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spk02: This is the conference operator. Welcome to RITC's third 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 would now like to turn the conference over to Beth Reed. Vice President, Investor Relations. Please go ahead.
spk03: Thanks, Ashia, and thank you, everyone, for joining Aritzia's third 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. As a reminder, 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's 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 CR as well as the investor relations section of our website. Following prepared remarks, in order to give everyone the opportunity to have their questions addressed, please limit yourself to one question and a related follow-up. I'll now turn the call over to Jennifer.
spk05: Thanks, Beth. Good afternoon, everyone. Happy New Year and thank you for joining us today. For the third quarter of fiscal 2024, we delivered net revenue of $654 million, an increase of 5% compared to the third quarter of fiscal 2023. This is on top of delivering outstanding revenue growth of 38% in the third quarter last year and 63% in the third quarter of fiscal 2022. Comparable sales growth increased 0.5% for the quarter, on top of a remarkable 23% comparison last year. In the US, our net revenue increased 4% for the quarter on top of 58% growth in the third quarter last year. While in our Canadian market, sales grew 5% as we lapped 22% growth in the third quarter of fiscal 2023. In our retail channel, Net revenue increased 4% in the third quarter, driven by the progress we've made on our real estate expansion strategy. During Q3, we opened one new boutique in Charlotte, North Carolina, as well as our newly expanded Prudential location in Boston. In Q4 so far, we have opened new boutiques in Indianapolis, Indiana, Puerto Madera, California, and one boutique expansion in Skokie, Illinois. Next month, we plan to open another new boutique in Roseville, California, representing three new boutiques in the fourth quarter. The performance of our new boutiques remains strong and continues to result in better-than-expected payback periods. Our most recent new boutiques remain on track to pay back in approximately one year or less, ahead of our expectations for 12 to 18 months. The new Charlotte boutique we opened in November is generating better-than-planned sales results and tracking to pay back in just 10 months. Our boutique expansions also continue to perform well, elevating the customer experience as well as driving increased revenue and profitability. The expanded boutique we opened in Boston last August is generating incremental sales growth of 40%, and rent has increased by only 25%. delivering a meaningfully higher contribution. Turning to e-commerce, the net revenue increased by 6% in the third quarter, following three years of extremely strong growth and resulting in a four-year CAGR of nearly 40%. That said, we believe the potential growth in our e-commerce channel is greater than our recent performance. And with that, I'm extremely pleased to announce that we have added a chief digital officer to our senior leadership team. The chief digital officer has oversight of the digital customer journey and is responsible for bringing everyday luxury to life online. This individual has a proven track record of delivering impressive top line and bottom line results through successfully building and scaling best in class digital businesses. We've also increased our level of digital marketing. The natural next step in our influencer strategy In a compliment to our boutique opening, we believe digital marketing will help grow our brand awareness in the U.S., protect our product franchises, and position us to acquire even more new customers. We're also in the process of upgrading our technology stack, which is a major milestone in the e-commerce 2.0 journey and will help unlock all future customer-facing experiences online, ultimately positioning us to realize our e-commerce 2.0 vision across our three value propositions, tailored product discovery, intuitive experiences, and creative innovation. Throughout the quarter, we continued our pilot of additional omnichannel services, buy online, pick up in store, and ship from store. We completed our ship from store rollout in Canada with revenue exceeding our expectations. At a