Aritzia Inc.
Q2 2019 Earnings Call Transcript

Published: 4 Oct 2018

[Executives Catherine Tang - Investor RelationsBrian Hill - Founder, Chief Executive Officer and ChairmanJennifer Wong - President and Chief Operating OfficerTodd Ingledew - Chief Financial OfficerAnalysts Mark Petrie - CIBCLorraine Hutchinson - Bank of AmericaIrene Nattel - RBC Capital MarketsStephen McLeod - BMO Capital MarketsMeaghen Annett - TD SecuritiesCamilo Lyon - Canaccord GenuityPatricia Baker - ScotiabankDrew North - BairdOperator Thank you for standing by. This is the conference operator. Welcome to the Aritzia’s Second Quarter 2019 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. [Operator Instructions] I would now like to turn the conference over to Catherine Tang. Please go ahead.Catherine Tang Thank you, operator and thank you all for joining us for Aritzia’s second quarter 2019 earnings conference call. Joining me today for the results are Brian Hill, Founder, CEO and Chairman; Jennifer Wong, President and COO; and Todd Ingledew, CFO.We will begin today’s call with management’s discussion followed by a question-and-answer period open to analysts and investors. Please note that remarks on this conference call may provide certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements. We would refer you to our most recently filed management’s discussion and analysis, which includes a summary of the material assumptions underlying such forward-looking statements and certain material risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.The second quarter 2019 earnings release, the related financial statements, management’s discussion and analysis and the annual information form are available on SEDAR as well as the Investor Relations section of Aritzia’s website at aritzia.com. Finally, all figures discussed on this conference call are in Canadian dollars, unless otherwise noted.I will now turn the call over to Founder, CEO and Chairman, Brian Hill.Brian Hill Thank you, Catherine, and thank you everyone for joining us today. I would like to start by welcoming Marcia Smith as the newest member of Aritzia’s Board of Directors replacing Kevin Callaghan of Berkshire Partners. We are thrilled to have Marcia join our Board. Marcia has an impressive background with 30 years of experience in public affairs and expertise in the areas of health and safety, sustainability, environment, communities, government relations and corporate affairs. We look forward to drawing on her broad range of knowledge. I would also like to take the opportunity to thank Kevin Callaghan from Berkshire Partners for his contributions. Kevin’s guidance was invaluable over the past 12 years as we grew our net revenue tenfold, with these changes, Aritzia’s Board of Directors now has a majority of independent members.Turning to the business, we delivered an exceptional second quarter with sales growth reflecting strength across all geographies and all channels. The growing affinity for our brand coupled with our beautiful high-quality products and aspirational omni-channel shopping experience yields an 11.5% increase in comparable store sales marking the 16th quarter of comparable growth. We generated positive comps in Canada and the U.S. We were particularly pleased with the incredible performance of our United States business, where revenue increased 40% in the second quarter. This was driven by accelerated comp growth both in stores and online and the success of our new and expanded stores in our American market. Yesterday marked our 2-year anniversary as a public company. Looking back, I am extremely proud of what we have accomplished. I would like to take this opportunity to thank everyone for their support and exceptional Aritzia team for their contributions.In 2 years, our store network grew from 75 to 90 stores. Through that same period, we expanded or repositioned 12 additional stores. Net revenue grew 31% from $607 million to $797 million. Adjusted EBITDA grew 54% from $97 million to $150 million and adjusted net income grew 74% from $50 million to $87 million. These results are a testament to the strength of our business model, which consists of three pillars, our differentiated global sourcing strategy, our innovative creative development and our aspirational omni-channel shopping experience. These pillars are supported by best-in-class infrastructure and extremely talented team. Looking forward, we will continue to take a long-term approach to managing our business while delivering on our growth strategies. Our vision since the IPO hasn’t changed. We want to be the most relevant and loved fashion brand for women all over the world.Turning back to the second quarter, we delivered 18% revenue growth and 60% adjusted EBITDA growth as compared to the second quarter last year. We continued to make excellent progress on our key initiatives, including growing our e-commerce business, expanding our premier store network and driving product innovation, while building our best-in-class infrastructure. Growth accelerated in our e-commerce business in the second quarter as a result of continued progress on our strategic initiatives. We will continue to build on our successes as we further invest in expanding our capabilities. Jennifer will speak to these initiatives shortly. During the second quarter, we continue to expand our premier real estate portfolio reaching new markets, including Westfield UTC in San Diego, Georgetown in Washington DC, and Conestoga Mall in Greater Toronto. We also completed the expansion of our location in Victoria BC. We are extremely pleased with our new expanded and repositioned stores which are all performing at or above our expectations.Turning now to product, our beautifully designed assortment continues to resonate with our customers. We saw strong sell-through of all our spring and summer product. At the end of August, we launched our denim program, Denim Form. Our customers responded enthusiastically to the product as evidenced by the incredibly strong sales that exceeded our expectations. We have already sold approximately half of our uncharacteristically large initial buy and are actively pacing reorders. This has set us excited about Denim Form and its growth potential. The denim launch is a perfect example of how we leverage our world class product innovation and sourcing capabilities to enter new categories. We believe the expansion of new categories should help drive increased sales among our existing customers as well as attract new customers well into the future. As I mentioned at the start of the call, our powerful business model is underpinned by best-in-class infrastructure and extremely talented team. We continue to focus on developing our