Thank you for standing by. This is the conference operator. Welcome to Aritzia's Second Quarter Fiscal Year 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.
I will now turn the conference over to Carly Bishop, Executive Manager, Office of the CEO. Please go ahead.
Thank you, Carl, and thanks for joining Aritzia's 2nd quarter fiscal 2022 earnings conference 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 Engeldew, our Chief Financial Officer. Following management's discussion, we'll host 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 The COVID-nineteen business operations in fiscal 2021, certain references to our pre pandemic results in the Q2 of fiscal 2020 have been included where management deems to be a more meaningful measurement of performance. The uncertain and dynamic nature of COVID-nineteen and its ongoing impact could continue to materially alter our performance. We would refer you to our most recently filed management discussion and analysis under 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 and A are available on SEDAR and the Investor Relations section of our website at aritzia. I will now turn the call over to Brian.
Thank you, Carly, and thank you for joining us this afternoon. I'm incredibly pleased to share with you, together with Jennifer and Todd, our results for Q2. The outstanding performance of our brand continued through the Q2 of fiscal 2022. We are seeing accelerated momentum across all geographies and all channels As our United States business grew at an unprecedented pace, our e commerce channel continued to surge and sales in our boutiques surpassed Our most optimistic expectations exceeding pre pandemic productivity levels. For me personally, these results speak to our world class team, We are deeply grateful and proud of for facilitating our rapid growth of unprecedented demand, while delivering exceptional everyday luxury experience All on the backdrop, supply chain disruptions, labor shortages and the ongoing effects of COVID-nineteen.
Looking forward, I could not be more excited as we focus on our fundamentals and invest in the infrastructure required to enable our growth for years to come. While Todd will provide a detailed financial perspective, I'm extremely pleased to share our performance highlights for the 2nd quarter. We delivered record net revenue of $350,000,000 with growth of 75% or $150,000,000 from $200,000,000 year and 45% or $109,000,000 compared to $240,000,000 2 years ago. I would also like to note that for the first half of the quarter, Ontario, which comprises 50% of our Canadian boutiques was closed. We continue to advance our business and brand awareness in the United States at an unprecedented pace.
As we develop deeper relationships with our existing and many new clients, net revenue in the United States increased 174% from last year and 108% from 2 years ago. The United States now accounts for 42% of our revenue. Importantly, over the last 12 months, our active clients grew more than 50% in the United States. Our e commerce channel continued to surge As net revenue increased 49% from last year and 171% from 2 years ago, accounting for 37% of our revenue in the quarter. Our boutique sales were also exceptional with our entire retail business open to clients as of the 2nd week of July and capacity restrictions lightened.
This positive resurgence resulted in retail comparable sales growth of 60% from last year and 14% from 2 years ago, exceeding pre pandemic levels in both Canada and the United States. Our ongoing investment to optimize our everyday luxury experience of engaging service, beautiful products, aspirational environments and captivating continue to drive our business. In e commerce, we further enhanced our digital experience with new features and functions being added on a regular basis. We also delivered on our omni capabilities initiative. We launched store inventory visibility, Allowing clients to view store inventory availability while shopping online.
At the beginning of August Sorry, at the beginning of August. So far, this has yielded positive results and contributed to our boutique sales surpassing pre pandemic levels. Jennifer will speak to this and the remaining omni initiatives in a few minutes. In addition to reopening our entire store fleet in Q2, We expanded our presence in the United States. In the quarter, we opened 2 new boutiques in California, 1 in Topanga and another one at The Grove in West Hollywood, to outstanding client response.
As the performance of our new and existing boutiques continues to exceed all of our expectations. In Canada, we expanded our Sureway Gardens boutique in Toronto with tremendous success as well, gracing our record for a new boutique opening that day. With boutiques open and capacity restrictions eased in the majority of markets, our team is Excited to continue welcoming new and loyal clients, surpassed only by our clients' enthusiasm to enjoy our everyday luxury experience. Shifting to product, our clients responded exceptionally well to the launch of our fall winter season as our team delivered on meaningfully extending our Assortment breadth. With new styles and depth, with new colors, sizes and lengths across our various brands and categories, Accomplished while navigating the pandemic's continued supply chain disruption.
To grow on our already strong full price selling strategy, As we did with our Spring Light Nutsale, we made the decision to not hold our traditional fall layered on sale. While this may put a little pressure on our top line, importantly, it will result in improved gross margin And motivate our clients to purchase our beautiful products at full price. As we have previously stated, We completed our expansion in the men's as we closed the Reining Champ deal in late June. The Reining Champ team Have done an excellent job continuing to independently manage the business as most of our resources have been focused on our rapid growth. We are now in the process of prioritizing where we leverage our world class infrastructure to grow the Reining Champ business.
