Aritzia Inc.
Q3 2021 Earnings Call Transcript

Published: 13 Jan 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to Aritzia's Third Quarter 2021 Earnings Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I'd now like to turn the conference over to Helen Kelly, Vice President of Investor Relations. Please go ahead.

[Helen Kelly:]

Thank you, Anastasia. And thank you all for joining Aritzia's third quarter 2021 earnings conference call. On the call today, I am joined by Brian Hill, our Founder, Chief Executive Officer and Chairman; Jennifer Wong, our President and Chief Operating Officer; and Todd Ingledew, our Chief Financial Officer. Following management discussion, we will host a question-and-answer period open to analysts and investors.

[Brian Hill:]

Thank you, Helen. And thank you, everyone for joining us this afternoon. 2020 has been a year unlike any other we have experienced in our 37-year history at Aritzia. As a team, I am proud of what we have accomplished so far, despite the many challenges along the way. Looking beyond this pandemic, we're well positioned for meaningful growth, capitalizing on the unprecedented opportunities ahead. While we believe our results during fiscal 2021 had been impressive, given the circumstances, what’s it's far more important, however, is what they signal about Aritzia post-pandemic. Throughout this year, we progressively adjusted and adapted through that pandemic’s vast challenges. Notwithstanding restrictions as a result of the virus’ impact, we continued to grow our revenue, are in a much stronger financial position, and have accelerated our strategic investments in infrastructure across people, processes, and technology. Our four growth levers, digital innovation of ecommerce, retail and omni-channel capabilities. Secondly, geographic expansion across the United States. Third, development throughout all our product divisions, and four, brand awareness in both the United States and international drove our growth pre-pandemic, has ensured our success mid-pandemic, and will fuel our growth post-pandemic. We will emerge from COVID-19 poised to elevate our much loved everyday luxury experience consisting of our engaging service provided by our outstanding boutique and concierge teams, our beautiful and expanding multi-dimensional product, our aspirational environments throughout our ecommerce and retail channels, and our captivating communications shared by world class marketing campaigns.

[Jennifer Wong:]

Thanks, Brian, for the very kind introduction. And good afternoon, everyone, I trust you had a peaceful holiday season with your families and a chance to reflect and take a moment as we step into the New Year. Looking back, we knew this holiday would be far from normal due to the pressured conditions imposed by COVID-19. Yet I continue to be proud of what our team has achieved through tremendous adaptability, focus and resilience. We successfully executed another strong holiday season, while making considerable progress to advance our long-term strategies. And we achieved all of this while continuing to uphold our industry leading health and safety standards, and ensuring our people whose jobs were affected by mandated COVID measures had income continuity. I want to touch on three areas of focus within operations this quarter. First, the efficient and effective management of our distribution center, and concierge teams to support our peak holiday period. Second, the continued investment in digital capabilities to elevate our omni-channel offering. And finally, this is still meant of our responsibility as a corporate citizen by giving back to the communities where we live and work. We began prepping for our peak holiday period in mid-fall with the hiring and training of nearly 800 seasonal associates across our distribution centers, and expanded our concierge team with the addition of almost 180 permanent and seasonal staff and redeploying 100 retail style advisors from temporarily closed boutiques. By all standards, it was an historic Black Friday for Aritzia. We achieved record breaking performance on several fronts. On Black Friday alone, we recorded nearly 1 million visits on aritzia.com. And over the entire event, our distribution centers picked, packed and shipped more than 1 million units forging new all time records at two of our DCs. While our concierge team facilitated more than 120,000 client interactions over email, chat, and phone. And in particular, I'm proud of the manner in which our DC and logistics operations pivoted in response to industry wide carrier delays. Above and beyond our efficient daily operations, our teams acted with swift operational dexterity, making real-time adjustments to mitigate these carrier delays. Our omni-channel experience was another point of pride in the quarter. As our boutiques warmly welcomed our clients with exceptional service. Our ecommerce team seamlessly mirrored that experience online within rich functionalities, while our concierge team engaged our clients with quality care across both channels.

