Aritzia Inc.
Q1 2019 Earnings Call Transcript

Published: 12 Jul 2018

[Executives Catherine Tang - Senior Director, Project Management OfficeBrian Hill - Founder and CEOJennifer Wong - President, COO and Corporate SecretaryTodd Ingledew - CFOAnalysts Mark Petrie - CIBC World MarketsIrene Nattel - RBC Capital MarketsStephen MacLeod - BMO Capital MarketsMeaghen Annett - TD SecuritiesCamilo Lyon - Canaccord Genuity Group Inc.Drew North - Robert W. BairdPatricia Baker - ScotiabankOperator Thank you for standing by. This is the conference operator. Welcome to Aritzia's First 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 First 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 first 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. We are extremely pleased to have started the year on an exceptional note with double-digit growth in both comparable sales and EBITDA. Our consistent financial performance illustrates our ability to deliver beautiful products season after season and our commitment to executing our powerful business model. We believe that to be successful in the fashion business one must be good at both fashion and business. We feel we are unique and that we are good at both. This powerful business model has three fundamental functions. First, our differentiated global sourcing strategy which enables us to elevate our product to increase the value to our customer and to grow our gross margin. Second, our innovative creative development. Our creative development is expressed through the design of our products, stores, website, marketing, and communications. It is what defines our brand and what our customer experiences. And third our aspirational omnichannel shopping experience both in our AAA real estate locations and on Aritzia.com that seamlessly connects our products with our customers. This three dimensional competency is the exception in our industry, it is what makes us unique. This is all underpinned by our best in class infrastructure that supports these three functions.We attribute our consistent financial performance to first rate execution of our model and thanks to this methodical approach Aritzia has had another tremendous quarter. We are extremely pleased to have delivered our 15th consecutive quarter of profitable comparable sales. Our 10.9% comp was driven by an enthusiastic response to our summer assortment of beautifully designed products with strengths across both retail and e-commerce channels and in all markets East and West, United States, and Canada. We continue to delight our customers with an aspirational shopping experience both online and in our stores. We opened two new stores this quarter, a Babaton location at Square One Center in the Greater Toronto area and an Aritzia store in Cross Iron Mills, north of Calgary. We expanded and repositioned our Southgate Center Store in Edmonton and our Soho flagship in New York. All of these are coming in at or ahead of our expectations. Our Soho flagship is an excellent example of how we are creating exceptional experiences for our customers and our customers are responding. We add an escalator to access our beautifully remodeled second level where we believe we have the nicest fitting rooms in Manhattan along with a gorgeous dedicated lounge space and a café. Our flagship stores are both maximizing sales and propelling our brand through elevated and differentiated experiences.Our beautiful high quality product continues to be a value driver for our customers. In addition to the enthusiastic response to our new styles for summer we also enjoyed the most successful product launch in the history of Aritzia with our leather program. All our styles were very well received and we are expanding the program both in breadth and depth for the upcoming seasons.We recognize the importance of driving brand awareness particularly in the United States. With this in mind we launched our redesigned Aritzia logo online in December and it is now being rolled out to our stores. The updated logo is clean and modern and has a timeless quality that can endure for the foreseeable future. We are making enhancements to our marketing strategies to drive brand awareness. As part of this we have been building on our P.R. efforts where our focus is on securing product placements in digital media. We've been focusing on paid and organic coverage to date consistent with the way we've successfully grew our brand in Canada. In the first quarter we secured media placements in top tier outlets and continued to address a number of VIPs and leading celebrities. As a result of our relationship with Meghan Markle stylists who wore beautiful Babaton Trench in April, this subsequently sold out in six hours. By all accounts Meghan remains a huge fan of Aritzia. It seems Meghan's fashion sense is influencing the royal family as well. Princess Beatrice was recently photographed wearing one of our leather biker jackets.We've enjoyed these successes because of our focus on developing our people, processes, and technology infrastructure to enable our long-term growth. I will turn the call over to Jennifer to speak to this part of the business which she leads so skillfully and then I will update you on the strategic growth initiatives underway.Jennifer Wong Thank you Brian and good afternoon everyone. I will begin by spending a few minutes to speak specifically to our e-commerce business followed by an update on the infrastructure projects that are currently underway. Over the next three years there are five key strategies supporting our target e-commerce penetration of 25% of total net revenue. Together these strategies will ultimately increase brand awareness, drive site traffic, and lead to higher conversion rates.First, we will increase digital marketing to drive customer acquisition and retention. Enhancements to our search engine optimization was identified as an immediate opportunity and in Q1 upon retaining expertise in this area we made a number of technical enhancements to our site architecture. We are already beginning to see positive results in improving the discoverability of Aritzia on Google for dozens of top fashion and apparel keywords.Second, we will improve the digital experience with greater precision on priority areas to ensure that it lives up to the exceptional customer experience for which we are well known. For this year the strategy includes a variety of core site optimizations including enhancing site search functionality, landing page templates, and improving checkouts. These are all relentlessly being optimized and refined as we continue to see incremental improvements with each iteration. Third, we will grow our clienteling programs. This is a key strategy to drive not only the e-commerce business but will drive business in our retail stores as well. And it will specifically leverage personalization to allow us to tailor and experience specific to a customer. Most of the work to date has been to lay the foundation to provide a 360 degree view of the customer and leverage the