people, processes and technology infrastructure to support our long-term growth.I will now turn the call over to Jennifer to speak to her accomplishments in this area of the business and then I will update you on our strategic growth initiatives.Jennifer Wong Thank you, Brian, and good afternoon everyone. Once again, I will speak about the investments we are making in our infrastructure to ensure that we continue to have a solid foundation in place to support our multi-year growth plan. In keeping with our operating philosophy and culture of planning and managing our business for the long-term, we invest in infrastructure to safeguard and maximize our existing business and to enable growth.First, I am thrilled to provide my final update on our new Vancouver distribution center. We successfully completed the opening of the 225,000 square foot facility with an upgraded warehouse management system in August. I am very proud of the project team who executed the transition flawlessly with absolutely no disruption to our business. In fact, the original cutover plan was to take 7 days and we were fully ready and positioned to go live a day earlier than scheduled. This facility is now the flagship distribution center and will serve as a model for all distribution facilities as we expand the network. It will primarily service the West Coast and serve as a hub for the rest of the network.In terms of talent, we continue to attract exceptional people to our organization and are focused on building out teams in key areas of our business, including e-commerce, marketing and technology. In the first half of the year, we hired 11 new positions on our e-commerce team building our depth of knowledge in digital experience analytics, software development and digital merchandising. We now have teams focused on building out incremental improvements to our site to enhance every part of the customer journey. All of these incremental changes are helping to improve the customer experience and grow our e-commerce business.In technology, Phase 2 of the point-of-sale implementation began its rollout. We implemented verified e-commerce return and integrated payments which will allow us to improve the customer experience with the cash staff and increase accuracy on the back end. The product lifecycle management system or PLM is the next business transforming foundational technology we are implementing. The PLM system will manage all of the data and support all of the processes to bring a product to market. This will enable us to focus on innovation, drive quality, reduce speed to market where appropriate and ultimately optimize cost in our manufacturing processes. We are in the final stage of our vendor selection process and expect to have a vendor chosen by the end of the year. The investments we are making in people, process and technology have us poised for the growth that we expect to deliver in fiscal 2021 and beyond.And with that, I will turn the call back over to Brian to speak to our growth strategies.Brian Hill Thank you, Jen. Our growth strategies including growing – our growth strategy include growing our eCommerce business, expanding our store network, driving exclusive brand and product innovations, building brand awareness and enhancing long-term profitability. Our eCommerce business is strong in Canada and the United States, putting us on track to meet or exceed our target eCommerce penetration of 25% by fiscal 2021.We continue to work on five eCommerce strategies, which include improving the digital experience, growing our clienteling program, developing our omni-channel fulfillment capabilities, increasing digital marketing and expanding our international online business. While we are in the early stages, we believe these strategies will increase brand awareness, drive site and store traffic and lead to higher conversion. Overall, we're pleased with our store network expansion as we capitalize on opportunities to secure premier locations in North America.We’re excited about the opportunities we are pursuing in the United States or to be clear in almost all cases the landlords are actually pursuing us. Our growing brand awareness among consumers and landlords continue to fuel new store opportunities. This has manifested itself into a strong pipeline of new stores for fiscal 2020 and beyond. We expect store openings in fiscal 2020 to be predominantly weighted to locations in the United States and look forward to sharing more details as our leases are finalized.We remain highly focused on executing our disciplined real estate strategy as our stores are not only instrumental in building brand awareness in this market, but are also very profitable growth engine for the company. We drive product innovation at every stage of the creative development process. We're working directly with best-in-class mills to develop and elevate the raw materials we use. We are extending the reaches of our supply chain upstream to partner directly with raw material and fiber innovators to continually innovate our product. Our in-house designers focus on creating designs that build on historical successful styles while incorporating new fashion trends.Our technicians are enhancing the fit and construction of every garment along every step of the development process. We continue to enhance our marketing strategy to build brand awareness. As I mentioned last quarter, we are elevating our influencer program and securing celebrity and digital influencer coverage. These efforts are paying off as we've now seen a 300% increase in placements in the United States. In addition, Aritzia was selected by Facebook as a test brand in their evolving effort to expand social commerce. This is an exciting area of growth for us as we have seen over 200% increase in revenues from social to .com.At the time of our IPO we said we would seek to enhance gross profit margins – seek to enhance gross profit margins through further sourcing efficiencies while continuing to improve the quality of our products. We accomplished this once again in the second quarter with gross margins up 110 basis points year-over-year. Todd will speak to that in more detail shortly. However, I would like to note again that we're continuing to face rising raw material costs particularly wool, down and polyester. We have already seen the cost of wool increase over 25% in the past year. This trend is driven by severe drought situation in Australia that’s expected to continue. We are working diligently with raw material suppliers to secure long-term positions to mitigate and offset these cost increases without impacting the value we deliver to our customers.In conclusion, we are extremely pleased with our momentum in both Canada and the