[Todd Ingledew:]

Thanks, Jennifer, and good afternoon, everyone. We're extremely pleased to have delivered positive revenue growth in the third quarter. The sustained strengthen in our ecommerce channel and the higher-than-expected demand in our reopened boutiques demonstrated our client's enthusiasm for our fall winter product. Our revenue growth contributed to meaningful cash flow generation, leaving us in a solid cash position at the end of the quarter. In the third quarter, we generated net revenue of $278 million, up 4.1% from $267 million last year. As Brian noted earlier, we are pleased with the sustained momentum in our ecommerce channel, which delivered 78.5% revenue growth year-over-year, driven by meaningful increases in both traffic and . We had reopened all of our boutiques by September 9 at the start of the third quarter, despite severe capacity restrictions and reduced operating hours, open boutiques in the quarter trended on average at 81% of last year sales productivity levels, up from an average of 70% in the second quarter. We ended the quarter with a record Black Friday event. Despite the resurgence of COVID-19 and the mandated reclosure of 18 boutiques in Ontario, just five days before Black Friday. Gross profit in the third quarter was $126 million and our gross profit margin was 45.3% up 60 basis points from 44.7% last year. The improvement in gross profit margin is largely the result of higher-than-expected rent abatements and lower product costs. These benefits were partially offset by the deleverage from reduced retail revenue and higher warehousing and distribution center costs that were driven by the growth in our ecommerce business. SG&A expenses were $75 million, up $11 million at 26.8% of net revenue compared to 24% last year. The increase is driven by $5 million for health and safety protocols related to COVID-19 as well as continued investment in world class talent across key areas of the business. Adjusted EBITDA was $55 million for the third quarter compared to $58 million last year. Despite the ongoing impacts of COVID-19, we generated free cash flow of $68 million in the quarter, reflecting our strong revenue performance, as well as prudent inventory expense and working capital management. We ended the quarter with a cash balance of $174 million and access to the $100 million under our revolving credit facility, which was repaid in full during the quarter. Inventory at the end of the third quarter was $138 million, up 12.3% from the end of the third quarter last year. The increase year-over-year reflects higher inventory and transit associated with reorders of highly productive styles to meet demand in the fourth quarter. Due to the strength of our performance in the third quarter, we have less seasonal sale inventory compared to last year. Therefore, we are well positioned with clean inventory as we head into the end of the fall winter season and the launch of spring. Overall, the third quarter was indicative of the strength and resilience of our business. Given the uncertainty in the operating environment, we will not be providing specific guidance for the fourth quarter. Instead, I will share some recent trends in our business performance. Driven by our product offering, which is resonating with our clients evolving lifestyle and our effective marketing strategies. Our ecommerce channel has sustained its strong momentum. Productivity levels quarter-to-date in our own open boutiques are trending similarly with those we saw in the third quarter. However, the severe capacity restrictions and evolving nature of COVID-19 makes it difficult to know, if this trend will continue. Combining these factors with the mandated closure of 39 boutiques in Ontario and Quebec, we expect significant pressure on our retail performance. While the closures are expected to extend through the end of the fourth quarter, we believe our ecommerce business is well positioned to moderate the impact of these measures. Turning to gross profit, we expect continued higher warehousing and distribution center costs from growth in our ecommerce channel. And we have not factored in any benefit from further rent abatements. We also expect to incur higher air freight costs as we chase demand of highly productive styles, all putting pressure on gross profit year-over-year in the fourth quarter. Further, fourth quarter SG&A expenses are expected to see a similar year-over-year increase as compared to the third quarter. The increases are driven by our ongoing operating expenses of approximately $5 million per quarter related to our health and safety protocols, as well as continued investment in talent. These increases will be slightly offset by some variable cost savings from boutique closures. In addition to these puts and takes. We expect deleverage from reduced retail revenue in the fourth quarter will impact gross profit margin and SG&A as a percentage of net revenue. Our strong financial position with $274 million of liquidity in place at the end of the third quarter enables us to weather further uncertainty while continuing to take advantage of unparalleled opportunities and strategically invest in critical infrastructure across our business. Despite near term headwinds, our business model continues to prove resilience throughout the pandemic. Momentum behind our ecommerce channel remains strong and we are optimistic a recovery is in sight. As we look ahead, we remain confident that we are well positioned to capitalize on the opportunities to deliver a profitable growth and create long-term value. With that, I'll now turn it back to Brian.