We continue to develop our suite of marketing capabilities as we welcome Dana Gers as CMO. We expect her exceptional leadership and particularly her digitally native I'll now turn it over to you, Jennifer.
Thanks, Brian, and good afternoon, everyone. Our strong Q2 performance is underpinned by our efficient operations and best in class infrastructure, which we continue to build and enhance to enable our growth. Today, I'll update on 4 areas within our operation. First, our supply chain second, our digital infrastructure investments third, our talent landscape And 4th, our progress on ESG. Through the quarter, we successfully minimized the impact of pandemic related global supply chain disruptions through a geographically diversified supply chain, strategic inventory management and the use of expedited freight.
Our production is geographically diversified in facilities across numerous countries, all of which Our operating at between 80% to 100% capacity and we did move some production between facilities where it made sense. Our inventory management measures included early anticipation of the need for more inventory and continuing to closely monitor Our projected inventory requirements. On the freight side, we are strategically increasing our use I've expedited freight by 3 to 4 times in response to ocean shipping timelines that have doubled compared to a year ago. While the cost of this approach is meaningfully higher, it's well worth it in light of our sales momentum. We'll continue to proactively carry higher inventory balances and use expedited freight to mitigate the manufacturing and freight challenges that are expected to continue for the foreseeable future.
On our Q1 call, we confirmed our plans I'm pleased to report that the conceptual design of this exciting new DC is complete and we just broke ground at the end of last month. And during the quarter, we continued to optimize our clients' digital experience with further expansion to our product assortment online and several notable upgrades. As Brian mentioned, we launched Store inventory visibility known as SIV at the beginning of August, providing clients the ability to search product availability in our boutiques. The performance so far is exceeding our expectations with an encouraging lift to sales. As our clients use SIV, the volume The product availability inquiries to our concierge team has declined by 36%, allowing them to increasingly focus on higher value inquiries and outbound clienteling.
We continue to enhance Our technology infrastructure recently completing the following key implementations. We went live with the upgrade of our warehouse management At our Vancouver DC, this is a meaningful milestone that allows us to continue to scale and is a prerequisite For our new Toronto DC, we implemented Phase 2 of our product lifecycle management system to support product expansion. And on October 6, we successfully transitioned our order broker system in our point of sale to SAP. This ensures we have the right foundation to launch the next phase of our omni channel capabilities for which we have engaged a market leader in omnichannel services. This next phase, which will include our buy online ship from store And our buy online, pick up in store functionalities will roll out in due course, building on our learning and early positive results from SIV.
With our business flourishing, especially in the U. S, our peak season just around the corner And talent in high demand, we continue our full court press on talent retention and acquisition. In short, We're confident in our ability to retain our high performing team and attract the dedicated people needed to maximize the season ahead as well as our long term growth. Our employer brand is Strong. We have a compensation structure second to none, including top of the market wages, a suite of exceptional benefits and an energized stimulating work environment.
Throughout the pandemic, we strengthened our reputation for caring for our team. In addition to numerous key management positions, we are actively recruiting And over 800 seasonal positions at our DC and concierge as we ramp up for our peak period, all of whom are important Aritzia Brand Ambassadors and many of whom may join us permanently. As a matter of fact, I was actually hired back in November 1987 for seasonal work at that time and I'm still here. Moving on to ESG, we disclosed our climate related performance to CDP climate change for the 2nd year and are developing a robust Climate strategy with science aligned targets. We maintained our carbon neutral operation status with the purchase of offsets and renewable energy credits and are excited to have launched a 0 waste pilot program at select stores to minimize our waste impacts.
Our DE and I calendar has been busy with pride celebrations in June and honoring days of significance in our communities. With the help of expert counsel, we continue to focus on change from within through allyship and positive everyday activism. World Mental Health Day underlined the importance of mental well-being And as part of our ongoing commitment to wellness, we are expanding our program for our people and finalizing new partnerships in this space for women and girls On governance, we're refreshing our sustainability materiality assessment and building a Board level committee specifically dedicated to environmental and social matters. Having successfully navigated the last 18 months, the Aritzia leadership team is looking forward to building on our success and looking forward to growth and expansion. Barring any unforeseen challenges beyond those we are discussing today, We plan to share our multiyear business strategy with you in the first half of the next fiscal year.
In closing, I'm proud that our infrastructure remains the bedrock of ongoing successful operations with our people at The heart of it. We simply would not be where we are today without them, all 5,000 plus, and we deeply appreciate their ongoing tremendous hard work and unwavering dedication. I'll now turn the call over to Todd to discuss our financial results.