minimum, we believe the incremental contribution of our omnichannel services could ultimately drive a low to mid-single-digit percentage of e-commerce sales. We're very encouraged with our early omnichannel results and look forward to beginning our rollout in the U.S. next month. In product, our assortment of new styles resonated well with our clients during Q3, and we saw a strong start to the outerwear season across puffers and wool coats. We continue to expect our assortment to improve with a higher proportion of new styles for spring 2024, which begins to launch at the end of this month. From an inventory perspective, we're very pleased with the progress we've made in continuing to optimize our position. At the end of Q3, inventory was down 22% over last year. We were able to clear through our inventory and have less product at the end of the season compared to last year. and we therefore expect to sell more new products and client favorites for spring. During the quarter, we had our first ever digital archive sale, building on the success of our annual physical warehouse sale here in Vancouver. The event went better than planned, allowing us to profitably clear more product early in the season and to test additional inventory clearing strategies as we grow. To date, we have not seen any material cannibalization to regular price or seasonal sales as a result of the archive sale. And to be clear, our promotional strategy has not changed. We run a full price retail model with markdowns used to clear items that we no longer plan to sell in the future. Throughout the fourth quarter, we expect our inventory position to continue to improve and we look forward to starting spring 2024 with a more optimized product assortment. In marketing, as I mentioned earlier, we have increased our level of digital marketing to propel brand awareness in the US, including paid search and paid social, and successfully launched our affiliate marketing program. Early results have been positive, and we are expanding our social and affiliate programs to help ensure our brand is top of mind, drive client acquisition, and drive conversions. Our Super Puff campaign this year featured a cast of high-profile influencers and celebrities, including Emma Chamberlain, chef and model Gabrielle Bestel, NASCAR driver Tony Bredinger, skier Austin Ross, and a musician named Maria Zardoja. We strategically partnered with a wide range of athletes and fashion and cultural icons to connect our Super Puff with the whole of our client base. Our puffer is designed for anyone and everyone. Already well known for its style, this year we highlighted its superior technical qualities, positioning the Super Puff as the most versatile puffer in the marketplace. Turning to supply chain, this was our first Black 5-Day and Cyber Monday utilizing our new Ontario Distribution Centre, and it was a tremendous success. After coming online just three months earlier, the new facility ramped up smoothly to accommodate volumes higher than we've ever experienced, and it operated as our primary distribution center, packing three times the number of orders compared to the peak day of our outsourced Ontario distribution center last year. Our already exceptional click-to-door improved meaningfully in both countries, and by 45%, for more than an entire day in Canada, as the in-source facility is both more productive than our prior facility and able to handle all of our East Coast volume. Needless to say, we're extremely pleased with the ramp-up of our new facility, where productivity KPIs continue to exceed our expectations. In addition, we've exited all but one of the temporary off-site warehouse facilities, which has resulted in a significant reduction in our inventory management costs. Our community remains a key priority for Aritzia, and this year marks the second year Aritzia created an orange T-shirt in recognition of Orange Shirt Day. We partnered with Indigenous artist Alana Morningstar-Duell to create a specially designed T-shirt for our people and clients, which sold out in a matter of hours and enabled us to make our largest donation to date to this organization. In addition, this holiday season marked our fourth annual warm coat donation, where we gifted 4,000 winter coats to our Aritzia community partners all across North America. With that, I will now pass the call over to Todd.