[Brian Hill:]

Thanks, Todd. As Todd mentioned the resurgence of COVID-19 has led to the temporary reclosure of 39 boutiques across Ontario and Quebec during the fourth quarter thus far. We're working closely with our landlords for further rent abatements in light of the current closures, recognizing this is a difficult time for both parties. We are thankful for their ongoing support and their partnership. There's no playbook for managing through a global pandemic. And the last few months have proven yet again, the virus' unpredictability. Effectively managing the ever-changing impacts of COVID-19 remains our number one priority, as we continue to progress with the many exciting opportunities ahead. With our ecommerce business, significantly expanding its footprint, it is not only a meaningful sales contributor, it drives significant in boutique traffic and in turn, our boutiques drive traffic online. As we expand our product offering and omni-channel capabilities, the seamless relationship between our online business and our boutiques is central to our growth. They work together to service our clients whenever and wherever. To capitalize on this multi-channel client relationship, in addition to continued digital investments online and in our boutiques, we're developing an even broader suite of omni-channel capabilities and further investing in our concierge services. Together, these contribute to an elevated everyday luxury experience. We're also continuing to open new boutiques across North America in increasingly available premier locations, capitalizing on the extraordinary financial terms being presented. By the end of the fiscal year, we will have opened a second Super World boutique in Los Angeles, and opening a new market Honolulu. And for fiscal 2022, we already have a healthy pipeline of new boutique openings with additional opportunities under consideration. We will continue to expand our product lines from new categories such as intimates and swim to extended depth, including sizes, colors and lengths, and breadth more new styles, building on our highly productive programs. All of this contributing to our five-year plan to double our current style count. And as always, we will invest in infrastructure. With the new availability of world class talent, we will continue to grow our high-performance team at all levels, evolve our processes for even greater efficiency and expand our technology suite as required as Jennifer shared. Now, that we have reached the end of our previous five-year plan, we're building a refreshed plan, which we hope to share with you in the foreseeable future. This understandably, the fluid process given the current uncertainty. We're confident however, that fundamentally, our strategic growth levers, as previously discussed are on point. And we have the foundation in place to capitalize on our potential post-pandemic. Close, I would like to thank our people and our clients. Our results over the past several months are testimony to the talent of our world class team, and our clients enduring loyalty. I'm also very grateful that to the enormous effort of our Aritzia community health and safety team, our people, our clients, to-date, there continues to be no confirmed community spread of COVID-19 virus within any of our Aritzia's workplaces. Finally, I would like to thank our investors and everyone on the call. your patience, support and commitment to Aritzia through this uncertain period are deeply appreciated. I look forward to continuing to share our exciting story with you. Helen?

[Operator:]

We will now begin the question-and-answer session. The first question comes from Mark Altschwager with Baird.

[Mark Altschwager:]

Good afternoon and really nice performance through this challenging time. To start out, I was wondering if you could just give us a bit more detail on the revenue trends you're seeing quarter-to-date, were you able to sustain positive revenue growth through the holiday period. Sounds like response to the product has been great. So I'm just trying to get a better sense of the ability to offset those reclosures with the digital business through December.

[Brian Hill:]

It is devastating that unfortunately they time the closures with our -- where the highest volumes are going to occur and I don't think that's an accident, unfortunately, the same way, there's a lot of places got shut down in new year. So for us, they did it. We had a bunch of stores, 18 I believe, Todd, closed just before our busiest week, Black Friday. And then, they closed another all the rest of Ontario and the rest of Quebec just in time for on December 25, that was an early Christmas present for us. On December 25, just in time for Boxing Day and boxing week. So, Ontario is our biggest market, and Quebec is a very solid market for us as well. And so we're going to feel that. I will let Todd get in specifics, hand it over to him, but it hurts. I mean, we have a great ecommerce channel, but we're an omni-channel retailer. And we think that's our competitive edge. And we think our customers like shopping and all channels, as I suggested, so the minute we shut down one of our main channels and our best markets and we feel it, that's for sure. Todd?

[Todd Ingledew:]

Yes. Mark, obviously, we had as Brian was just saying, the 39 boutiques closed, right, as we started our holiday sale season. And those closures are expected to continue through the end of the quarter. But we do, we have seen that the productivity levels in our open stores, is that trend is continuing as it did in the third quarter. So right around 80% and then our ecommerce channel has also continued with the strong momentum into the fourth quarter. So we're pleased with that. And we do expect that, again, the ecommerce channel will be able to moderate the impact of the boutique closures. And frankly, the severe restrictions that were under -- in our open boutiques.