Thanks, Jennifer, and good afternoon, everyone. As Brian noted, our outstanding performance in the 2nd quarter reflects Accelerated momentum across all geographies and all channels. As a reminder, on June 20 5th, we acquired 75% of the premium athletic wear brand, Reigning Champ. Their results are consolidated within our financials from the date of acquisition. For the Q2, we generated net revenue of $350,000,000 an increase of 75% or 150 in dollars from $200,000,000 last year and 45 percent or $109,000,000 from $241,000,000 in the 2nd quarter 2 years ago.
We are seeing meaningful growth in the United States With net revenue in U. S. Dollars of 118,000,000 in the quarter, growing 174% or $75,000,000 from last year and 108 percent or $61,000,000 from 2 years ago. Our business in the United States continues to grow at an accelerated rate, comprising 42% of net revenue in the Q2 of this year compared to 30% last year and 31% 2 years ago. Our total e commerce business accelerated with net revenue of $130,000,000 An increase of 49% on top of the 82% increase in the Q2 last year.
E commerce penetration in this quarter was 37%, up significantly from 20% in the Q2 2 years ago. Retail revenue was 220,000,000, an increase of 95% from the 2nd quarter last year and 14% from 2 years ago. This was despite approximately 50% of our boutiques closed in Canada for the first half of the quarter. Sales in our owned boutiques were exceptional with comparable sales growth of 60% for fiscal 2021 And exceeding pre pandemic productivity levels in both Canada and the United States with total retail comparable sales up 14% from fiscal 2020. These top line results exceeded our expectations for the quarter, with the pace of boutique recovery in Canada occurring meaningfully faster than expected after having fully reopened by July 12, as well as Strong demand for our fall collection as our various product initiatives began to take hold.
We delivered gross profit of $156,000,000 up 122 percent from $70,000,000 in the Q2 of fiscal 2021. Gross profit margin was 44.6 percent in the quarter, expanding 9 40 basis points from 35.2% last year. The improvement in gross profit margin was primarily due to leverage on occupancy costs, lower markdowns and the strengthening of the Canadian dollar. These gains were partially offset by higher expedited freight costs and lower lease abatements. When compared to fiscal 2020, our gross profit margin expanded 500 basis points, driven primarily by lower markdowns, The strengthening of the Canadian dollar and leverage on occupancy costs.
These gains were partially offset by higher warehousing and distribution center costs from higher e commerce volume and higher expedited freight costs. SG and A expenses in the quarter were $92,000,000 or 26.3 percent as a percent of net revenue compared to 30.1% last year. The 380 basis point decrease was primarily driven by leverage as our boutiques returned to pre pandemic levels and our e commerce business continued to grow. When compared to fiscal 2020, our SG and A as a percent of revenue increased by 120 basis points. The increase was primarily driven by continued investment in talent across e commerce, marketing and IT to support the future growth of our business.
Overall, adjusted EBITDA in the 2nd quarter was $73,000,000 An increase of 4.94 percent from the $12,000,000 last year and 100% from $36,000,000 2 years ago. Adjusted EBITDA was 20.8 percent of net revenue compared to 6.1% last year and 15.1 percent 2 years ago. Inventory was $182,000,000 at the end of the quarter, up 29% from last year. We generated $77,000,000 of free cash flow during the 2nd quarter, We repaid our $75,000,000 term loan and funded the $33,000,000 initial payment for the acquisition of Reining Champ, finishing the quarter with $132,000,000 of cash and 0 drawn on our $175,000,000 revolving credit facility. The initial payment for the acquisition of Rainchamp was funded with cash on hand based on a total enterprise value of approximately $63,000,000 2 liabilities have been added to our balance sheet related to the transaction.
The first relating to the holdback amount due from the purchase of the initial 75% and the second for the remaining 25% equity interest held by Rainychamps Management shareholders. Turning to our outlook. We're extremely pleased that the strength of our business across all geographies and all channels has extended into the Q3. We expect net revenue for the Q3 to be in the range of 350,000,000 to $375,000,000 As Jennifer discussed, we continue to navigate the global supply chain disruptions and work to mitigate their impacts. Our mitigation strategies are ensuring we have the necessary inventory levels to deliver on Or exceed our revenue targets for the remainder of the year.
