEO. It's clearly extraordinarily well-deserved and wish you all the best. I guess my first question is just with regards to the guidance on the revenue growth and the implication for sort of Q2 to Q4 is kind of mid-teens revenue growth and obviously not trying to minimize that as an accomplishment, but clearly a deceleration from your recent momentum and even what you were doing pre-pandemic. I know you take a conservative approach to guidance, but maybe can you give us some context about your assumptions to get to that number? Thanks, Mark.
spk03: I mean, first off, obviously we're extremely pleased with the momentum that we've seen in the first two months of the year and what we're expecting for Q1. But as I noted in my prepared remarks, we did have 50% of our Canadian stores closed for two thirds of the quarter in Q1 of last year. So obviously we're lapping that currently. And if you look back over last year, the compare in Q2, Q3 and Q4 is obviously tougher once all of our stores were open. And so therefore, we just decided that it was prudent to take a conservative approach to our guidance, and we'd be extremely pleased to deliver $1.8 billion of revenue on top of the 74% growth getting us to $1.5 billion last year.
spk01: Okay, understood. And then I guess maybe just a higher-level question with regards to store economics. I know this has been an evolving topic, but wondering if you could just talk specifically about how the US store economics have changed sort of and what they're looking like kind of coming out of the pandemic. Maybe some historical context would be helpful, but where's that sitting today in terms of costs, what you're seeing with regards to TIs and then ramp up and pay back? I'll take that.
spk03: So what we're seeing is on one side, we're getting is costing more to build our stores in the United States and I think it's building as you know building costs have increased everywhere in every sector right across North America from what I understand more or less the world so We're not immune to that so it's costing more money On the other hand our sales are higher than they meaningfully higher than they were when we were opening stores two three four or five years ago our rent because of the COVID and then also with some sort of adjustments happening with retail prior to COVID. Rents are less than they used to be. And then the third thing with our performance and everything, we're getting and seeing a lot better locations, which is certainly helping, and shapes and sizes and everything else, which is certainly helping our real estate rollout. The net of it all is that our paybacks have come back down significantly from where they were when we went public five years ago. And so we're super thrilled, and that's why we're continuing to open new stores and continuing to, quite frankly, make them even bigger. And we announced the store on Fifth Avenue, which I believe is a 35,000 square foot location, which will be our biggest for the time being. and uh but at the end of the day the rent is less than the existing store is up there right now so we're feeling pretty good about what's going on and the paybacks and the opportunities we have to drive our business in a more profitable manner from a retail perspective particularly in the united states okay thanks and when does that flagship open brian not opening for a few years uh we've signed the deal um It's not opening for a few years. It's a big location. It's going to take us probably close to a year to build, whereas our typical store takes us more or less four months to build. And New York has a lot of permitting and other... processes we have to work our way through. We have an existing store on Fifth Avenue, which we're not closing for another two, three years anyway. So we expect zero loss of continuity from sales, but we see a big opportunity to increase our sales, and not just sales, but our brand and our brand positioning and recognition. We're so excited about this location there, and I think we have more to come that we'll share with everybody on coming calls, hopefully.
spk01: Yeah, completely understand. Okay, thank you very much. Thank you.
spk06: The next question is from Steven McLeod from BMO Capital Markets. Please go ahead.
spk05: Thank you. Good evening, everyone. And Jennifer, I also wanted to extend a huge congrats for your new appointment. My first set of questions was just around Brian, your CEO succession plan. Just curious, can you give a little bit of color around your thought process and why now? And then maybe secondly, you did say that you would continue to have leadership of those key areas where you can add value, product, marketing, real estate development, business development. Can you just talk – is there potentially a plan to transition those areas as well, or will you – continue to be overseeing those for a number of years or at least some period of time.
spk03: Thank you for that. Well, as we mentioned in the call, Jennifer's already running a meaningful amount of the company and whether it be IT and key, key areas of the company and support divisions and everything that we build our whole company on. She's running all the support, whether it be IT, HR, and she can discuss with you what she runs, but IT, HR, finance, everything she runs. What we're doing here is she's taking on the sales channels, which is e-comm and retail. We're going to do it in a constructive manner over the next period of time. I'm not truthfully planning on working any less at this point in time, and I have no plans to give up real estate product or these other marketing, these other areas in the imminent future. I enjoy doing it. It's where I think I add the most value is on all the brand, customer-facing departments, and it's what I enjoy the most. The way I looked at it was some of these other divisions, I think Jennifer can do a better job than I am at running them, And then I can kind of selfishly do what I really like to do and what I think moves the needle for Aritzia, where I can move the needle for Aritzia. So, you know, I think this is a bit of a no-brainer, truthfully. And, you know, for now, well, business is good and we got a lot of momentum and Jennifer's ready and I'm healthy and we're going to work together and there's no – sort of knee jerk or anything here. This will be a transition and we're going to work together. We partnered for 35 years and hopefully we'll be able to partner for another, maybe not 35 years, but for the foreseeable future. So, you know, Mike, you know, on a personal note, I know I have two kids and my second child's going off to university. So, you know, I'm going to need something to do. I'm going to be hanging around here for the foreseeable future. Right.