[Brian Hill:]

And what's encouraging, though is how our boutiques bounced back, when they did open after the initial closure back in the spring, and how they bounced back and how they grew, even with the severe restrictions. As Todd mentioned, I mean, we're at 81%, some of our stores have 25% capacity limitations on them. So a lot of them do. And they all have -- almost all of them have capacity limitations. And that coupled with, reluctance of a lot of customers to go out and leave their house and lockdown orders in different places. And discouragement from the leadership, governments and political politicians, for people to go out. So, against all of that in that backdrop, it's given us even more confidence that after these stores reopen, and with hopefully this pandemic getting behind us with the vaccinations that we will actually come -- our business will see some pretty meaningful growth almost immediately with our ecommerce channels, as we mentioned, not going back to former levels, but staying close to where it has been. So we're pretty darn excited. We're kind of looking past this period. And because partially because there's nothing we can do about it but and we don't really have a choice. But we're looking past this period and we're super excited about what we see in front of us.

[Mark Altschwager:]

It's really helpful. And I guess along those lines and Brian, maybe could you speak to some of the biggest learnings you've had from this massive acceleration in the digital businesses this year? How does that impact the strategy moving forward in terms of stores versus digital and how you're looking to invest in areas like digital marketing?

[Brian Hill:]

Well, I think that we got a lot of the learnings in the spring, because once again, when all our stores closed, we didn't really have a choice. So that was -- we started learning and the biggest one and which has fueled all of our product initiatives, is the fact that when we're online, we don't have limitations for the breadth of our product and the types of product mix. And that's why we're out pursuing these initiatives that's what we think coupled with the world class talent that's out there is enabling us to do so. I mean, even if we wanted to do it three years ago, I'm not sure that talent was available. They're all at other places, but a little bit, a lot of the industry struggling a lot of retailers either bankrupt or on the verge of bankruptcy we've managed to bring in talent and understand and be able to expand our product base. So that that's probably the biggest one is the fact that our ecommerce channel doesn't have the walls and those restrictions that our retail has. On the other hand, what is so encouraging for us is, how good our retail’s been. I mean to think that with all these restrictions, all the health orders in place, all the capacity limitations in place, that our business and our stores are performing at 81% of last year, it was just shocking to us. If you listed to me a year ago that we're going to have capacity limitations at 15%, or 25%, and 50% in different places. And we're going to have a pandemic, which is going to keeping people in and everything else. And then with all the hassles of health and safety precautions, and everything else that we'd be at 81%, would just be like, no, not a chance. So, it's made us recognize that our customers -- in particular our good customers as we mentioned that spend three times the amount of money every single channel customer's. Our dual channel customers and multi-channel customers spend so much more money that they want. Our best clients want that ability to shop in all our channels. And we'll continue to do so. So, I think, initially with the pandemic, it was a big aha with ecommerce. However, as its continued, it's been more of a big aha back with retail saying, hey, it's not going anywhere and certainly for Aritzia, it's not going anywhere. And that coupled with the opportunities that we've seen out there, and with real estate and even just with the locations that are available to us. Those perfect storm is, we think is going to lay us a foundation for the next decade plus.

[Operator:]

The next question comes from Irene Nattel with RBC Capital Markets.

[Irene Nattel:]

And really congratulations on a heroic performance this quarter. Wondering, just thinking about, so you talked a little bit Brian about some of the changes that you're seeing in inter-pivoting or the learnings for online. But in terms of how the boutiques operate, and how the two of them integrate and how other concierges -- so the increased concierge is performing. How does that make you think about the business on a post-pandemic basis? And maybe any changes or sort of shifting that you'll do?

[Brian Hill:]