spk11: Thanks, Jennifer, and good afternoon, everyone. Our revenue for the third quarter of fiscal 2024 was better than our expectations, and we drove meaningful sequential margin improvement compared to the first half of the year. Let me take you through the results for the quarter. In the third quarter, we generated net revenue of $654 million, representing an increase of 5% from last year. This increase is on top of two years of extraordinary growth in the third quarter, 38% in fiscal 2023 and 63% in fiscal 2022, resulting in a three-year CAGR of 33%. Comparable sales growth for the quarter increased 0.5% following a remarkable increase of 23% last year. Net revenue in the United States was $327 million in the third quarter, an increase of 4% on top of a third quarter increase of 58% in fiscal 2023 and 115% in fiscal 2022. In Canada, net revenue increased 5% to $327 million, on top of an increase of 22% in fiscal 2023 and 37% in fiscal 2022. In both countries, trends improved sequentially throughout the quarter, which ended with our black five-day event that broke several records. Net revenue in our retail channel was $441 million, an increase of 4% from the third quarter last year. This was driven by the performance of our new and repositioned boutiques, which continue to generate better than expected payback periods. In e-commerce, net revenue was $212 million, an increase of 6% from last year, as we've had three years of unprecedented growth in this channel, resulting in a four-year CAGR of nearly 40%. We continue to see significant opportunity in our e-commerce business, particularly in the United States. where we expect new boutique openings and increased marketing to generate accelerated traffic trends in fiscal 2025. We delivered growth profit of $271 million, roughly flat compared to the third quarter last year. Growth profit margin was 41.5%, declining approximately 180 basis points from 43.3% last year, and representing a meaningful sequential improvement compared to the first half of this year. The margin decline in the quarter was primarily driven by higher markdowns to support the optimization of our inventory position and pre-opening lease amortization costs for our flagship boutiques. These impacts were partially offset by lower warehousing and freight costs. SG&A expenses were $187 million, up 14% from last year. SG&A as a percent of net revenue was 28.7%, representing an increase of 250 basis points compared to 26.2% last year, better than our expectations. The increase in SG&A expenses was driven by investments in talent made through the end of fiscal 2023, marketing initiatives, and support office expansion, all to support our growth. Adjusted EBITDA in the third quarter was $92 million, a decrease of 23% from last year. Adjusted EBITDA was 14% of net revenue compared to 19.2% last year. The decline in adjusted EBITDA margin primarily reflects two things. Higher markdowns to support the optimization of our inventory position and investments made to support our growth. At the end of the third quarter, inventory was $397 million, down 22% from the end of the third quarter last year. We are pleased with the progress we've made as we continue to optimize both the quantity and composition of our inventory. Since the implementation of our current normal course issuer bid on January 20th, 2023, we have repurchased 1.1 million subordinate voting shares, returning $30 million to shareholders. Subsequent to the end of our current NCID, we anticipate commencing another for a one-year period. which we would use to offset the dilution of auction exercises over time and purchase shares opportunistically. During the third quarter, we generated $172 million in free cash flow and ended the quarter with $141 million in cash. We also fully repaid the $100 million drawn on our revolving credit facility. In addition, given our growth, we extended our revolving credit facility to October 2026 and increased the availability from $175 to $300 million. We remain focused on maintaining a strong balance sheet, which has served us well through time. Shifting to our outlook, based on quarter-to-date trends, net revenue in the fourth quarter is expected to be in the range of $670 to $690 million, representing an increase of approximately 5% to 8%. This increase includes the benefit of approximately $30 million from the extra week in the fourth quarter this year. This net revenue expectation is on top of two years of exceptional growth, 44% in fiscal 2023 and 66% in fiscal 2022. We expect gross profit margin in the fourth quarter to be flat to slightly up compared to the prior year. This represents a continued sequential improvement, primarily driven by the ongoing reduction in our warehousing costs. and we expect SG&A as a percent of net revenue to be up approximately 250 basis points compared to the prior year. For the full year, we currently expect net revenue in the range of $2.32 to $2.34 billion compared to our previous outlook of $2.25 to $2.35 billion. This outlook now represents growth for the year of approximately 6% to 7% for fiscal 2023. on top of a 47% increase last year and a 74% increase in fiscal 2022. In addition to the five new boutiques and three expanded boutiques already opened year to date, we plan to open one additional new boutique and one additional boutique expansion late in the fourth quarter. The timing of two of our boutique openings, including our Chicago flagship, have shifted from the fourth quarter into next fiscal year. We continue to expect gross profit margin to decrease approximately 300 basis points