United States as we continue to drive engagement with our highly loyal customer base as well as attract new customers to Aritzia. Our growth in the US market has been exceptional and we expect to gain continued market share as we expand our retail presence and further expand our brand awareness. We are pleased with the growth in our eCommerce business and excited about the opportunities ahead as we innovate the digital experience for our customers and grow our clienteling and omni-channel capabilities. The strong performance in all our new and expanded or repositioned stores gives us tremendous confidence as we continue to open locations in existing and underpenetrated markets across North America. We believe that our unique multi-brand strategy, continued product innovation, expansion of our premier store network and enhanced e-commerce capabilities will enable us to maintain strong consistent financial performance. We are proud of our accomplishments over the past 2 years as a public company. We are even more excited about the future growth potential in the coming years.With that, I will turn the call over to Todd to review our financial results in further detail.Todd Ingledew Thank you, Brian. Good afternoon, everyone. To echo Brian, we are extremely pleased to have delivered an exceptional second quarter following our strong first quarter. Net revenue for the second quarter increased by 18% to $205.4 million from $174 million in the second quarter last year. The revenue increase was driven by strong retail and e-commerce performance across all geographies. Comparable sales in the second quarter increased 11.5% accelerating from the 10.9% growth that we achieved in the first quarter. The growth in comparable sales was driven by an increase in transactions both online and in stores.Net revenue also benefited from the addition of 7 new stores and 8 expanded or repositioned stores since the end of the second quarter last year. Gross profit margin for the quarter increased by 110 basis points to 37.4% from 36.3% in the second quarter last year. Gross margin benefited primarily from the lower product costs related to ongoing sourcing initiatives, the strengthening of the Canadian dollar and a favorable shift in sales mix to exclusive brands. These improvements in merchandise margin were partially offset by warehousing and distribution costs primarily related to the transition to our new distribution center. In the quarter, non-recurring costs related to the BC transition included $600,000 of expenses related to the move and $260,000 of rent expense from our old BC. The lease on the old distribution center expires at the end of the third quarter.Selling, general and administrative expenses for the quarter increased 18.5% to $52.8 million. Excluding secondary offering cost of $420,000, SG&A expenses would have been 25.5% of net revenue compared to 25.6% of net revenue in the second quarter last year. Adjusted EBITDA increased 59.6% to $33 million or 16.1% of net revenue in the second quarter. Adjusted net income increased 76.3% to $18.3 million or $0.16 per diluted share. Our cash balance at the end of the second quarter was $55 million, effectively flat with the end of the second quarter last year, despite our capital investments in the business, working capital timing differences and the debt repayment of $43.7 million. During the quarter, we repurchased 194,000 shares through our NCIB. This brings our total repurchases to 246,000 shares since we implemented the NCIB on May 10. The repurchases to-date, have been done at an average share price of $15.49 for total cash consideration of $3.8 million. Subject to market conditions, we will continue repurchasing shares opportunistically.Turning to our outlook, we are pleased with the strong start to the third quarter. The warm weather in the East at the beginning of September impacted sales in the first 2 weeks of the quarter, but we have regained momentum in the last 4 weeks as weather has become more seasonable. For fiscal 2019, we now expect to deliver mid-teens revenue growth. As a reminder, we expect our gross profit margin in the second half of the year to continue to benefit from our sourcing initiatives. However, these benefits will be offset by the impact of higher raw material costs. We continue to expect SG&A to grow proportionally with revenue for fiscal 2019. The growth in SG&A is related to the investments we are making in people, technology and infrastructure.Overall, we are extremely pleased with our performance in the first half of the year and the continued strength in our business. We are well-positioned to drive consistent sustainable revenue and earnings growth and to increase shareholder value as we remain on track to meet or exceed our stated fiscal 2021 performance targets.With that, we will now welcome questions. Operator?Question-and-Answer Session Operator Thank you. [Operator Instructions] The first question comes from Mark Petrie of CIBC. Please go ahead.Mark Petrie Hi, good afternoon. Clearly, a very strong result in the U.S., new stores helped, but it looks like e-commerce would have been the key driver. I know you touched on it, but I just want to make sure we understand sort of the work you have done to accelerate U.S. or brand awareness in the U.S. and e-commerce penetration and what you view as sort of the most important drivers of that revenue growth?Brian Hill Thanks Mark. It’s Brian. First of all, everything was firing and it has been firing in the U.S. Our retail stores have been comping positively. Our e-commerce has been comping positively. Our new stores have been resonating in being meeting or exceeding our projections. So first of all, everything is working for us right now in the United State. We have always said that having key real estate as our number one marketing tool and it is right now we continue to open up stores where we are propelling our brand and whether that be UTC in San Diego or that be an expansion that was completed in our SoHo store of late, whether it be a new store in Washington. So, our retail presence we look as a strategic advantage that we have and it continues to propel our brand. I think our improvements to our e-commerce in our digital site is resonating as we continue to push the envelope on our catalog and the functionality and then the content that we have on our site I think is world class. And I think of our social channels and working with all the influencers and the various people we are working with and our PR initiatives with celebrities has worked incredibly well. So, we think we are just really at the tip of the iceberg as far as our recognition in the United States. That said, it’s growing very helpfully and we are super