Thanks, Irene. I think first and foremost, what our clients want is that everyday luxury experience and that's not going to change. And that's shown not to change pre-pandemic, during the pandemic and we think post-pandemic. We think our product offering and the value of our offering and customer service levels and the product and everything else that we do and environments to shop in. They still want to be I mean, I think, when we opened our Super World store, there's not a lot of exciting things happening in the world than opening and things like that and positivity around. So now when we do, do it and we do, do some of these things. And we've offered incredible new product because we did such a great job of -- I'm not tooting our own horn so much. But we did such a great job of cleaning out our spring and summer merchandise that we entered fall with the massive position of strength with a brand-new collection and no lingering effects of the spring and summer collection that your customers respond to that. So people, are still going to wear clothes, people are still going to want exciting new product, people are going to still want innovation and things and so they're still going to do that. And then, as on a on a multi-channel perspective, they're going to want to have all this flexibility of buy online, pick up in-store and see store visibility and all the different things that Jennifer and her team are working on as far as ensuring that we continue to be flexible and allow customers to enjoy the Aritzia rich experience anywhere. So, ironically, I don't -- I think I'm not sure people -- some people's habits will certainly change and change forever but I'm not sure people will change. And I'm not sure people will change how they go about and what excites them and what they want to do and what thrills them and so I don't think people will change, I think their habits will change. And we've already seen what how they're going to change. So we think we're extremely well positioned here to continue to prosper post-COVID.

[Irene Nattel:]

And guess what will thrill us will be to get out of the house, finally. So, as you're preparing for the spring and summer and in particularly with what is likely to be pre-start, some reopening. How are you positioning the mix, order levels, et cetera given all of this uncertainty around timing?

[Brian Hill:]

It's interesting. I mean, we've been fortunate to have our ecommerce be so strong. So that the dichotomy of our sales between all our stores and our ecommerce channel functioning, and just the ecommerce channel functioning and operating in the stores closed. The dichotomy of that sales revenue isn't that great that we can't sort of go in with a more conservative buy assuming everything is going to be up and running, which will also be perfect amount of inventory, if for whatever reason, things are limited. So we're making sure from a product perspective that we're well positioned. We're able to chase. As I mentioned, we had a little bit harder time chasing our product this season and it was not primarily the factories and the mills, it was the transportation and the clogs in transportation that we had challenged. Airfreights, there isn't as many airplanes flying. So the ones that were, were full. And so even those were taking longer, there wasn't as many ships going across the ocean. So, they were taking longer and everything was taking longer. So it didn't give us the opportunity to respond. We went in with a conservative buy which I do 1000 times over because who knew what was going to happen. And then, we had such a great response. We tried to scramble, which we normally do, to repeat and as we test and repeat, and we tried to facilitate these orders, but it was actually the transportation, which was ended up being more of a challenge than not and prices and everything else on that transportation where, in some cases 5 and 10 times what they normally depending on where it was coming from in-house and the timing of it. So, we're going to continue to buy. From a fashion perspective, it's a good question, if people change how they're shopping for clothing and the stay-at-home kind of wardrobe is where it's at. If you read some of the fashion magazines, people, they'll suggest they've had it with this home, stay at home product mix and they want something a little bit certainly women want something a little bit more fashionable and perhaps even sexier and everything else and 100% flexibly. So, it'll be interesting to see what happens. We're ready for it though and we are going to embrace it. We think what's going to happen after it's going to play right into our sweet spot of what we do at Aritzia.

[Operator:]

The next question comes from Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod:]

Congrats on a great solid performance. Just had a couple questions, lots of great color so far. So, thank you. I just wanted to turn a little bit on the closed stores. Brian, I think in your prepared remarks you mentioned or maybe was Todd, I can't remember. But you mentioned something about curbside pickup and buy online pick up in store. Are those new offerings for retail? I was always under the impression that you didn't have curbside pickup previously.

[Brian Hill:]

Yes. We didn't have it previously. I mean, this is just efforts we're making here. It's not meaningful enough to our business at this point in time. And I think partially because our ecommerce channel is so good. And that, our distribution center, I can't remember the KPIs but we're getting an order before noon today. And I think it's getting shipped out and prepared, packed and everything before the end of the day is…

[Jennifer Wong:]

Pick up I think cutoff is for five.

[Brian Hill:]

Cutoff is what?

[Jennifer Wong:]

For five, the end of the day, when the trailer comes.

[Brian Hill:]

Yes. And so, our ecommerce, I think curbside pickup is certainly meaningful to some, it hasn't been as meaningful as we are offering it. We think some of the buy online pick up in the store and some of these other opportunities that we're going to be working on early in the year are going to be more meaningful. But I think Jen just shared that, it's not particularly meaningful to our business at this point in time. And I think it's just generally be because, it's Ontario and Quebec only where our stores are closed and the customers still like coming into our stores that are open. There's no question with that. And our ecommerce is so effective at turning and if you're in Toronto and you order something before noon, today, you could potentially get it by tomorrow morning. And so, we just found that our ecommerce channel is so efficient that people just prefer that meaningfully over curbside pickup and things.