in fiscal 2024 and for SG&A as a percentage of net revenue to increase approximately 300 basis points compared to last year. We now expect capital expenditures for fiscal 2024 of approximately $180 million. This includes $100 million related to our new and expanded boutiques, where we continue to see our most recent new boutiques tracking to pay back in approximately one year or less, ahead of our expectations for 12 to 18 months, as well as $80 million primarily related to the expansion of our distribution center network and support office space. The $40 million reduction compared to our prior guidance primarily reflects the timing shift from fiscal 2024 to fiscal 2025 of improvements to our distribution center in Columbus, Ohio, and certain store openings. Looking to fiscal 2025, we expect top line momentum to accelerate, supported by square footage growth of approximately 20 to 25%. This is driven by 11 to 13 new boutiques next year, including our Chicago flagship, and four to five newly expanded boutiques. including two of our Manhattan flagships. Importantly, our new stores are our most consistent growth driver, historically delivering predictable revenue growth and propelling our brand. With continued investment in both our digital experience and digital marketing, we remain confident that both our e-commerce and retail channels will fuel growth of our omnichannel business. We continue to expect meaningful adjusted EBITDA margin improvement in fiscal 2025 with 500 basis points of expansion driven by IMU improvements, our smart spending initiative, subsiding transitory cost pressures, as well as leverage on fixed costs. In closing, we expect sales to accelerate next year, driven by the 20 to 25% square footage growth, as well as an improved product position and the execution of our e-commerce 2.0 strategy. Compared to the first half of this year, we have already seen our margins begin to normalize with further improvement expected in fiscal 2025. We continue to anticipate that our expected revenue acceleration and margin expansion will drive significant earnings growth next fiscal year and beyond. With that, I'll now turn the call back to Jennifer.
spk05: Thanks, Todd. As you can see, Aritzia delivered meaningful sequential improvement in the third quarter. and we remain extremely optimistic about our prospects for accelerated growth. In Q4, as we continue to anniversary two years of unprecedented sales results, we remain focused on investing in the scalability of our business to set the stage for our next level of growth and help ensure that we can expand in an agile pace. We're pleased overall with the holiday season, which started off with a record-breaking Black Five Day event and we've seen a solid start to the fall and winter sale period. We're encouraged by the strong response to our assortment of new styles, and we expect the mix of our assortment to be further improved for spring 2024, which launches at the end of this month. Our real estate strategy continues to deliver better than expected results, and we have an extraordinary pipeline of boutiques opening in fiscal 2025, representing annual square footage growth of 20% to 25%. In addition to fueling accelerated retail sales, in addition to accelerating retail sales trends, we expect the increased pace of boutique openings to drive incremental e-commerce sales as we expand into five new markets next year. In addition to geographic expansion, we see a huge opportunity to accelerate our e-commerce trends through a strategic focus on leadership, digital marketing, technology, and creative innovation. In closing, I would like to thank all of our people across Canada and the U.S. for their dedication and hard work, particularly during our busiest time of year, as we delivered another successful holiday season. I'm extremely honored to lead this team into the next phase of Aritzia's growth. Last but not least, I'm also very excited for our spring collection to hit the store, and I look forward to introducing Everyday Luxury to more and more clients as we head into fiscal 2025. Great.
spk06: And with that, let's please open up the line for questions.
spk02: Thank you. 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. The first question comes from Brian Morrison with TD Cohen. Please go ahead.
spk01: Good afternoon and congratulations on a good quarter. Todd, I want to ask about the 500 basis points for fiscal 2025. It seems like all the buckets remain unchanged, but you also comment about a step forward with respect to paid search and digital marketing. I'm wondering if you can maybe go into detail if that is factored into your guidance and what steps you have taken and what approach you'll be taking with that.
spk11: Well, Brian, thanks for the question. I can answer from a an overall 500 basis point impact perspective and what we're expecting for the margin, but maybe I'll let Jen answer the second part of your question.
spk05: I'll touch on the digital marketing part of the question. We have a significant opportunity in the U.S. e-commerce space, and we see digital marketing as being a key driver. So to just give you some color, We increased our digital marketing spend this past quarter compared to last quarter, which was essentially zero. We, as you know, spent little to no dollars on digital marketing. And we will increase our digital marketing spend over time. But given the base that we're starting from, it will remain at very low single-digit percentage of revenue. And this is to primarily drive our U.S. e-commerce, which is our most profitable channel.