excited about our business and we are looking forward to continued growth in the United States.Mark Petrie Okay, thanks. And I guess in the past, you have said that the e-commerce growth sort of accelerated in markets where you improved or introduced new stores. Is that still the case or are you seeing that balance shift a little bit where e-commerce growth even in markets where you don’t have stores is catching up a bit?Brian Hill Well, we are seeing e-commerce growth everywhere first and foremost, but we still see that in stores and certainly stores in markets, where we are opening stores. We are seeing continued growth. Sometimes, when we are in a store like when we are in Halifax for instance and it’s a remote market and we had a very healthy e-commerce business there, because we didn’t have an Aritzia store present there. And then when we open an Aritzia store, it gave the consumers that we already had a large following with an option. We don’t see quite as much growth as we do when we are new to a market and we are opening up the store and we might not be known. So, in places like San Diego and Georgetown, we do see that e-commerce accelerate whereas in places like Halifax, where generally new and there is a lot of students there from right across the country that knew our brand, we don’t see quite this much pop when that happen. So, it’s all dependent on market-by-market, but overall yes, we do see continued growth in e-commerce at a higher rate when we are opening up a store in that market.Mark Petrie Okay, thanks. And then just sort of last one on the same-store sales front, did denim actually have an impact in Q2 or is that all Q3? And will you be able to replenish that assortment in time for sort of Black Friday and holiday shopping?Brian Hill Some of the styles will be replenished in time for Black Friday and holiday shopping. But Black Friday, the remainder will be replenished by holiday sort of in December. We are looking forward to building a long-term denim program at Aritzia. So although where we are trying to scramble to get the product in as best we can, I think at the end of the day we are looking at this long-term. Our denim team just got back from Asia where they are monitoring all our reorders and our spring releases. We did see the denim sales in both Q2 and we are seeing probably a little bit more of it in Q3. That said, it still isn't meaningful, I mean, our comps are so good, our business is so good that although they are helping that comps are not being driven by the denim at this point in time.Mark Petrie Okay, thanks. And one more just on the margin side, obviously strong top-line results, double-digit comps year-to-date, you improved the revenue outlook but no change on the margin side, you called out the raw material cost pressures. Has that accelerated and effectively offsets the benefits from a stronger top-line or are you accelerating investment elsewhere in the business to support the growth?Brian Hill No, I don't think it's offsetting our top-line growth. Our top-line growth is very, very healthy, I don't think it’s affecting that. What it does affect though is sort of some of the other improvements we've done to the cost base on our product and the gross margin, so we’re seeing offsets there. So, we’re seeing pressures increasing our cost of goods sold, but we’re also seeing our – the opportunities that we’ve been pursuing coming to a fruition. So, in the past where we're just seeing those drop right down to the bottom line, we’re seeing them offset a little bit more than we had in the past.Mark Petrie Okay. Thanks for all the comments. I’ll pass the line.Operator The next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.Lorraine Hutchinson Thanks. Good afternoon. Just a follow-up on the gross margin question understanding that you have lot of raw material pressure. Have you tested any price increases or trying to pass some of that – some of those costs back to the consumer?Brian Hill We’re hesitant to increase our prices and pass those costs back on to the consumers. As I mentioned, we’re trying to and have been successful in offsetting our cost of goods sold through other initiatives whether it be better negotiations, better transportation initiatives in where we’re not having to air as much product, things like that. So, we’re trying to offset these. And to-date, we've actually been successful. So, we typically don't put our prices up at Aritzia unless we need to and we haven't found the need to do so. That said new products – when we’re introducing new products into our assortment, they are – we are – they are price based on the reality of what we see going on in the marketplace whereas products that we’ve carried for some time prior to that we are very hesitant and seldom put those prices up. So, there's a little bit on some new products, some price creep on new products but it’s not really noticeable to the consumer. And at the end of the day I think will help us a little bit, but I think all our other initiatives will have a bigger impact on our gross margins.Lorraine Hutchinson And are you happy with the price points that you’re – that you initially tested on the denim program?Brian Hill From all feedback so far from the consumer as well as all feedback from internally we’re extremely pleased with them, we’re extremely pleased with the position it’s at and the price we think the value that we’re delivering for the price is second to none in the industry, which sort of mirrors all the rest of our product that we have and we’re making meaningful margin on it compared to branded products. So, it – the pricing and the cost structure and everything we’re extremely comfortable with and it's in line with what we had hoped.Lorraine Hutchinson Thank you.Operator The next question comes from Irene Nattel with RBC Capital Markets. Please go ahead.Irene Nattel Thanks and good afternoon, everyone. Just thinking about the very strong revenue growth, where it sounds like it was across the board, but were there any categories other than the early denim reaction that really stood out or anything in the quarter that kind of surprised you, that made you maybe we need to rethink this or that?Brian Hill Hi, Irene, this is Brian. No, I don't think we're surprised with anything, I mean, our business was strong across all categories and I don't think we’re really surprised about anything. We’re right now from an outlook perspective with all the snow in Calgary and it was quite brisk here in Vancouver, we’ve seen an uptick in outerwear sales now, which we’re quite excited about. But generally speaking the spring and summer, it was as per plan and just – we just had a great assortment as we've had for season after season