[Stephen MacLeod:]

And I was just curious, could you get a little bit of color around rent abatements in the quarter, are you able to quantify sort of what that number was?

[Todd Ingledew:]

Yes. The rent abatement, Steve, they were approximately 330 basis points of benefit in the quarter.

[Stephen MacLeod:]

And then, I just wanted to get a little bit of color around -- Jennifer, you mentioned the clientele. The clientele app, and it sounded like it was something that was being rolled out, I was wondering just maybe you can give an update on where you are, in terms of that, is a specific investment?

[Jennifer Wong:]

Yes. I've been talking about that app for a few quarters now. And I just wanted to give an update that we are still rolling it out in effectively phase two. I think in maybe it was the last quarter, the quarter before I mentioned that we had piloted it with only 25 style advisors. I believe we're just closer to 500 to 1000 style advisors that we're working our way towards closer to 1000 style advisors. And certainly, with the stores closing and reclosing, it's been a really valuable tool for us to continue to connect with the customer and still service her. So, I just wanted to remind everyone that still a really important aspect of our omni-channel offering and that we continue to roll it out. And our goal is to be able to roll it out to all of the boutiques eventually.

[Stephen MacLeod:]

Right. Okay, that sounds great. And then maybe just finally, Todd, I missed some of your commentary around the gross margin, outlook. And you had highlighted some of the puts and takes and I was just wondering if you could just quickly gloss over that.

[Todd Ingledew:]

So maybe I'll start because Brian alluded to it, but we did start the quarter in a very healthy inventory position and had lower seasonal sale products. So that we do expect that that will drive lower markdowns and continue to improve product cost margins in the fourth quarter. So there's a positive there showing the underlying health of the business. But we do expect to continue to have higher warehousing and distribution center costs, from our growth in our ecommerce volume. And additional air freight from the chasing of demand of our highly productive styles from the last few months. And then, obviously, the closure of the 39 boutiques in Ontario and Quebec, that will generate some deleverage. But, I think putting it all together, net-net, we're expecting to see slightly more pressure on gross profit in q4, and then removing the rent abatements. So you when you look at it as a whole, what we will see more pressure than we did with all the puts and takes in the third quarter. But again, that's before taking off the rent abatements, and then, we're not anticipating at this point, the same level of rent abatements that we got in the third quarter.

[Operator:]

The next question comes from Derek Dley with Canaccord Genuity.

[Derek Dley:]

Just a couple of quick ones for me. So just in terms of your commentary on store openings next year, just given the really favorable lease rates you guys are seeing. Can you sort of help us quantify what you expect? And we expect a similar number of store openings in 22, as we saw in 21.

[Brian Hill:]

That's an interesting question. So, the fact that we've actually in this year of the pandemic, will have by the end of the year, I believe have seven new stores and three repositionings, probably a test more to us doing deals pre-COVID. I know the first three, four months of this year, we didn't do a ton of deals. I did a couple of this week, I signed off on a couple because couldn't resist because the deals were so good. But, so we've been sort of a little bit more bullish on the back half of the year as far as signing deals. I don't know where we are, once again, we're not going to rush things as well. And take secondary locations or do deals that we don't feel comfortable with from a financial perspective nor deals that we're not getting proper protection in language, which has been a bit of a challenge with an ongoing pandemic or a further additional pandemic. We want to make sure we have language protecting, covering us there that we're at least if nothing else, sharing the burden of a situation in the future. That said, if we thought previous there wasn't that many people out looking for new locations now there's even less. So we're one of the few people out there. And we're opening as many stores as we can. I haven't had a real estate update since really November. We've talked on some things but a full scale one. So we hope to have one in the next week or two, to find out what the team has been working on. And I think we've approved a few deals so far but there's a bunch that are approvable. So we'll see how that shakes out and what ends up coming to fruition and not and we'll go from there. And we'll let you know, we'll have a probably a better handle on it in our next update.

[Derek Dley:]

Okay. Now, that's helpful. And then, just thinking about the holiday selling season that you guys just went through a number of other retailers kind of pointed to how it was much more of an extended selling season started earlier probably ended earlier as well, compared to past years, or did you guys see something similar?

[Brian Hill:]

Are you talking about off price portion of that season?