spk11: Yeah, and then from an impact to margin perspective, we've considered that in our guide of the 500 basis point improvement. So, obviously, with the additional marketing will come additional revenue that that will leverage other areas. So while potentially marketing will be a higher percentage of revenue, we will see leverage in other areas that will offset that expenditure.
spk01: OK, great. And then follow up in terms of product newness, Jen, you sound very excited about what's going to hit the stores in spring and fall of next year. Maybe you can just give us some examples of not necessarily hurdle rates, but examples of why you're excited in terms of the seeding that took place this year and what we should expect.
spk05: Absolutely. Super excited for the spring launch this month. In a nutshell, the proportion of the new in our overall assortment will increase for spring. And I would say, you know, we're most of the way there in terms of where we want to be. Essentially, expect our assortment to be much more in line with our historical balance. So what does that mean? That means when you walk into the store, so you walk into the store at the beginning of the season next month, once we're fully launched, roughly half the store will be merchandised with new products, and the other half will be merchandised with client favorites that make our boutique a destination. And so knowing that we're getting back to our original playbook, if you will, is what has me excited because that's essentially what has driven our success, among other things, that has been at the center of the product driving success for almost nearly 40 years.
spk01: And respect and the seeding that you've done, examples of why you're excited about that?
spk05: Because what I do know is our merchandising strategy and our assortment strategy, allocation strategy is a proven strategy for us. That is what's driven our success for years. And so we got away from that in the last few years. Coming out of COVID, you know, during COVID, there was no playbook. Sort of threw the playbook out the window and talked about that. And coming out of COVID and emerging out of COVID, what was needed to do was get back to this original playbook. So getting in line with where we have been historically and knowing that when we introduce newness and showcase that to our clients and then in turn portions of that become client favorites in and of themselves is what fuels our product strategy.
spk01: Good luck and thanks very much.
spk06: Thank you.
spk02: The next question comes from Lou Cannon with Canaccord Genuity. Please go ahead.
spk13: Yeah, thanks, and good afternoon. I just wanted to ask about the success of the archive sale. Jen, it sounds like you're pretty positive on what you're able to see there. Is the expectation that going forward you may look to clear more product earlier in the season than maybe you have in years past? Or maybe you can just give us some thoughts on the success of the archive sale and maybe the learnings from it.
spk05: Absolutely. The first archive sale definitely went better than we planned. As you said, it's allowed us to clear more product, and I will say profitably clear more product earlier in the season. This is something that we thought we would try this season, given the elevated levels of inventory. We're not making any changes to our promotional strategy per se, but this gives us an additional tool or channel, shall I say, that as we grow and scale and expand into geographies, it's something that can augment our physical warehouse sale that we have annually here in Vancouver. So we think that this will be something that we could use in the future, although at this time we have no plans to have a digital archive sale. We will continue to have our annual physical warehouse sale here in Vancouver.
spk13: Got it. Thanks. And then my second question here is just on maybe where markdown levels or rates are as of today and where that sets up versus pre-pandemic levels and maybe what the expectations are, what you're seeing so far in Q4 and your expectations moving forward into fiscal 25 as well.
spk10: Yeah, sure.
spk11: I'll take that one. So we're pleased with obviously the improvement in our inventory levels. which were down 22% in the quarter, and we did still achieve our gross margin guidance, but the normalized markdowns were slightly higher than pre-pandemic levels in Q3, but for the year, we still expect that our markdowns will continue to be below pre-pandemic levels and expect that, you know, next year will be the same.
spk06: Okay. Thank you very much.
spk02: The next question comes from Irene Attell with RBC Capital Markets. Please go ahead.
spk14: Thanks, and good afternoon, everyone. As you know, the store openings is obviously a big driver of the revenue growth that you're anticipating in F25. Can you please give us an update of the timing within F25 now that we've seen kind of that slippage from late Q4 into next year?
