Aritzia Inc.

Thank you for standing by. This is the conference operator. Welcome to Aritzia's second quarter 2024 earnings conference 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 one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I will now turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.

Good afternoon, and thanks for joining Aritzia's second quarter fiscal 2024 earnings call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer, and Todd Engledue, our Chief Financial Officer. Following prepared remarks, there will be an opportunity to ask questions. Please note that remarks on this call may include our expectations, future plans, and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions, as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts, or projections expressed by the forward-looking information. 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 the forward-looking information. Our earnings release, the related financial statements, and the MD&A are available on CDAR as well as the investor relations section of our website. I'll now turn the call over to Jennifer.

Thanks, Beth. Good afternoon, everyone, and thank you for joining us today. In the face of a challenging retail environment and following unprecedented growth year over year, for the second quarter of fiscal 2024, we delivered net revenue of $534 million, an increase of approximately 2%. This is on top of delivering outstanding revenue growth of 50% in the second quarter last fiscal year and 75% in the second quarter of fiscal 2022. We remain confident that the level of overall sales achieved in the last two years, including this recent quarter, is a strong base from which our future sales and operational efficiencies will meaningfully scale in the quarters and years ahead. Comparable sales growth decreased 4.3% in Q2 as we lapped a remarkable 28% comparison last year. In the US, our net revenue increased 6% on top of 80% growth in the second quarter last year, while in our Canadian market, sales declined 3% as we lapped 29% growth in the second quarter of fiscal 2023. In addition to cycling two years of outstanding sales results, we believe our second quarter top line trend was impacted by the level of new styles in our product assortment as well as a mixed consumer environment. Before I discuss the results of our sales channels, I want to first provide some color on our levels of new styles. Over the past two fiscal years, Our primary focus was on maximizing sales growth by fueling the unprecedented demand for our product. While navigating a challenging supply chain environment, we focused our efforts on ensuring sufficient supply of the products that were most in demand, our client favorites, and on developing newness through variations of these items. These actions are what drove sales growth of 74% in fiscal 2022 and 47% in fiscal 2023. The trade-off was that as we faced bandwidth constraints, our level of new style development was not optimal. Our proven strategy, which has served our client base exceedingly well for many years, centers on our ability to create new styles to maintain freshness in our assortment over time. With a normalized supply chain and operating environment, we've now returned to our proven product development cadence. Our team is laser-focused on our product pipeline. So far, we're encouraged that even for this fall, new seasonal styles are resonating extremely well with our clients, and we continue to expect to be in a strong position for spring-summer 2024, which begins to launch in February. Shifting back to our Q2 performance, Net revenue in our retail channel increased 3% in the second quarter, driven by the progress we've made on our real estate expansion strategy. We opened one new boutique during the quarter, our third boutique in the state of Florida at International Plaza in Tampa, which is a new market for us. We also recently opened two expanded boutiques, Short Hills, New Jersey in July and Prudential in Boston at the end of August. In Q3, we plan to open two new boutiques, South Park in Charlotte and Fashion Mall at Keystone in Indianapolis. Both are new markets for Aritzia. The performance of our new and expanded boutiques remains strong and continues to result in better than expected payback periods. The new boutiques that we have opened in the past 12 months are all tracking to payback in approximately one year or less, ahead of our expectations for 12 to 18 months. As an example, our newest store in Tampa is generating better than planned sales results and currently tracking to pay back in approximately 10 months. Overall, our retail stores are supported by a world-class team of people that exemplify our core values. To ensure that we supported our employees during a period of unprecedented growth and heightened economic uncertainties, as well as to attract and retain exceptional talent in new markets, we made significant investments in retail labor over the last couple of years. Having passionate, dedicated people in our boutiques is critical to delivering an exceptional client experience. After a sustained period of exceeding our own expectations, e-commerce net revenue decreased 1% in Q2, driven by softer traffic trends in line with a weaker retail environment. Conversion remained strong, as we continue to execute our e-commerce 2.0 vision across our three value propositions, tailored product discovery, intuitive experiences, and creative innovation. After launching multiple personalized recommendation experiences across our site in Q1 and Q2, we have continued to test, learn, and refine our algorithms to provide the most curated recommendations for our clients. In Q2, we launched personalized product recommendations in the search panel and quick grab recommendations in bags. Additionally, we have made enhancements to our online checkout experience, which have improved checkout conversion. Now that our point of sale upgrade is complete, we have launched our pilot of additional omnichannel services, buy online, pick up in store, and ship from store earlier this month in Canada. We are pleased with the preliminary results, with revenue in the initial weeks exceeding our expectations. In addition, our forecasted cost of implementation is tracking below budget. Next up is our rollout in the U.S., which is planned to begin after the holidays with completion in Q4. We believe one of our biggest opportunities arises from these additional services is to convert more single-channel clients to omnichannel. The strength of our current Omni clients highlights the magnitude of this opportunity. Our Omni clients spend approximately three times more than clients who shop exclusively in either our retail or our e-commerce channel. In addition, the retention rate for Omni clients is substantially higher than for single channel clients. We also expect to benefit from inventory optimization. And from an inventory perspective, our position has continued to normalize At the end of Q2, inventory was up 10% over last year, and we expect the year-over-year comparison to further moderate for the remainder of fiscal 2024. As expected, the overall markdown rate during our spring-summer sale period remained below pre-pandemic levels with no change to our promotional calendar in the quarter. Shifting to supply chain, I'm absolutely thrilled to announce that our new distribution center in the Toronto area went live at the end of August as scheduled. We seamlessly completed the transition out of our prior third party operated facility without any disruption to the business. We've had a successful ramp up period with productivity KPIs at roughly 90% of our corporate targets by week five. and our fill rate is already in line with that of our existing distribution center on the West Coast, and in line with top-of-industry metrics. We have already exited three of the six additional temporary off-site warehouse facilities and are working towards subleasing the remainder by the end of the year. This has resulted in a significant and immediate reduction in our inventory carrying costs. particularly with labor having accounted for more than half of the additional cost pressure. We also continue to make these strides in finding efficiencies to optimize for our increase in scale over the last two years and better allow us to scale in the future. Some of the areas in which we've already begun to realize benefits include vendor negotiations, process optimizations, and KPI improvements. And with that, I will now pass the call over to Todd.