[Derek Dley:]

Yes. I guess I'm talking about the sales portion of the holiday season and I guess when the incremental demand came in. Was it a bit long?

[Brian Hill:]

Yes. So, as I mentioned in my commentary that we broke early this year. We were anticipating, the governments were mauling over shutting things down in Toronto and appeal. And also, for health and safety reasons, we wanted to spread it out a little bit. So we started a week earlier than we had up in the past. It's not something we want to continue to do in the future. But we thought, based on the environment that was out there, we thought we'd do that and so we did that. We haven't really ended things any sooner. Although, we did go back to full price on all our products that we're carrying over a lot about a week sooner than we typically do. We're cognizant of the off-price activity we've had in the last 12 months. Obviously, when the virus hit, we went off-price a couple weeks after the stores closed down online. We had our regular Spring Summer sale, it probably extended a little longer than we normally do because we did have a lot of inventory. We wanted to start the new season fresh, we've now started the fall promotional period a little week sooner. So we are cognizant of how much off-pricing we've been doing. And we want to get back and think we can get back to our normal process and off-pricing calendar sort of from here on in. And so, we have been off-price a little bit more. We saw because of that we saw the uptake a little sooner, but from a sales perspective, from timing, and then of course closing those 39 boutiques before boxing week in Canada, which is a big deal that hurt a little bit. So, but we hope to be off price next year and we think the sales channels and the sales periods will start reflecting very similarly than they have in the past.

[Operator:]

The next question comes from Meaghen Annett with TD Securities.

[Meaghen Annett:]

Could you talk a bit more about how traffic patterns as boutiques, trended through the quarter? And at what level did you see store productivity peak?

[Brian Hill:]

Traffic and then store productivity peaking. When did it peak?

[Todd Ingledew:]

Well, typically we used to have our store productivity and our store traffic everything used to peak around boxing week and the week before Christmas and the week after Christmas. So the last two weeks of December. With the advent in Canada and but the U.S. was almost, so we kind of used to refer to it not too long ago as a single hump camel versus a two-hump camel. In the U.S., we had the two-hump camel because we had the Christmas last two weeks rush and then we also had the Black Friday event. And then, in Canada when we introduced the Black Friday event, we got with Canada now and so we do see this two-hump, which we actually think works a little bit better because it doesn't burn all our teams out right at a time when they want to be spending time with friends and family and things like that too. So we've seen this two-hump camel per se with our sales. And so, from a peaking perspective, that hasn't changed, it's kind of the same. Now, are you referring to stores and productivity based on COVID? Are you talking about selling periods in general? And where have they changed this year?

[Meaghen Annett:]

That was more so question as to where store productivity was when we saw cases really come down, and perhaps people returning back to stores to get out of the house and whatnot during that period, did we see productivity, get back up to 100% at any point in time?

[Brian Hill:]

Do I see, it getting back up to 100%, I don't think it will get back up to 100% because I just think people, as I say, people haven't changed but their habits have. And I think people, a lot more people will be shopping online going forward. So I suspect that they won't that we won't see the same numbers we have, although I don't see this catastrophic collapse, either and we've shown that even during COVID, we're at 81% productivity in our stores. So, we think after COVID, it could get up close to 100. And I'd love to see it to 100 and our ecommerce channel stay with its same growth that it's been on since COVID. But realistically, I don't really see it going back to 100. I don't know if it's going to be at 80 or 70. But I agree there was a little bit after the stores have been closed for so long, there's a little excitement to get back out in the stores. On the other hand, COVID was still around and still persisting and people were still getting out there. So I don't know where we're going to net out at this point in time. We run models of 70%, up to 90%. We haven't been bullish and running them at 100. And we haven't -- we don't see any reason why they'd be below 70 at this point in time. But, that's where we kind of have predicted and probably be 70 to 90 and the average there's 80, which is very close to where we were prior to our stores closing down.

[Meaghen Annett:]

Okay. That's great color. Thank you. And then, wondering if you can give any details on the progress being made, maybe more so internally, with respect to product expansion, is there anything to note that maybe the consumer isn't seeing that? Can you talk specifically about any new categories you might be introducing in the near-term?