spk11: Yeah. Hi, Irene. It's relatively consistent with what I provided last quarter. So the concentration of the new stores is in the second and third quarter. But I can give you more specifically, we're expecting one new store in Q1 and then four in the second quarter, seven in the third quarter, and one in the fourth quarter. And then I think importantly to note that the expansions, which will primarily be the, at least the largest of which will be our two Manhattan expansions, are scheduled for the back half of next year.
spk06: Understood.
spk14: So if we think through sort of the timing of all of this, Todd, if we're looking at 20 to 25% square footage growth, if we were to think maybe half of that on a run rate on revenue growth or a little bit more than half? Does that seem kind of reasonable given the timing?
spk11: On the retail revenue, I would say a little bit less than that, given the heavy weighting in the back half of the eight stores, eight new stores in the back half. And then there's three expansions, but the two largest Or the Manhattan 1, so it would be a little, a little less than that that we would benefit from next year.
spk14: Okay, that's really helpful. Thank you. And then just a shifting topic slightly in terms of the retail revenue or the revenue growth, let's call it, you know, mid single digits. What is your what's your sort of data telling you around spend per client versus new spend particular or new client, particularly as you're increasing of a digital marketing spend? And to what degree is extending your customer base a key element of that strategy?
spk05: Quarter over quarter, what we're seeing with new clients and existing clients is that the average basket size is generally consistent. What happens is when the new clients come aboard and they become returning clients, we see the frequency of their visits increase. What we're looking to do is acquire clients and then also retain and cultivate a loyal client base. We have a very loyal clientele in Canada, and our objective is to achieve that same level in the U.S. So we see that we expect to see client growth continue. That's what we're aiming for. And as far as overall spend, We believe that that will remain consistent across time, over time, and between two groups.
spk06: That's great. Thank you.
spk02: The next question comes from Martin Landry with Stifel. Please go ahead.
spk08: Hi. Good afternoon. I wanted to touch on your two main markets, the U.S. and Canada. your revenues in the US were up 4.2% year-over-year. It's a slower pace than what you've generated in Canada, despite the fact that most of your store openings were in the US in last year. So I was wondering, is there anything that could explain why Canada outperformed the US in terms of revenue growth during the quarter?
spk06: Overall,
spk05: Overall, as we said, what we see is there is macroeconomic pressure on the consumer across the board, across both geographies, across both channels. There may be some country differences between the two countries. Overall, that's what we're seeing. What I will say in Canada, with our very loyal clientele, we do have a very, very loyal following. We're very well known and loved in Canada. And we are getting more famous in the U.S., but what we're seeing is that our new client growth did moderate over the period, and existing clients were shopping less. So we see that there's a period where things have moderated, and what we see is that this is likely reflected from the macroeconomic pressure on the consumer.
spk10: Okay. And do you expect that trend to continue into Q4 for the US? Hi, Mocha. Todd here.
spk11: No, what we're seeing actually is a bit of a pickup in the fourth quarter in trends in the United States. And I think, you know, you could also look at just the lapping. The U.S. had meaningful comps over the last two years. And so that's also making it even tougher to compare. But we actually have seen those trends start to turn in the fourth quarter.
spk06: Okay. Okay, that's helpful. Thank you. The next question comes from Mark Petrie with CIBC.
spk02: Please go ahead.
spk12: Yeah, good afternoon. I know it won't be until next month where you're back to sort of normal levels on new items, but you did call it out as a benefit in Q3, and just hoping you can expand on that a little bit, specifically how the performance varied, if at all, between Canada and the U.S., as well as across categories and brands.
spk05: Hi, definitely. I wouldn't say that there was a notable difference between the two countries, but what we did see this quarter is that compared to last year, if you look at it in terms of the contribution to overall sales, newness doubled from last year, same time last year.
spk12: Yeah, okay. Okay, perfect. And then following up on Irene's question, obviously the flagship stores are a big part of the square footage growth for fiscal 25. I know you secured attractive rent deals, and that goes a long way in terms of supporting the financials for those locations. But how are you thinking about the sales productivity of that space versus your prototypical store?