and quarter-after quarter. So, we’re continuing to drive all categories successfully right across the board.Irene Nattel That’s right. Thank you. And could you just expand a little bit on the partnership that you alluded to with Facebook and what exactly is going on there and what we can expect going forward?Brian Hill Yes. We’re in the preliminary stages right now with that partnership. I truthfully haven’t had too much insight into what exactly it is, where we are taping there, because we have quite a few e-commerce and digital initiatives we are working on right now. So, I haven’t been briefed on all of them. I have just sort of the framework of what we are dealing and I would actually, I wouldn’t sound particularly intelligent if I tried to explain it, because I am not sure I got a complete handle on it, but I know the team is exceptionally excited about it and it just shows overall though the presence of our brand, not just in Canada, but the United States when we have large American organizations reaching out and wanting to partner with us. That’s happening in quite a few places whether it be landlords or companies like Facebook or whomever, we are seeing just a lot of presence generally in the United States now with our brand.Irene Nattel So Brian, I mean is it safe to say that as you continue to open stores in these primary locations that really are getting a whole lot of visibility that more and more doors are opening to Aritzia not only from a real estate perspective, but just even Facebook as an example or maybe there is some others you can tell so that really strengthen the share of the visibility and the outlook?Brian Hill Yes, I am not in a position really to discuss any other specifics here other than the fact that we are seeing presence both in the United States and Canada, but we are also seeing it internationally. Lot of people reaching out wanting new business with us right now and whether that be landlords or partners or people wanting to do e-commerce with us or wholesale opportunities continually knocking on our door and we are seeing it all and all the approaches from a business development perspective continue to increase and we look at that and think that’s a reflection really of both the corporate presence we are having, but obviously it’s translating into the consumer as well, which is equally is exciting to us.Irene Nattel That’s great. Thank you.Operator The next question comes from Stephen McLeod with BMO Capital Markets. Please go ahead.Stephen McLeod Thank you. Good afternoon. Thinking about the raw material outlook, can you just give a little more color around product that you are buying today say at elevated oil prices, how far ahead are you buying like how far into the product cycle does that go in terms of timeline, I am trying to think of how the gross margin could evolve into 2019 and sort of into calendar 2020 and beyond?Brian Hill Yes, we don’t know the exact effects of our gross margin other than the fact we have pressure on it. We have purchased a lot. We have placed a lot over the last month of our well position for next fall. And so that’s been placed now. We have had placed a lot of down for the following season as well. We have a bit of a good news story in that and that we are probably going to use a bunch of that as well this season due to the demand that we are having our outerwear. So, there will be initiatives to offset these, but we are feeling the pressure. We alluded to it at the last call we saw it coming, it has arrived and is with us now this new reality of these higher costs. And we think it’s actually going to continue. The good news is we have positions for next fall already in place at prices in some cases lower than we could get on the market today as well the competitors in the competitive set is going to see and feel the same increases in the market. So, the playing field is rather level right across the board here. So, I still think though that we have other opportunities in our pipeline to offset these. And at the end of the day strong top line sales that we have had both e-commerce and retail and Canada and the United States will continue to offset any price increases we have. So cost increases that we have. So we are still equally excited about the business. And I know it’s a little difficult to put numbers on things, but raw material prices we can’t control, all we can do is sort of take positions on things and try to mitigate any increases as best we can.Stephen McLeod Right. That’s helpful. And then in an environment where you historically have not haven’t increased price, can you just talk a little bit about what some of those other opportunities are absent just strong top line to offset some of the cost inflation you are seeing?Brian Hill Well, first and foremost the old school trick of negotiating better prices is always our first go to. So that's always there and we always think we can continue to negotiate, but we've seen some currency opportunities as well as different currencies come and go and go up and down. We see some opportunities once there’s some currency arbitrage that we can – because – of course we’re buying everything in the American dollar and the American dollar continues to be strong, so, we think there’s been opportunities there. We can realize – I know there is opportunities for instance with our European trade pact in the Canada has been an opportunity for us for sure. So, there is little opportunities all over the place in our business from sampling and more efficient sampling. We spend a lot of money on sampling every year from that and then pushing some of the costs and things back to our manufacturers and suppliers as well. So, there's no real silver bullet here, there is a lot of opportunities here and we just continue to pursue them. And if we’re effective we’re going to offset these manufacturing costs and the increase, sorry, raw material costs. And – but at the end of the day as I mentioned, top-line growth solves all provided you have it.Stephen McLeod Yes, okay. That’s helpful color. Thank you. And then just when you think about denim obviously it sounds like a very strong launch that sort of just – we’re just seeing the beginning effects of it right now. Can you talk a little bit about how you view denim seasonally?Brian Hill The seasonal windows haven’t changed and it was ironic when I was sitting down because I went over this with my father 35, 40 years ago when I was a teenager and he broke down all the different seasons, and I want to buy cord in the spring because it was really important and then we're sitting there in October, and my father would tell me it never sells in the spring and seldom does it sell in the spring. So, it's