[Brian Hill:]

For the near term, we're not introducing any new categories this fiscal year, which six weeks left in this fiscal year per se. We hope to be introducing one of our new categories in the Q4, just in time for Q4, just before Q4 next year. And the other one into late Q4, early Q1 next year are our two main initiatives being swim and intimates. We've already seen, we've already been adding colors and lengths and we hope to have that and full blown by this spring in our spring launch, we're going to have more colors and more lengths in their stores. And we've already introduced more sizing last year, so or this year that we're in now. So, we see some of those. And then, as far as some of the other categories, we're expanding styles in existing lines and things like that. We're already doing some of those, but not all of those. So, if you look at the chart and we think we're going to double our breadth of product within five years and we're kind of arguably a year in and we're probably 20% of the way to that new goal. And we hope to be another 20% maybe even slightly ahead. We've been very successful in putting the teams and the infrastructure together. And we are right on our calendars of what we put in place as far as these introductions. So we're pretty optimistic that we'll be able to achieve all these -- all our aspirations on the product side here.

[Operator:]

The next question comes from Mark Petrie with CIBC.

[Mark Petrie:]

I just wanted to follow up on a couple things. First, just with regards to your sort of purchasing and planning for spring summer. Would you say you're similarly conservatively positioned as you were heading into fall winter, or have you been able to adjust just given sort of the strong sustained demand you've seen, particularly in ecommerce even amidst the lockdowns?

[Brian Hill:]

I would say we're probably a little less conservative for spring summer than we were for fall winter. We were bullish in some of our areas of our business for fall winter and conservative in others and now we're probably a little less conservative. We're still working through our ecommerce and we still need to be conservative not only because of the virus, but the composition of our ecommerce and retail sales. Our buys on ecommerce look different than our buys in retail. As I mentioned earlier, our retail we have been in four wall limitations as far as the breadth of product we can supply and online, we don't. And so, we're still sort of a little reticent in committing too much one way or the other, because the buys look slightly different between the two channels. So understanding that, and then also understanding COVID, but we're certainly not conservative when it comes to thinking from a fashion perspective and where we think fashion is going and what consumer and our customer and clients outlook will be and what kind of product they're buying. Ironically fashion and trends and things although people have had to stay at home, colors and styles and shapes and fits and things. They've been evolving as we've been going along, because people have still been posting on Instagram and people are still -- there's still new things happening in the world. They just probably reflect a different reality from a styling perspective than they would have, if the pandemic hadn't hit. But that certainly hasn't stopped in ground to a halt, there is still as much innovation and desire for different new fresh styles and things there ever was.

[Mark Petrie:]

And how does your success sort of just in developing the online experience affect how you think about international growth opportunities. I think the last time we talked about it, it's understandably falling down the pecking order of priorities, just given the magnitude of the opportunity in the U.S. But I'm just curious how you're thinking about international today. And can you accelerate brand building without stores or do you need that physical presence in order to launch that more materially?

[Brian Hill:]

I mean, I think the world is proven and ecommerce only players have proven that they don't need stores to do that. That said, we're believing that if you actually accompany things with stores, it actually has a better experience and a faster uptick. We're picking off as much of the low hanging fruit on our international ecommerce opportunity. Now, we've identified all the low hanging fruit, I would say we're probably 20% of the way through it. We had a discussion prior to the holiday season that we just weren't still wasn't growing to the rate we think it, we wanted nor the rate we think it should have been growing. So we've identified we had a full audit of what we were doing and not doing and doing well and not doing well. And we've put some of those measures in place but we think over the next three, four months, we're going to put all those measures of the low hanging fruit in place, at which point in time then comes a little bit more of the workout, if we need to want to continue to expand, we're going to need to be doing certain things. So we're going to have to make shipping, low hanging fruit is things like making shipping and duties and things like that easier, making currencies easier and things like that. A little bit of the higher hanging fruit and heavier lifting is creating localized websites with content and changing product mixes and things for different markets and things like that. So, we think there's a meaningful opportunity with the low hanging fruit and we'll see where that nets out. And then we'll decide along with everything else we do and plan. What makes the most sense as far as a little bit more of the workout stuff, high hanging fruit that we're going to need to chase and put a bit more effort into it and whether things get in that pecking order of other initiatives or not, low hanging fruit we're just going to do that other stuff is a little bit different.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Helen Kelly for any closing remarks.

[Helen Kelly:]

Thank you, Anastasia. And thanks again to everyone for joining us this afternoon. We will be available after the call to answer any questions you may have. As usual, please take care and we look forward to speaking with you again very soon. Thank you.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.