spk05: These flagships, there's a very important brand propelling factor with these flagships. Where they're located, as we've shared, are some of the best real estate in the U.S., if arguably North America. So the positioning of the actual physical location of these stores is very important to our overall marketing and brand awareness. campaign, if you will, as we expand in the U.S. In terms of actual productivity, I would point to what our existing expansions so far have indicated, which is when we expand a store like the one we did in Boston, we see that the overall contribution increases as a result of the increased square footage because it allows us to showcase more product in a very elevated everyday luxury fashion. It improves the shopping and client experience because there's more space. We can have more fitting rooms. This is generally a nicer client experience. I've got to give a shout out to the leasing team that negotiates great leases for us that allows us to have an overall higher contribution on the bottom line. Between the total productivity of the stores and the lower rent per square foot, it just is meaningful contribution. So we know that our boutique expansion is a meaningful contribution to our overall sales.
spk12: Okay, that's very helpful. And if I could ask one more, I guess for Todd, What was the impact of the efficiency work in Q3, and how should we think about the benefit flowing through in Q4 and then in fiscal 25? Sorry, Mark.
spk11: You said efficiencies and then of something. It was inaudible what you said.
spk12: Well, I just – yeah, sorry. I mean, you guys have been working on a whole host of projects regarding efficiency, and I think you modified it. How much of that flowed through in Q3? How should we think about the benefit in Q4 and next year?
spk11: Yeah, so for next year, which would be inclusive of things we're seeing this year, is $60 million is the benefit we're expecting, but it won't be completely incremental because we're expecting about $30 million of the benefits. this year uh and so that that's coming primarily in the third and fourth quarter so you can think of that as approximately 15 million dollars of benefit in q3 and 15 million in q4 and then the remaining 30 will come next year and then potentially some additional okay understood thanks for all the comments all the best
spk02: The next question comes from Steven McLeod with BMO Capital Markets. Please go ahead.
spk06: Thank you. Good afternoon.
spk07: Just wanted to ask a question about SG&A. When you think about the Q4 guidance that you've laid out, I would have expected to see a bit more SG&A leverage So I'm just curious if there's anything that you can point to that's happening in Q3, or sorry, Q4 on the SG&A side.
spk11: Yeah, so specifically, as we said, we are expecting 250 basis points of pressure in the fourth quarter, which is consistent with the third quarter. It's really from the same items, which is investments in retail and support office talent, digital marketing initiatives and support office expansion. And we have left the guidance for the year at 300 basis points up. So I think that's what you're driving at given the improvement that we saw in Q3 against our guide. But I think we just felt from a conservatism perspective that it made sense not to flow through that benefit into the full year. But it will be the same pressures in the fourth quarter that we saw in the third. That's how we're planning for it.
spk07: Yeah. Okay. Okay, great. And just in terms of the sales by channel, you gave some color on sort of what you saw in Q3. And I'm just wondering if you can give some color on what you're seeing on a quarter-to-date basis in Q4 in terms of by geography and channel. Like, are you seeing that sort of positive, same sort of sales growth trend continuing into Q4?
spk11: Yeah, our trends in Q4 have continued. The momentum has continued effectively from the third quarter. So we're pleased with that and happy with the start of the quarter. Obviously still a lot of weeks to go, especially with the additional week, but we're very pleased with what we're seeing right now.
spk07: Yeah. And able to comment just around what you're seeing specifically by channel and geography?
spk11: We think we'll get into that detail when we report the quarter.
spk05: But it is consistent from the third quarter leading into the fourth. There's been no March changes all of a sudden going from one quarter to the next.
spk11: Yeah, save a little bit of pickup in the United States, as we said.
spk07: Yeah, yeah.
spk06: Okay. Okay, that's great. Thank you very much.
spk02: The next question comes from Michael Glenn with Raymond James. Please go ahead.