ironic because when I sat down and then we've done all our placements and look at our projections on denim is not any different than it was almost 40 years ago as far as the actual ebbs and flows throughout the year. So, we have a fairly good handle within sort of one or two percentiles of what it is we’re going to sell from season to season, and so far, we’ve been very accurate with that.Stephen McLeod Right.Brian Hill And just to let you know I mean, we’ve been in the denim business every year for the last 40 years, so we've seen since Aritzia of 35 years, but prior to that we’ve seen the denim come in ebb and flow, so our brand won’t act any differently than any of these other denim brands that we’ve been carrying. So, we’ve got a pretty good handle on what’s going to happen with our business from a season to season basis.Stephen McLeod Right, okay. That’s great. And then just finally on the pop-up stores I know that was sort of a new initiative with the last quarter and was a way to enter a market before committing capital to new leases. Can you talk about a, how those stores have performed, and b, any incremental leases that you've gained as of those pop-up stores?Brian Hill Well, we had intended to open up three pop-up stores, one was in San Jose next to Valley Fair. So, we actually have been operating two stores that are a two-minute walk from each other in that market. We've been extremely successful with that pop up. We opened then a store in Georgetown in Washington DC that has performed so well that we've decided, and when we’ve had these pop-ups we’ve had options in most all cases to be able to turn those into long-term leases either in that exact location or at adjacent spaces. So, the Georgetown location we’ve concluded a very short order that's no longer going to be a pop-up, that's going to be a permanent store for us, it’s exceeded our sales more than two-fold here. And then we just opened one in Chicago I think it was last Thursday. So, we yet to get a decent read on that, but that's in the shopping center where we’ve done a pop-up there because we have an option to open up a full-line store almost adjacent to that location as well. So, they’ve just been – there have been opportunities that previously weren’t there in the past for us because of our brand positioning now in the marketplace and so there are opportunities that we’re seeing that we’re – we are taking advantage of to test the market as well as be in a position that we could solidify long-term leases in those locations. The pop-ups up to this point in time we haven't done any for brand propelling initiatives like a lot of pop-ups are done. These pop-ups are done we are a retailer and digital e-commerce company. So, we are using all these tests that we do to further enhance our store network and/or e-commerce initiatives and so all these tests we do we are not really doing for marketing purposes, we are doing them for strictly for business purposes.Stephen McLeod Right. Thank you.Operator The next question comes from Meaghen Annett with TD Securities. Please go ahead.Meaghen Annett Thank you. Good afternoon. Just going back to your progress and the great success that you are seeing in the U.S. market, if we look back at the opening of the Rush Street store in Chicago in particular, following that opening, you noted a higher basket size, more affluent customer. So, my question is as you continue to expand your footprint in that market and further penetrate it, how has your brand positioning evolved and how are you looking at your target market?Brian Hill Well, in Chicago, specifically we have seen where we are comped over a year now in Rush Street and we are starting to see the results we have had last year and now this year. The store business in Rush Street specifically remains exceptionally strong, still thrilled with our business there. We have seen an uptick in all our business and all our stores with the exception of our store. It’s two blocks away that we were planning on closing at the time, but because it still stayed strong enough and the cannibalization although meaningful wasn’t enough to make us close that store. So we are analyzing and trying to figure what we are going to do with that store to keep that open or even open another store on Michigan Avenue. We haven’t decided what that strategy will be there yet, but all our stores for instance we have expanded our SoHo store of late. It went from – well, it is our largest store we have to-date and complete with coffee bar and we have added 12 fitting rooms and it’s just been exceptional the response to that and it hasn’t affected our Flat Iron nor our Fifth Avenue locations either at all. So, we are continuing to see these flagship locations open in markets and continue to see those them help drive both the e-commerce, but also the surrounding stores in various areas. So, it’s a strategy we are going to continue to employ as we expand into United States.Meaghen Annett And then just a question on the e-commerce initiatives, can you touch on the mobile experience of Aritzia, just how you are approaching that vertical and what opportunities you see to improve the mobile customer experience?Brian Hill Well, it’s interesting, because we did decide over a year ago that we would be a mobile first organization. We had seen a large movement into our visit to our site in mobile over our desktop site, which we expected. We would see obviously it’s a little bit more difficult on your phone versus a big screen, so it does put pressure on your conversion unless you actually do things to mitigate that. And we are constantly looking at ways to mitigate and expand our mobile conversion. I sat with our head of e-commerce the other day and as I mentioned, our e-commerce business is exceptional. I sat with him and said these initiatives, what part you take, what credit you take for some of these initiatives in our business and he looked at me and said none at this point in time, but I will let you know when I do. So he goes, they are all coming down the tubes. And so all these initiatives we have been working on in things they do take time and we are looking at our e-commerce as a mobile first company, but really we haven’t made too many initiatives have seen – have come to fruition with our mobile other than improved catalog. And I think we have improved checkout now. We are adding some other features as well. But they aren’t necessarily specific to mobile. However, we do and are looking at, there have been a few particularly good mobile initiatives we have seen in the industry that we are looking at very hard. So we are going to continue to push mobile. We see the trend continuing to move to mobile. And quite frankly, I think