Therefore, despite the supply chain challenges, We are increasing our full year outlook and now expect net revenue to be in the range of 1.25 1,000,000,000 to 1,300,000,000 up $100,000,000 from our previous outlook of 1,150,000,000
to $1,200,000,000
The updated outlook implies a full year increase of approximately 45% to 50% from fiscal 2021. The anticipated increase is led by sustained momentum of our business in the United States, Continued growth in our e commerce business and the strength of our boutique performance. We expect gross profit margin to be relatively consistent with pre pandemic levels from the 3rd Q4 of fiscal 2020. This reflects leverage On fixed costs and the strengthening Canadian dollar, offset by meaningfully higher expedited freight costs, higher warehousing and distribution center costs and continued investment in talent to drive our expansion strategy. SG and A as a percent of net revenue is expected to increase relative to Pre pandemic levels from the 3rd Q4 of fiscal 2020 as accelerated investments in people, processes and technology more than The leverage on fixed costs.
The increase in the second quarter over fiscal 2020 was 120 basis points and we expect the increase in the 3rd and 4th quarter to be slightly higher. We continue to expect Net capital expenditures in the range of $55,000,000 to $60,000,000 comprised primarily of boutique network growth, Ongoing investments in technology and expansion of our distribution center network. As an additional note, Reigning Champ is still expected to deliver approximately $14,000,000 in net revenue and $3,000,000 in adjusted EBITDA in the second half of the year. In summary, we are excited about the strength of our business in the United States, the continued growth of our e commerce business And the faster than anticipated recovery of our boutiques to pre pandemic levels. While we recognize the pressure from macro headwinds, We remain extremely optimistic about both the short and long term outlook of our business.
With that, I'll now turn the call back to Brian.
Thank you, Jennifer, and thank you, Todd. As Todd just mentioned, we are thrilled with our Q2 results and equally excited for the road ahead. We continue to see strength across all geographies and all channels in Q3 despite navigating the persistent supply chain Client demand across our channels remains robust as we continue to see e commerce growth even on the back of our 89% growth last year. Our existing boutiques remain trending above pre pandemic levels and our new boutiques are outperforming our expectations. In addition, we remain committed to our expansion within the United States and are excited to add boutiques in 4 to 5 new markets over the back half of the year, including boutiques in Las Vegas, Nashville and Miami.
As our business continues to grow beyond our expectations, so does our demand for inventory and As mentioned, we are not immune to the global supply chain disruptions, which are impacting us through select product shortages and challenge shipping timelines. However, we are doing our best to mitigate the impact of these disruptions by leveraging our geographically diversified Supply chain, strategic inventory management approach and increasing the use of expedited freight. We are confident we have the inventory to deliver and or exceed our increased revenue targets for the remainder of the year. As discussed earlier, like all businesses, we are also currently experiencing The challenge is the labor market. However, we remain extremely competitive due to our incredible important brand, industry leading wages and benefits and energizing world class workplace environments.
Looking beyond Q3, we will continue facilitating sustaining our rapid growth. We'll do this by focusing on our fundamentals and staying committed to delivering our much loved everyday luxury experience to all our clients across all geographies and all channels. And as always, continuing to invest in the infrastructure required to enable our growth for years to come. We're deeply aware, of course, that what has made all this possible is our clients' enduring loyalty to Aritzia and our team's relentless focus on excellence and teamwork. For that, I could not be more grateful Nor could I be more excited about our future.
Thank you for joining us today.
Thank you. We will now begin the question and answer session. The first question comes from Mark Altschwager from Baird. Please go ahead.
Good afternoon. Nice quarter. Really great to see the ongoing momentum. So I wanted to ask about growth in the Really pretty incredible seeing the 95% growth versus fiscal 2020. I think that's over double the rate of the boutique So I was hoping you could just talk a little bit more about what's working from a marketing perspective that may be accelerating the brand awareness and overall growth?
And how should we be thinking about the sustainability of the growth rates in the U. S. That you've been delivering year to date?
Thanks, Mark.
Yes, I mean, we're pretty excited about our U. S. Business. We've been in the U. S.
Since 2007 and Although we are growing every year, we've never seen growth like this. I've told my team and everybody here is aware, When you see your growth growing, you're probably doing the certain pieces, you're probably doing a few things right. Not to be Too enthusiastic, but I think we're doing a ton of things right now in the U. S. We're opening incredible stores.
Our e commerce business is doing really, really well. Our product we have our product assortment has improved, It isn't easy, but we are doing a lot of things. I mean, we've added these customers. We just don't see our business in the U. S, We actually see it getting stronger.
I mean, we're opening these stores, we're opening in new markets and never be had exposure to Aritzia. And when you think about it, a lot of them haven't traveled to In the last 2 years because they've been keeping close to home. So when we're opening in Las Vegas, we're opening in Nashville, we're opening in Miami. There's lots of other new locations down in the U. S, Atlanta and Fort Lauderdale.
And there's a lot of great shopping We see it continuing on the same pace it has. So we're super excited about it.