spk09: Hey, thanks for taking the question. Just going back on the 500 basis points for fiscal 25, have you provided or given an indication about how to think about that, bucket that between gross margin expansion and SG&A leverage?
spk11: Yeah, a lot of the components hit hit gross profit. So if you, you know, walk through them, 150 basis points from IMU improvements, obviously that's all within gross profit. The 150 to 200 basis points in our smart spending initiative, that's about 60% SG&A, 40% gross profit. And then the 125 basis points pick up from transitory costs subsiding is effectively our distribution center uh in toronto is that ramps and we we have our temporary warehousing costs fall off um which is sits within gross product cause so it affects the gross profit line and then our pre-opening lease amortization is the other transitory cost so that's also uh you know an improvement to the gross profit line so the majority of the 500 is hitting the gross profit line and
spk09: but you would expect to be able to leverage SG&A next year? Is that a fair assumption?
spk11: Yeah, there is some improvement from SG&A related to the Smart Spending Initiative, as well as leverage from our higher revenue. So, you know, there is, obviously, this is all contingent on the revenue levels that we achieve next year.
spk09: Okay. And then... What kind of commentary can you provide around the competitive environment that you're seeing? Are you seeing increased competition in your core markets? How have things evolved over the past year?
spk05: Yeah, my comments on the competitive landscape is essentially we still continue to see no one that can compete with us on the breadth of our products. or on the quality care and attention that go into our products or our boutiques. We have operated for decades. We've always operated in a competitive environment. And while as we become more well-known and get more famous in the U.S., certainly we are coming up on competitors' radars. And I just see this as an opportunity to double down on our marketing and communicating effectively to ensure that Our everyday luxury value proposition is as well understood by the U.S. and prospective clients alike as it is with our existing oil clientele.
spk06: Okay. Thank you for taking the questions.
spk02: Once again, if you have a question, please press star, then 1. The next question comes from Alice Yao with Bank of America. Please go ahead.
spk04: Hi. Thanks for taking the question. Can you give an update about how much outerwear is as percent of total sales and what percentage of that is the Super Puff franchise and also how outerwear sales have trended versus last year given the recent warmer weather in both U.S. and Canada? Thank you.
spk05: Well, I won't tell you exactly how much outerwear makes up as a percentage of our sales. We never share how our categories stack up. But what I will say is overall, our outerwear sales were positive to year over year. Certainly, this is driven by the Super Puff. That is a product franchise of ours. But as mentioned, our wool coats received a lot of attention just given their high luxurious quality and attainable price point. So we're super pleased that the Super Puff continues to perform well for us. And as I said, we still saw strong demand for our wool coats. That said, Outerwear across the board performed very well. And I'll remind you that no one brand, including the Super Puff, accounts for more than 10% of our annual sales, generally speaking.
spk04: Thank you. And if I may, one more, just can you also talk a little bit about the sales trends by month and if Black Friday was stronger than Christmas and also if certain categories and sub-brands did better than others? Thank you.
spk05: During the quarter, we had sequential improvement, I guess I would say, throughout the quarter with November being our best month. What we're finding with our holiday period essentially now starting in Black Five Day, things have kind of evened out between the Black Five Day period versus Boxing Week, which historically is still very big in Canada. historically was our equivalent of Black Friday, but things have kind of... What I would say is we saw it smooth out a little bit and not be so peak and valley, if you will, as we've seen it in the past. Certainly, we broke a lot of records, as Todd mentioned in his prepared remarks. broke a lot of records on Black Friday, including it being some of our top sales days in our retail stores ever. That includes even in Canada as well in a couple of cases. So we just kind of continue to see Black Friday be a big event and it just being an extended long period between November into December.
spk06: Thank you.
spk02: This concludes the question and answer session. I would now like to turn the conference back over to Beth Reed for any closing remarks.
spk03: Thanks again to everyone for joining us this afternoon. We're available after the call to answer further questions, and we look forward to providing another update at the end of next quarter.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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