Aritzia Inc. (ATZ:CA) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary highlights strong financial metrics, including increased revenue and EPS guidance, and gross margin expansion. The Q&A section reveals positive developments such as effective marketing, growing brand awareness, and strategic store expansions. Despite some SG&A pressure, the company's proactive investments in technology and distribution are seen as long-term positives. Overall, the sentiment is positive, with optimistic guidance and strategic growth plans likely to boost the stock price in the short term.
Key Financial Performance
Net Revenue $812 million in the second quarter, a 32% increase year-over-year. This growth was driven by strong demand for products, strategic marketing investments, and new boutique openings.
U.S. Net Revenue $486 million in the second quarter, a 41% increase year-over-year. Growth was fueled by new and repositioned boutiques, strong e-commerce performance, and increased brand awareness.
Canada Net Revenue $326 million in the second quarter, a 21% increase year-over-year. Growth was supported by strong product performance and strategic marketing investments.
Retail Net Revenue $572 million in the second quarter, a 34% increase year-over-year. Growth was driven by high teens comparable sales growth and the performance of new and repositioned boutiques.
E-commerce Net Revenue $240 million in the second quarter, a 26% increase year-over-year. Growth was driven by strong traffic growth, product demand, and digital marketing investments.
Gross Profit $356 million in the second quarter, a 44% increase year-over-year. Gross profit margin expanded by 360 basis points to 43.8%, driven by IMU improvements, leverage on store occupancy costs, and lower warehousing costs.
SG&A Expenses $250 million in the second quarter, leveraging 160 basis points as a percentage of net revenue to 30.8%. Improvement was driven by expense leverage and smart spending initiatives.
Adjusted EBITDA $123 million in the second quarter, a 123% increase year-over-year. Adjusted EBITDA margin expanded by 610 basis points to 15.1%, driven by gross profit margin expansion and SG&A expense leverage.
Inventory $527 million at the end of the second quarter, a 9% increase year-over-year. The company is well-positioned to meet client demand with the current inventory levels.
Cash Position $352 million in cash at the end of the second quarter, with no debt and no draw on the $300 million revolving credit facility.
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Operating Highlights
New Product Launches: Strong demand for summer and fall product lines, including new colors and prints. Upcoming winter styles and collaborations expected to drive engagement.
E-commerce Platform: Launched a new international e-commerce platform in late August, exceeding expectations and targeting tripling sales within two years.
Mobile App: Set to launch a new mobile app, introducing a new shopping channel for clients.
U.S. Market Expansion: Achieved 41% increase in U.S. net revenue, driven by new and repositioned boutiques and strong e-commerce growth.
Canadian Market Growth: Accelerated sales growth for the third consecutive quarter, achieving a 21% increase in net revenue.
Boutique Openings: Opened 13 new and 4 repositioned boutiques in the past 12 months, with 6 more planned in Q3, including new markets like Pittsburgh and Scottsdale.
Supply Chain Adjustments: Relocated U.S. order fulfillment to an expanded Ohio distribution center, tripling capacity to handle increased demand.
Marketing Investments: Increased digital marketing investments, driving nearly 50% growth in U.S. website traffic and double-digit growth in active client base.
Inventory Management: Maintained strong inventory position to meet robust demand, with inventory up 9% year-over-year.
Tariff Mitigation: Implemented strategies to offset 280 basis points of tariff-related headwinds, maintaining margin outlook at 15.5%-16.5%.
Brand Awareness: Focused on reinforcing 'everyday luxury' brand ethos through collaborations, celebrity endorsements, and marketing.
Long-term Growth: Positioned for continued U.S. expansion with only 68 boutiques currently, and targeting fiscal 2027 revenue goals.
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Risk or Challenges
Tariff and De Minimis Exemption Changes: The removal of the de minimis exemption and higher reciprocal tariff rates on Vietnam and Cambodia have created significant cost pressures. These changes have led to a 280 basis point headwind on gross margins for fiscal 2026, impacting profitability.
Supply Chain Adjustments: The operational pivot required to relocate U.S. order fulfillment to the Ohio distribution center due to the de minimis exemption removal has increased operational complexity and costs, although the transition was managed without service disruption.
Dependence on U.S. Market Growth: The company's growth strategy heavily relies on the U.S. market, which could pose risks if market conditions or consumer demand in the U.S. weaken.
Real Estate Expansion Risks: The aggressive boutique expansion strategy, including opening new locations in the U.S., carries risks related to real estate costs, market saturation, and the ability to maintain high performance across all locations.
Economic and Geopolitical Conditions: The company acknowledges that general economic and geopolitical conditions could adversely impact its operations and financial performance, though specific risks are not detailed.
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Guidance & Outlook
Revenue Projections: Net revenue for Q3 is expected to range between $875 million and $900 million, representing growth of 20% to 24%. Full fiscal year 2026 net revenue forecast has been raised to $3.3 billion to $3.35 billion, reflecting growth of 21% to 22% from fiscal 2025.
Margin Projections: Gross profit margin for Q3 is expected to remain flat compared to Q3 fiscal 2025. Adjusted EBITDA margin for fiscal 2026 is forecasted to be between 15.5% and 16.5%, despite 280 basis points of tariff-related headwinds. Excluding these pressures, adjusted EBITDA margin would be approximately 18% to 19%.
E-commerce Growth: The new international e-commerce platform is expected to triple sales within two years or less. A new mobile app is set to launch, introducing a new shopping channel to enhance client engagement and conversion.
Boutique Expansion: Nine new boutiques are planned for the second half of fiscal 2026, including six in Q3. U.S. boutique openings are expected to pay back in less than one year on average, exceeding the target of 12 to 18 months.