Great. Thank you. And maybe a follow-up for Jennifer and then Todd. I guess, first on the supply chain, and you sound pretty confident that You're going to be able to manage through some of these headwinds through the remainder of the year. Just any additional color you can give us on how you're thinking about Spring inventory flows and how those might be impacted by some of the production issues we've been reading about.
And then raw material costs, cotton has been a big topic, but obviously pressure across a lot of commodities. Just any color on how you're managing through that and any Change in philosophy on price increases given the inflationary backdrop. Thank you.
I'll take that because it's Product related, so we've expedited our similar spring deliveries because we need them before the end of the year. We have some deliveries are slower and then we're expediting some of the spring deliveries where we actually do have availability and they haven't been So we're needing to get that inventory in. So the spring, We should be okay. I'm not saying we're not I'm not saying we're immune to the challenges. We have shortages.
We have had shortages throughout this quarter. They're probably getting worse. They're not Probably they are going to be worse over the next sort of 6 weeks. And we see these shortages continuing. And as Todd and Jen have mentioned the shortages are twofold.
They're 1, because we have factory disruptions through the effects of COVID in some of these Countries that we're dealing with and we're doing business with. And then the second thing is the freight Times and shipping times are exponentially longer than they were. So it's a double whammy. We're not immune to it like anybody else. We don't have a secret formula at all.
But as you I was questioned 9 months ago at the well, it was 6 months ago about our increased inventory levels. We made a decision to increase our inventory levels a year ago and it wasn't in anticipation. I'd love to say we had a crystal ball on this Supply chain shortages, we did not, but we increased our inventory because we just felt our business was we had momentum in our business. We thought we were doing a lot of things right. So We went bullish on our inventory and it seems to have paid off.
So we're not immune to it. As Jen said, we are sort of working around and mitigating as best we can. It's not inexpensive doing so, but at the end of the day, we'll make more money in mitigating and investing in this Then we will if we didn't. So it's going to affect us for sure. It already has affected us, but We think we can maybe do better than most people out there.
Raw material prices, one of the things that's been sort of as I've shared on this call, I mean, something is $100 In U. S, it's or in Canada, it's $100 in U. S. And as our product shifts more and more sales come out of the U. S, We already are getting built in margin increases to some degree.
Now these are going to get mitigated quite a bit from Sure. And raw material costs. But we think we're okay for now. I think there's a lot of mixed feelings on Inflation, I'm not sure if there's mixed feelings that there isn't going to be, it's really mixed feelings on how much inflation there will be in the marketplace. We're seeing it everywhere.
We're seeing it's costing more money to build our stores. It's costing more money to make our products. It's costing more money to ship our products. It's costing more money to hire people and get them in your on your teams. It's costing more everywhere we look, it's costing more money.
But As you see with our profitability in the second quarter, we've got a pretty darn good business That is extremely profitable. And as we get some more and more product sold in the U. S. And as
The next question comes from Mark Petrie from CIBC. Please go ahead.
Yes, thanks. Good afternoon. Obviously, tons of momentum in the U. S. And growth well ahead of your plans.
Does that change how you think about the pace of store openings? And I know the GTA distribution center that you've broken ground on is to help partly to help support The U. S. As well, but I guess the same question about your distribution infrastructure
to sort of support this momentum. I'll take the retail. I'll pass the DC off to Jen. The retail, yes, I mean, we're focused. Most of our stores and new openings are focused in the United States and into some of these Markets I've suggested, we don't have a store in Tampa Bay.
We do not have a store in Fort Lauderdale. We do not have a store in The new markets are about to open in Nashville and Las Vegas. We do not have stores in Atlanta, we do not have a store in Phoenix. I mean, there is countless cities that we do not have stores in the U. S.
And that's what's so exciting about our growth opportunities is Not only do we have the opportunities to open these stores and do great retail sales, but the bump that we get in e commerce sales and then just a whole overall macro effect of Doing so, it's fantastic. Lease rates are still competitive, not necessarily because I think the ship sailed on the sort of COVID bargains, but what hasn't sailed on leasing is the fact there's still not that many people out Stores and expanding stores. So supply and demand is tilted in our favor meaningfully still. I'll pass over the rest to Jen as far as D. C.
Goes.
Thanks for your question, Mark. We talk about Trying to look into the future all the time, particularly when we're talking about planning DCs. We've had lots of analysis and lots of projections and many different Kind of scenarios that we've run through and I would say, how to answer your question is that with the Toronto one and with actually all of our DCs, we have a planning horizon that So it's out as far as 7 to 8 years. So right now we're looking at a planning horizon that takes us out to fiscal year, I think, 2028 And it's generally using our growth projection. I suppose if our growth excels higher than Expectations, it just means that planning horizon is shortened and obviously we're monitoring it as we go all the time.