we have a pretty darn good mobile site now, but there is always room for improvement.Operator The next question comes from Camilo Lyon with Canaccord Genuity. Please go ahead.Camilo Lyon Thanks. Good afternoon, everyone. Great results in Q2. Talking about the international opportunity opportunity, Brian, you said something interesting that you are getting in balance from a variety of different potential partners. I was curious to hear your thoughts on where you are at in the thinking of partnering with someone like Tmall or as Orlando to penetrate these markets, these vast opportunity markets that will be very easy, fairly seamless way of doing of getting into those markets without a lot of infrastructure build. What are your thoughts on that? And is there some sort of timeline that we can think about for what this international opportunity could be if you were to partner with these online players?Brian Hill Thank you, Camilo and thanks, appreciate the notes on the quarter. I think we mentioned in the previous call that we are in the process of venture with Tmall here and going live on Tmall here. So, we are continuing to work on that initiative. So, we are still pursuing that and continuing to pursue that. We don’t have any ETA on where we are going to net out here with that at this point in time though. But I will also suggest that nothing is easy and simple regardless of who you are partnering with particularly overseas when you are dealing with different languages and different markets and different warehousing and shipping and duties and things like that. So nothing is easy. That said, our strategy is to continue to explore the huge opportunity that’s right in our back door in the United States of America and then secondly get our feet wet and some experience on international markets. And that’s the strategy we have had for a couple of years and that’s what we are continuing to go with. It is a tough balancing act, because we have such a huge opportunity. We are seeing such great business and recognition and acceptance of our brand in the United States and we have such a long and we are just the tip of the iceberg, our business in the United States. So on one hand, we could argue we just want to stay with that focus on that, have a single focus in the U.S. and Canadian markets. On the other hand, there is a big world out there and a big world of opportunity. So, we are continuing to pursue and analyze these and in some cases do fairly in-depth business analysis and pursuits of these international opportunities.Camilo Lyon Great. I guess shifting gears to the U.S. and you just called that out as the main focus and understanding of – given its opportunity in such market. You have been very disciplined in making sure that you have the right real estate and we will wait for the right real estate opportunity to present itself. That’s key no doubt. I think though that there has been a big change in retail, where it’s not just about the right location, it’s also about the right experience. I am curious to hit your thoughts on what you are doing within your stores and maybe your newer stores and how you are formatting them or how you think you should be formatting them to create more of an experiential feeling within those stores, so that there is an inspiration for more traffic and that will lead to better conversion and comp trends?Brian Hill That’s a great question and something we spend a lot of time talking about. So as you know what we are doing is spending a lot of time initiatives on repositioning our stores and when we are talking about repositioning, in some cases, we are repositioning to a better location in the mall, but most cases or the street. Most cases were just expanding our footprint. So there is a lot of locations we are expanding our footprints. And what do we do with the expansion of those footprints? Well, we don’t necessarily just want to increase the amount of product we have on the floor. And so what we are seeing now is we are creating larger, more experiential fitting room areas with larger boxes and more room and within the fitting room areas, we are creating a more luxurious probably last merchandise intense experience in the stores. We are continuing to invest in our customer service initiatives we have and on omni-channel. We are working on with the omni-channel. So people will be able to in not too distant future have visibility into our inventories in our stores, be able to buy online, pickup in stores, things like that. So we are working hard to make sure that the experience just in the stores isn’t just a store experience, it’s a experience across omni-channel as well. That said, I don’t know if you have been to our Manhattan store, but in the second floor, we have a nice coffee shop and coffee bar up there. We are putting the same thing in Bloor Street with, as I mentioned elevated, fit rooms and things like that. We are doing the same thing with one outside of Toronto as well in Burlington. So, we are working on all these initiatives to increase the experience within the stores so that we are successful in attracting clients that want to come into our stores to look at the product, but also just experience our brand. And then at the same time, we want to continue to make sure we are doing that online as well. And so how does that translate online, how do we improve the experience online so people can enjoy that experience more too? So, it’s just not a commerce site. So, all these things are top of mind for us. And I don’t know if you have had a chance to go into our SoHo store in the last 2, 3 months since we have reopened the second floor, but I think you would see what we are doing up there, it’s exceptional the experience up there and we are trying to duplicate that elsewhere in our new stores as well.Camilo Lyon Yes. I was just there a few days ago so I [know] [ph]what you are talking about. And then my final question, I think it’s more for Jennifer speaking of the clienteling efforts and the POS integration know-how that’s been put in place. Can you talk about where you are at in the use of data to drive the greater share of wallet of your customer?Jennifer Wong Hi, Camilo. Yes, we are again - in the back end we have almost nearly completed building out the repository platform that will have all of the data that is being captured by the point-of-sale now as well as what’s being captured by our e-commerce platform and for that matter the customer care platform. So, there is still a lot of foundational building to go to make sure that we have all of that in place to leverage, but at this point in time, I think we are sort of nearing the foundational part of it. The part that I am speaking of is very much in