spk05: Okay, well that's great. That's good to hear. And then maybe just with respect to the outlook, on the gross margin, obviously some pressure there with gross margin expected to be down 100 basis points. Just curious what your visibility is into that from where you sit today in terms of potentially being above that level or things that might swing you potentially below that level.
spk03: Hi Steve, we are continuing to spend meaningfully on expedited freight and that is not changing from last year and that's obviously continuing to put pressure on and we also have just COVID subsidies, for example, that are discontinued now that we benefited from, you know, 70 basis points last year, that's not continuing. And there's a lot of puts and takes, and obviously inflation is impacting our product, our underlying product costs. So when we look at it, given all those pressures, 100 basis points, we feel like we're managing it very well. And I think if you look out longer term, which is important. Obviously, we will have lower expedited freight at some point, you know, next year, hopefully. And we also, as we grow our business in the United States, we have a natural improvement in gross profit that we're, you know, we're benefiting, frankly, from that today in our numbers. And that will continue over time. So if you look out longer term, we see, you know, sort of sequential growth in our gross profit. But for this coming year, there's still pressures from external environment.
spk05: Okay. That makes a lot of sense. That's helpful. Well, thank you very much.
spk06: The next question is from Derek Daly from Canaccord. Please go ahead.
spk04: Yeah, hi. And again, I also echo my congratulations, Jennifer, on your new appointment. Very, very well deserved. When we think about inflation, can you just comment on areas, whether it's inflation or disruption, where you're sort of seeing the most impact? We've been hearing from a few other companies that have reported that the distribution and trucking side has been a big bottleneck. I think you mentioned that in your prior remarks. But are there other areas where you're seeing it really flow through?
spk03: There's some pressure on our product costs, but I would say from an inflation perspective, I hate to keep going back to expedited freight, but it's really the expedited freight this coming year is going to be at similar or higher levels than last year. not because we're using exactly the same amount, but because it's costing two or three times more even than it did last year. So there's meaningful inflation in that, as you mentioned, in those freight costs. So that's likely the highest inflation impact today and and we're also you know all of the global supply chain disruptions are meaning that we're having to air even our raw materials where we typically would have sent them by sea and so that's causing you know inflation for us in in what we're spending and then just I would say we haven't necessarily seen significant inflation in our wages but there is pressure from you know, higher wages for our support office, higher wages in the field. Those would be the key areas that... Yeah, I think that, yeah, I'd echo what Todd's saying. I mean, we're paying our distribution center people more money. We're paying retail more money. And we want to be the... first choice of people and employees when they come and they want to get into the workforce. And so we have to not only provide an incredible environment, but we have to make sure we're paying uber competitive wages. You know, the supply chain, we are seeing inflation on raw materials and things. And as Todd mentioned, expedited freight. I mean, it just doesn't end though for us. I mean, the other day, last week, we had YKK had a huge fire. in one of their factories, one of their main factories, it's completely taken off and so we're going to have zipper pulls, not even the zippers, the zipper pulls are going to affect over a million units of product for us and timing of it. So, you know, it just, it never ceases, whether it be the rolling shutdowns of factories or mills, whether it be the Freight costs and delays and things like that. And then you're dealing with fires and stuff. It is just, we're just scratching our head looking. We could only laugh. What else could they throw at us now? So, you know, we're just seeing it and all manifest itself for delays. And as Todd was saying, then we have to expedite freight and it's expensive right now.
spk04: Yeah, I understand that. But from an inventory perspective, looking forward, you know, it sounds like you guys are well bought out through the fall and maybe this is a bit too far in advance, but when do you start purchasing for the holiday sales period? Does that, does that happen now or does that happen later in the year?
spk03: Uh, all those orders have been placed. Particularly they would have been placed already anyway, but they, some of them have been placed for quite some time now due to everything taking so much longer. Right. And the only thing that's going to happen with inventory is that what we're going to see is we don't know when we're going to get inventory. Before, we'd get a cutoff at the end of September, end of October, and we'd kind of know, look, if they're late, they're going to be a week late. You know, we've been getting, sorry, it's going to be six weeks late. It's going to be eight weeks late. And then if you add in the freight and the shipping and everything else, rather than taking three weeks by sea, it's going to take 12 weeks by sea. and so there's all these things so you know we're having you know the one thing we are going to see is we're having to buy a little bit more inventory than we normally have bought obviously to fuel is these uh accelerating sales but also um to uh ensure that we have inventory as well because if there's delays and cancellations and all sorts of things like that we need to make sure we have enough inventory so we're finding ourselves in a position where we're actually erring on the side of buying a little bit more inventory than we previously have historically.