And We've talked about being put in a high class problem situation where we might be having to expand the DC sooner than we had planned and we do view that as a Hi, class problem. So right now, not worried about the capacity for the Toronto DC. In fact, I think We are leasing space. It's a little bit bigger. We were talking about subleasing a portion of it.
We probably won't do that now. And we think that We're well taken care of at least for the next 3 to 5 years for sure. The USDC, I'll just add, I talked about expanding the USCC at the 3PL about a year ago. We have lots of space there to grow into. So not an immediate concern at this point in time.
Okay. Appreciate the comments. I guess, Brian, just a follow-up on Specifically, the U. S. Store opportunity, I mean, I certainly appreciate that there's a lot of markets, that you guys are not serving today.
And I guess that's Obviously, the opportunity. I guess my question is more specifically, do you think there's an opportunity to accelerate the opening pace Kind of the 6% to 8% that you've targeted for this year to something higher than that for next year.
I think we potentially could. We were Very hands on and we are very centralized in everything we do. So we not only do leasing in house, We do design in house. We do CAD drawings in house. We do construction.
Everything we do, we do in We contract out the actual building itself, but all the construction management, everything we do in house too. So we do have limitations To some degree and our retail teams have limitations and we can't just open these stores and go hire 30 people, 40 people in the new market and expect them to be able to open and just start operating at The level of customer service that we're accustomed to and our customers are accustomed to. So we have to be measured in our growth here and We're going to continue to be measured on our growth here. And quite frankly, as you can see by the quarter and so far this year, our business We've been growing at a more than a very healthy growth rate without expediting our store openings. So Perhaps maybe if for whatever reason that might slow, but we don't see that happening.
So while our business is growing at these growth rates as We don't see any need to actually accelerate it anymore and would think that logistically it might pose some challenges and us continuing to deliver everyday customer Everyday luxury experience to our customers.
Okay. Appreciate it. I also wanted to ask about Your margin outlook into next year or even potentially beyond, obviously, there A lot of tailwinds just given the leverage, the sales leverage, but also sort of beneficial channel and geography mix, But also headwinds as you continue to face some of the supply chain challenges, but also continue to invest to support sort of longer term growth. So I guess just thinking about the next year or 2, do you think there is a meaningful opportunity to see margin leverage? Or would you expect some of these headwinds and the choice to continue to invest in longer term growth to offset some of those tailwinds?
Hi, Mark. It's Todd here. Well, you mentioned it in your question. We obviously have Some tailwinds that are driving our margin improvement, whether that's leverage or More markdowns, even the Canadian dollar, but we also have significant headwinds. And the primary form for the next 6 months being the increase in expedited freight.
And so we are seeing additional costs Coming against those the tailwinds that we have and that's why we're expecting gross profit to be relatively flat To FY 2020 levels for the back half of the year. And then going forward, I think it's difficult to say at this point. However, I think we've talked about it before. Over the long term, as our business grows in the U. S.
And e commerce continues to grow, We will see sort of incremental margin improvements over time from that mix shift in our business.
Okay. Appreciate all the comments and congrats on the results.
Thank you.
The next question comes from Derek Lee from Canaccord Genuity. Please go ahead.
Yes. Hi, everyone. So I just want to follow-up on that question on store openings. How far out do you have visibility on new leases? Like, do you take a Jen, you mentioned a 7, 8 year view On the DCs, what is your view now in terms of securing leases over the near term for new stores?
I'll let Brian answer that, that stores.
Yes. So we have a 7 stage progress or process that starts with Identifying where we want to open a store to sort of picking out where the location and particular locations are within that Shopping area or shopping center to negotiations to finalizations. We have a It's about a 6 or 7 step process and approvals and things with our leases. And so we're working on leases. We have some leases come up We get a store presented to us because there is a we had an idea of a Shopping center, we wanted to be in there and for whatever reason there was no availability in that shopping center and all of a sudden availability happens Someone goes bankrupt or someone wants to move and be in a bigger store or smaller store and we get very some very short notice on that We have to scramble.
Other times, for instance, we just opened in North Park in Dallas, which has been an exceptional opening for us. We did that at least 3.5 years ago. So, I think that it varies in how far out we're We do have a plan. We do have a plan on all the stores. We know exactly what stores we want to open in the U.
S. Over the 5 years, we have them in a prioritized order, typically by volume, not typically by operational ease and because that's how we choose Based on where we're going to do the most volume, we'll figure out how to operate it. But that's how we approach it. And right now, we're presently probably We're in discussions on 15 stores right now. And some of them, they don't have locations for us and some of them they do.