Product and Marketing Initiatives: New winter styles, collaborations, and marketing investments are expected to drive client engagement and revenue growth. Strategic marketing investments and digital initiatives are projected to increase traffic and demand.
Operational Adjustments: The relocation of U.S. order fulfillment to the Ohio distribution center is expected to handle U.S. order volume for the next two years, despite the removal of the de minimis exemption.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How confident are you in the high teens guide for FY '27, and what factors could cause over or underdelivery?
A:The high teens guide for FY '27 was updated due to 130 basis points of pressure from tariff changes in Vietnam and Cambodia and the de minimis removal for the rest of the world. Despite these pressures, the company expects to deliver high teens adjusted EBITDA margin, supported by multiyear IMU opportunities, operating leverage, sourcing diversification, supplier negotiations, and spend management initiatives.
Q:Are you satisfied with the margin mix across different categories?
A:The company is extremely satisfied, having delivered 600 basis points of EBITDA expansion, 360 basis points of gross profit margin expansion, and SG&A leverage. Without tariff and de minimis pressure, the EBITDA margin forecast for this year would have been 18%-19%.
Q:What is the level of cash needed to operate the business daily, and how much extra cash do you currently have?
A:The company needs $100 million to $200 million for working capital, depending on the time of year. Currently, the cash balance is around $350 million. The company has repurchased 200,000 shares under the NCIB and 250,000 shares for RSU settlements, targeting a buyback of about 1 million shares this year.
Q:Will the share buyback program accelerate in fiscal '27?
A:The current plan is to buy back shares to offset option exercising. While the cash position is reviewed quarterly with the Board, there are no current plans to increase the cadence of buybacks.
Q:What specific products or categories are performing better than expected, and how is the U.S. market performing?
A:The performance is broad-based with no specific categories or styles standing out. The summer-to-fall transition was well executed, and marketing around the earlier launch in July was effective. In the U.S., brand awareness is growing, and the upcoming New York City flagship opening is expected to amplify this momentum.
Q:What are the plans for new stores next year, and are there any changes to the store experience?
A:The company plans to open a minimum of 12 new boutiques and 4-5 expansions or repositions next fiscal year. Larger store formats and features like A-OK cafes are resonating well with customers. The average store size has increased to 10,000 square feet, showcasing the everyday luxury experience.
Q:What is the long-term U.S. store growth potential, and how many new markets are being entered in fiscal '26?
A:The U.S. store count is currently 68, with a long-term potential of 180-200 stores. In fiscal '26, the company is entering five new markets: Raleigh, Salt Lake City, Pittsburgh, Cincinnati, and two stores in Scottsdale.
Q:Why is there no SG&A leverage expected in fiscal Q3, and what are the strategic investments?
A:Incremental investments in the Vancouver distribution center, RFID, merchandise planning software, digital initiatives, and workforce planning software are driving SG&A expenses. The cadence of project spend this year is higher compared to last year.
Q:What is the quality of new customers being acquired, and how are they expected to perform in the future?
A:New customers are consistent with the existing loyal customer base, which spans Gen Z, Millennials, and Gen X. The company is attracting high-quality customers who are expected to remain loyal and grow with the brand over time.
Q:How is the company addressing weather-related challenges in sales?
A:The company has a broad assortment of products that cater to different weather conditions, ensuring consistent performance. Weather is not cited as a factor affecting business performance.
Q:What are the key opportunities for IMU and spend management?
A:Key IMU opportunities include supplier negotiations, sourcing relocations, seasonal pricing adjustments, and U.S. business mix benefits. Spend management focuses on process improvements and procurement negotiations.
Q:How is the international e-commerce platform performing, and are there plans for a physical footprint in these markets?
A:The international e-commerce platform has doubled daily sales since launch, driven by improved customer experience and conversion. Marketing efforts will begin next month. While the platform provides data on international demand, there are no immediate plans for a physical footprint.
Q:What are the expectations for the mobile app launch?
A:The mobile app, launching at the end of the month, is expected to drive brand awareness, frequency among existing clients, and attract new clients. The company anticipates a significant portion of digital business to run through the app, with initial success measured by download rates.
Q:What is the opportunity for store renovations and relocations?
A:The company targets 4-5 expansions or repositions annually, with paybacks typically in 18-24 months. Expansions often involve increasing store sizes significantly, contributing meaningfully to the real estate strategy.
Q:Are there any price increases planned to offset tariff pressures?
A:Pricing strategy focuses on upholding the everyday luxury value proposition and is not based on tariffs. Any pricing actions are part of broader IMU improvement initiatives.
Q:What is the profile of new customers in Canada?
A:New customers in Canada are consistent with the existing customer base, spanning Gen Z, Millennials, and Gen X. The brand continues to attract younger customers who grow with the brand over time.
Q:What is the implied comp range for Q4?
A:Q4 guidance assumes mid-single-digit comp growth and high single-digit total growth, reflecting strong momentum and a robust setup for success.
Q:What needs to happen to achieve the higher or lower end of EBITDA margin guidance?
A:Achieving the higher end of guidance depends on higher revenue and leverage, while the lower end reflects lower revenue. Mitigation strategies are in place to offset tariff pressures.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on whether the share buyback program would accelerate in fiscal '27, stating that the cash position is reviewed quarterly with the Board but no current plans exist to increase the cadence of buybacks.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Aritzia brand
Canada
Flatiron flagship
IMU improvement
SGA
States location
States strength
United States
Vietnam Cambodia
app month
assortment launch
awareness
boutique United
boutique opening
channel geography
de minimis
demand product
elimination
expense leverage
inventory position
investment marketing
luxury
marketing investment
minimis exemption
opportunity United
order
point pressure
quality product
removal
sale boutique
shopping
summer
teen
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