the back end, it’s the repository, the data repository. We are already starting on sort of the front end with the business strategizing how we want to further analyze that data and segment the data and what insights we want to gain from that data. I think Brian is involved in that part there too with our marketing folks and our digital folks. And so we are kind of doing that in parallel. And I think we are just continually building the bricks – or adding the bricks to build what we need to build in order to gain the insights on the foresight. So that’s moving on quite nicely.Brian Hill And then if I could add to that, Camilo, we are trying to make sure too that the customer and who our customer is we are getting all the data necessary. So it’s not just the quantity of data we are getting on our customers, the quality of data we are getting on the customer. And we have made great strides in that, probably really over the last sort of 1 to 2 months we made great initiatives there as far as the quantity of data and the quality of data we are getting from our customers as well. So, we have recognized that having all the data with our customers and her preferences and where she wants to shop and when she wants to shop and what she wants to buy is crucial for our ongoing success. We are working hard on that and realizing that once we are able to capture all that and make sure it’s all in the central repository, as Jen mentioned, that we can start personalizing things and editing things appropriate for that customer and we see that as a huge opportunity for us going forward.Operator The next question comes from Patricia Baker with Scotiabank. Please go ahead.Patricia Baker Yes, thank you. I did have a lot of questions and they have all pretty much been answered, but I just want to go back to the exceptional performance in the U.S. with revenue being up 40% Q2 over Q2, just want to have you comment Brian on whether that, that kind of performance was something that was unexpected. I know you probably had great hopes for what would happen this quarter, but a 40% growth rate was that beyond what you are expecting?Brian Hill It was certainly ahead of where we have been tracking. We actually have been tracking pretty good growth in the United States. It’s a combination though of new store openings. It’s a combination of repositioned stores. It’s a combination of e-commerce. And then it’s a factor of comparable store sales. So, I mean, with that 40% I think if we went back and look back on it, would we expected a 40% growth to some degree not, however, we did open a new store in UTC San Diego. We did get Georgetown opened. Both have trended at or above what we expected them to do. We did expand our SoHo store which has added meaningful revenue to the top line. Our comparable store sales, so we knew those numbers were coming albeit they did – they are better than we expected. We didn’t expect our comparable store sales to grow as much as they did obviously nor would we have expected either both the online or in stores. So, there are pleasant surprises right across. On the other hand, we were working hard. Our brand has a lot of momentum and we are seeing that momentum continue with our sales in the United States, but we have a long way to go. It’s a big market there in the United States. It’s still – it’s not a majority of our business yet and so there is a huge opportunity for us to continue this growth there and if we were comping along at 10% or 20% we would probably be sitting here 20 years from now telling you we had huge opportunities to grow our United States business. So on one hand, we are pleasantly surprised to some degree and thrilled with our business in the United States. On the other hand, if we are going to really explore and continue to expand in the United States, we need to see fairly healthy growth rate there as well.Operator The next question comes from Mark Altschwager with Baird. Please go ahead.Drew North Great, thank you. This is Drew North on for Mark. Thanks for squeezing me in. On the cost side, you have talked a lot about pressures on the raw material front, which is as it relates to labor, are you seeing accelerating cost pressures there as well. Can you speak to some of the wage pressures you are seeing specifically in stores and/or your DCs and how that has impacted your expense outlook for the second half of the year?Brian Hill Well, I will start with the stores first. Our store labor, where we maintain that at a relatively consistent percent of retail sales and that’s what we experienced this quarter and what we expect in the back half, where we are seeing increases from a labor perspective or the investments we are making in headcount here at the sport office. So, it really was the goal in mind to drive e-commerce and our other growth initiatives. So, we have been adding headcount and that’s why our SG&A is remaining flat as a percent of revenue and why we expected it to do so for the rest of the year. And we do expect to see in the future we expect to see leverage, but for this year, we expect it to be consistent with our revenue growth.Drew North Great, that’s helpful. And then just on the Q2 comp, the 11% comp, can you elaborate on how much of it was traffic driven versus tickets and then maybe how much of the growth you are currently seeing which is impressive in the United States is from existing customer spending more versus new customers coming into the brand?Brian Hill With the 11.5% comp that we drove in the quarter was again as has been really for the last eight quarters driven by transactions. So, increased traffic online or in stores, we have seen relatively flat or consistent average sales. So, all of our comps are being driven by higher traffic.Drew North Thanks for all the detail.Operator This concludes time allocated for the question-and-answer session. I would like to turn the conference back over to Brian Hill for closing remarks.Brian Hill Thank you and thank you all for joining the call. We appreciate your questions, the support as we continue to grow our world-class brand. In the past, I have mentioned that Aritzia’s success lies in our ability to excel at both fashion and business. The results we saw today are testament to the strength we have shown in these disciplines in both Canada and the United State. In addition, it’s evident that we are driving a best-in-class aspirational shopping experience in both retail and e-commerce as we are now experts in both and we will keep building on the success as both channels continue to grow. Thank you again for being on the call and we look forward to speaking with you soon. Bye-bye.Operator Thank you. This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.:]