And some of them they do and they're 2 years out. Some of them are 6 months out and so at any point in time, so we don't kind of go, okay, let's open a store and let's negotiate this lease and then let's Open the next store and we'll negotiate this lease or we'll do this, then this, then this. We do a basket of leases in sort of phases and we go out and try to get We negotiate and pursue 10 to 15 leases in order to get 5 or 6 with so many things. There's location in the shopping center, the Size of the location, the shape of the location, there's presence within the center where it's got a big storefront or not. Then there is all the financial terms with leases.
So there's a lot of things have to go right and we just have never Have compromised on what it is with our real estate and that's why I think we have the 2 best corners in Manhattan and certainly Southern Manhattan and SoHo, Some of our new locations, we always had the best locations in Canada and we think we're On that pace now in the U. S, we have world class real estate positioning in the U. S. As well now. And so we're not going to compromise on location.
We're not going to compromise on We're not going to compromise on size. We're not going to compromise on presence. And we're certainly not going to compromise on financial And pay over market because we're in a rush. So we have a process, it seems to work, our business is solid and growing. And so we're just going to continue to do that.
And as we mentioned about marketing, we haven't even put in any marketing initiatives at this point in time. And Our full omni slate of capabilities hasn't rolled out yet at this point in time, and we're not finished with our product expansion. So we have all these other initiatives We think it will help grow our sales, let alone all the improvements to e commerce and everything else. So retail is not our only growth. I just find it ironic because A year ago, even we thought we had too many retail stores and now our retail is booming.
So it's interesting what 12 months will do and quite frankly what 6 Our stores are so closed in Toronto 3 months ago. So we're pretty excited about that now, but We don't want to knee jerk on this. We want to just continue facilitating as best we can in the way we always have.
Okay. No, really appreciate all that color. Todd, maybe just one for you. Just looking At the balance sheet now that you've repaid the term loan, you don't have nothing drawn on the credit facility, you've got $132,000,000 of cash on the balance sheet. Can you just You talk about capital allocation priorities and is there are there any discussions on any return of capital to shareholders?
Yes. Obviously, as we said, Our first use of cash is opening new stores, building the distribution centers we've been talking about, Investing in technology and infrastructure to grow the business. And so we're focused on that today. Down the road, will we look at reimplementing a share buyback or other options? Yes, But we're not there yet.
The next question comes from Irene Nattel of RBC Capital Markets. Please go ahead.
Thanks and good afternoon, everyone. Before I get to the questions I want to ask, just to follow-up on your answer there, Todd. You said yes, but not yet to an NCIB. What would be the precondition that would cause you guys to say, yes, okay, we're ready?
Irene, as Brian just said, we opened our last stores on July 12, reopened our last stores On July 12, and there's still a lot of uncertainty in the environment. So right now, it makes sense for us to Hold on to the cash that we have. And I think once we get clearer and a clear view on the go forward, We would consider it at that time.
That's great. Thank you. So, one of the things that's really interesting is a I think it might have been Brian who made this that you decided not to do one of your fall promotions. You similarly kind Shifted or pulled back on some of your spring promotions. So I was just wondering how you're thinking about, the cadence or the depth of Promotional activity on a go forward basis because in other words, that's what I'm really saying is, do you think it's sustainable?
Like can you guys just Given the really strong demand to kind of shift and pull back a little bit on that promotional calendar.
I think that's a great question, Irene. We've been discussing it and truthfully, we only made And so it was just this weekend that we did not do it. We're just not seeing the Drop in our sales when we're not having these promotions and certainly not a drop in our gross profit and gross margin. We're just not tied at this point in time, we're not really inclined to do it. Maybe we will have one.
The nice thing about being somewhat not necessarily irrational, but random is that people don't wait as well. And so the last thing you want is an expectation and people are waiting. They're only on the weekends, just so we know, just to be clear too and I believe they're only online So, but the fact that people don't wait now because they don't know if they're going to have it, just even by doing that, That fulfills probably 50%, 60%, 75% of what we're going to do is just the customers don't know if we're going to have a sale So we find that helpful as well. But we just haven't I found the need. There was challenges as well because we had a lot of product compared to the time.
We're trying to play a little catch up as well with online sales and trying to drive people to our e commerce website because it used to be 20%, 21%, 15% started these sales, 15% of our business. Where it is now, people are shopping, omni shopping us In both e com and online and in our stores. So that need has gone away as well. So There's a whole bunch of factors that are suggesting that we don't have these sales and it's been great. And what else we did, if I could remind everybody here is that we didn't just not have our fall sale, Our fall layered on sale are spring sale.