spk04: Right, and I suppose the plan there is making sure you're fully stocked, and if others aren't, then you don't have to put it on promo so you can maintain that extra margin.
spk03: Yes, hopefully, yeah. Okay, thank you very much.
spk04: Thank you.
spk06: The next question is from Patricia Baker from Scotiabank. Please go ahead.
spk09: Yeah, good afternoon, everyone. My questions have been asked and well answered, but I thought I'd jump on anyway to also offer my congratulations to Jennifer. I certainly agree with Brian's comments that there's no better person to be taking over the CEO role, so congratulations.
spk06: Thank you, Patricia. The next question is from Megan Annette from TD Securities. Please go ahead.
spk07: Thank you. Good afternoon, and I'll echo my congratulations to Jennifer on your appointment. Wish you continued success. My first question is related to the guidance. Can you just talk about how you're approaching price increases in fiscal 23, and if there's anything factored in that's meaningful related to price,
spk03: growth and average unit selling prices and also maybe how you're thinking about markdown rates relative to last year since I'm still running product I'll take that so you know we are seeing cost inflation because of our mix into the US though and how our pricing works we're getting automatic built-in price increases be as our product mix becomes more and more in usd versus canadian dollars um we have built a recent acceleration from sort of 25 of our business a couple years ago to almost 50 of our business now we found that those those price uh the the currency mix could offset any price increases we were seeing we are now seeing though As our business continues to grow, we are seeing different acceleration in the US. The mixture itself isn't having quite the same effect as when it doubled. We are seeing a bit of pressure. We're seeing pressure on costs, obviously, over and above the expedited freight. We've been looking at some of the new items and new programs, but we have still been able to and will continue to try to maintain all our pricing on our core carryover items. So we're going to continue to do that and hopefully not have to pass on any price increases to our consumers. And we are not planning on doing so yet, but that may change in the future. But as of now, we're maintaining our pricing.
spk07: And then on the product side, could you talk about the customer response to the swimwear launch? It seems to have been quite positive. And also provide a bit of context around the size of that initial launch and any plans for that category for upcoming seasons.
spk03: Yeah, so we had our swimwear launch. It launched very well. But in the scheme of the size of our business, it's not moving the needle and will not move the needle for us in the short term. So... You know, we launched a bad baton collection. We're, we're in the midst of launching a TNA collection. We're going to be launching a Wilfred collection swim collection. You know, we were the first orders and launches were tests for testing, making sure we have the right silhouettes the right sizes the right fit the right colors so You know, everything we do at Aritzia, we do it slowly and methodically, and we're going to continue to, I wouldn't say slowly, but we certainly do it methodically. So swim is no different. So, you know, our objective is to have swim a meaningful part of our business three to five years from now, and we're not going to force it to try to make it move the needle for us in the next six to 12 months. As you can see from our sales going from $850 million to $1.5 billion, which we did without SWIM, that was plenty of growth for us to try and manage. And so we're just going to continue driving what's actually moving the needle for us.
spk07: Great. Thank you for taking the questions.
spk06: The next question is from Mark Petrie from CIBC. Please go ahead.
spk01: Yeah, I wanted to ask about the website. I know there's a ton of effort and investment placed on the functionality of the website, and I'm hoping you could just talk a little bit about sort of the payoff of that work. I know you don't give specifics, but maybe some context on some of the performance metrics would be helpful. Thanks.
spk03: So I'll take this for the last time, then Jen's going to be running answering these questions, Mark. So... You know, I can't really get into the performance metrics too much other than the fact that they haven't really changed. Our conversion hasn't changed. Our average purchase hasn't changed. None of these things have changed that much. What has changed is our traffic. Our traffic has changed meaningfully, and so we're getting a lot more traffic as we're becoming more and more famous. And so that has changed. But Jennifer has a whole strategy. She's been working on and she hasn't sort of launched it yet, but a whole strategy Around e-commerce and what we're planning on doing in a roadmap for the next three years. So She's going to be sharing that with us over the coming months and and we're looking forward to seeing our website and and all the different features evolve and But our website and our e-commerce business continues to grow, and we're super excited about it, and we'll continue to grow for the coming years. And so we're just going to keep on investing in. It's a high-returning channel for us, particularly in the U.S., and so we're going to continue to drive investment into our e-commerce site.
spk01: Okay, thanks for that. And don't worry, Brian. We'll find other topics to pester you about. Thank you. Take care. Yeah.
spk06: This concludes the question and answer session. I'd like to turn the call back over to Carly Bishop for closing comments. Thank you, Sachi.
spk10: And thanks again to everyone for joining us this afternoon. We will be available after the call to answer any questions you may have. We look forward to speaking with you again soon.
spk06: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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