We also delayed our ongoing our sale in the U. S, which used to break 3 weeks For our Canadian sales as well last year and we're going to leave that in line with our Canadian too. We wanted to become a more of a full price retailer, particularly in the U. S. And I think we've achieved that now and it certainly hasn't
That's great. That is also extraordinary. So and I guess that leads into the next discussion, which is thinking about all of the input costs, just all of the cost pressures. How do you think About your price points, how do you think about what would cause you maybe to raise pricing on certain items? Do you look at the competitors, so just how do you think about all of that?
I think we analyze our product when it comes in. I mean, what we're going to have to look at it a little bit differently now, Irene, is some of the other Factors and other costs that we're dealing with here that we haven't previously had that aren't necessarily showing up in our landed costs, landed duty paid Our product, I mean our labor and our storage is going to go up, our store capital expenses to build our stores is going to go up. There's other inflationary pressures over and above our product costs that we're going to have to weigh out and figure out where those are going to So I mean there's a bunch of costs and inflationary pressure on freight costs and raw material costs and labor costs overseas That are affecting our land price of our products, but then there's also a bunch of costs as well in the rest of our business. We're just going to have to see where those net out. We're quite happy and they're being offset with our growth in the U.
S. Right now and leverage we're getting because of our Sales, but I think that it's something that we analyze every season when we sit down and price It's all our new product. We sit down every season, look at it and say, okay, what do we need to do? And fortunately, when you it's not just about Product people buy at Aritzia and come to Aritzia. They love shopping in our environments, both online and our stores.
They love the customer service we provide. And there's a whole bunch of different factors in there. So it's not just also a factor on cost of the product. There's a whole bunch of other things that mitigate The price and that's why we're an everyday luxury retailer, not a fast fashion retailer. Our products last And I think our customer, particularly in the U.
S. Knows that now. And so they're prepared to invest in our clothes rather than buy and throw and discard other people's clothes.
Thank you. The next question comes from Stephen MacLeod from BMO Capital Markets. Please go
ahead. Thank you. Good evening. Good afternoon. Lots of great color so far, so thank you for that.
Couple of follow-up questions that I had. You're seeing very strong in boutique and e commerce growth, particularly in the U. S. Can you talk a little bit about how things are evolving with respect to your ability to track customers In online, in boutique and kind of how their spend compares for a customer who shops both channels versus
I'll take that one. So we've been saying for years, I think we've been doing this for decades, we've been able to track our customer Since the '90s, I remember writing it actually on a recipe card and filing it manually. So since we've had an electronic point of sale, we've been tracking our And her purchase history and our transactions, right, but we have that data and likewise for e commerce. So we have the data, But getting it out in a reporting format that we can slice and dice is what we're actually in progress with right now as we speak. So our investment in our data and analytics and with hiring of that new executive earlier this year and building out And building that infrastructure will allow us to report on customer and do some really Insightful customer analytics in very, very short order.
We do have some of that information,
Thank you. We only have time for one more question. The next question comes from Megan Annette from TD Securities. Please go ahead.
Thank you. Good afternoon. As you continue to expand Here in the U. S, just wondering if you're seeing any change in the uptake of e commerce as you continue to open new stores Or does that remain strong as you're entering these new markets?
Have we seen uptake in certain markets when we open new stores in certain markets, you mean, in new markets?
Right. So are you still seeing that halo effect on the e commerce sales?
Yes, we are. 100%, we are. Actually, it may be even greater now. And we don't see it when we open a new store per se. So if we open a second store or third store in the market in Los Angeles, We've been opening a lot of stores in Los Angeles area.
We're now in San Diego, South Coast Plaza in Orange County, we're in Century City, Topanga, Americana brand and The Grove now. So we've gone from we have 6 stores in Los Angeles, So Los Angeles and South Los Angeles now and a few years ago we had one I think. And so We don't see as much when we do fill in stores, but we enter a new market like Dallas or we enter a new market like Vegas that we're going to go into in Miami, we certainly see that. And it doesn't just happen overnight though. It happens It takes a while for the store to get exposed and the momentum, but we see both the store sales grow and we see The e commerce sales growth, but what has surprised us is now there clearly is pent up demand.
We clearly are a brand Right across the United States now. So when we're opening these stores, when we opened our store in Dallas, it far exceeded anything we Conjured up that our sales would be at. And so we're seeing our stores open in these new markets and do So the store itself is doing well and then the e commerce is following right along with it. So It's been our U. S.
Business. I said earlier on the call, our U. S. Business is growing at such a rate that seems that everything right now presently touch what is working
Thank you. This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.