data that we are already collecting at point of sale in both channels. Fourth, we will develop our omnichannel fulfillment capabilities and are in the early stages of planning this work. Finally our fifth strategy will be to enhance our international website and explore opportunities to expand our international online business such as international marketplaces. Turning to other key infrastructure investments, we continue to invest in talent across all areas of the business with meaningful investment in the areas of e-commerce, marketing, and technology. When it comes to other investments our overall approach to build scalable yet flexible infrastructure with methodical speed and simplicity continues to be guiding principles. We have always committed to putting in a solid foundation first upon which we can continue to build to grow in steps and enable an omnichannel business beyond $1 billion.And in technology this past quarter the team has worked very hard and made great progress in Phase 2 of the point of sale implementation. One of the most important enhancements in this phase is to implement an integrated payment solution which will allow us to improve the customer experience at the cash desk and increase accuracy on the backend. We expect this phase will be live by fall. The project to select and implement a product lifecycle management system continues to be well underway as we have an RFPO to a short list of vendors and we will be evaluating and vetting solutions upon receipt of responses. Again we expect to have a vendor selected by fall.And lastly our new flagship distribution center in Vancouver is nearing completion. I visited the site last week to confirm with the team that we are all set for the first phase of relocation. A second Vancouver based customer care team has already piloted the office space and our supply chain logistics team is looking forward to moving into their new offices next week. And the entire facility including a warehouse management system upgrade is on track to be completed and fully operational by fall. I am very excited to see this project so close to the finish line and with that update I will hand it back over to Brian to speak to our future growth strategies.Brian Hill Thank you, Jennifer. Our future growth strategies include growing e-commerce, expanding our store network, driving product innovation, driving brand awareness, and enhancing long-term profitability. We've had a tremendous growth over the past five years in our e-commerce in both Canada and the U.S. and more recently internationally. We are confident there is a meaningful opportunity to continue or even accelerate this growth in all three markets.We've had incredible profitable stores. There's never been a better time for us to capitalize on this core competency than in this retail environment. Opening new stores not only allows us to create extremely strong profit centers it's all part of that omnichannel experience and helps us position and solidify our brand in the various markets. We will continue to add to our AAA real estate portfolio reaching new markets and expanding stores in Canada and the United States. We intend to open six new stores in fiscal year 2019 and expand and reposition five others. In the second quarter we expect to open new stores in San Diego, California and Waterloo, Ontario. And we are expanding the Mayfair store in Victoria, DC. We're continuing to open pop ups similar to the one we opened in Santana Row in San Jose and are scheduled to open two additional pop ups in August, one in Chicago, Illinois and the other in Georgetown, DC.There are four key strategic strategies that we are focused on to drive our exclusive brand and product innovation. The first is optimizing our vertically integrated supply base to ensure that we're always driving innovation with best in class partners. The second is driving efficiency in our manufacturing by co-locating our raw materials and finished goods. Examples of this include both expanding within Asia and extending to other centers of excellence including Europe and South America. The3 third is utilizing duty free arrangements where it makes sense to ensure we continue to make luxury accessible. And the fourth is creating value for our customers by reinvesting some of the savings realized through our sourcing strategy back into our product quality and innovation. For example we are already enhancing the quality of our partners. We're already using 100% responsibly sourced goose down and are now elevating all our trims by adding wool cuffs which aligns us with luxury brands and differentiates us from most of our competitors, many of which use polyester.We're pursuing a number of compelling strategies to supplement our brand building efforts including partnering with influencers in a more meaningful way than we have in the past, enhancing social media initiatives, and exploring collaborations with various brands. Our objective is to amplify and accelerate the word of mouth that has proven so impactful in building our authentic brand presence.I will close by saying we are very excited about the future. We have beautiful high quality products and compelling value propositions for our customers. We have a loyal, passionate, and growing client base. We have tremendous opportunity for expansion in both e-commerce in our store network and we have the best in class infrastructure comprised of highly skilled dedicated team, proven processes, and top tier technology. In short we are poised for growth and could not be more excited about the opportunities ahead of us. With that recap I will hand it over to Todd to go over the detailed financials. Todd Ingledew Thank you Brian, good afternoon everyone. We're excited to start the year off with exceptional financial performance in the first quarter. Net revenue for the quarter increased by 15.1% to $167 million from $145 million in the first quarter last year. The revenue increase was driven by strong comparable sales growth of 10.9% as well as the addition of six new stores and eight expanded or repositioned stores since the end of the first quarter last year. On a constant currency basis net revenue growth would have increased by an additional 160 basis points or $2.6 million. Our comparable sales continued to be driven by our product which manifested itself in higher transactions both online and in stores. We had continued momentum in our e-commerce business and strong performance in our stores across all regions particularly in the U.S. where we have enhanced our district level management teams. Excluded from comparable sales this quarter are the same eight stores that were impacted by the opening of a new expanded or repositioned store in the fourth quarter of fiscal 2018. These eight locations again represented approximately 8% of net revenue in the first quarter. All of the implications will be reentering the comp base by the end of the third quarter this year.Gross profit margin for the quarter increased by 70 basis points to 40.4% from 39.7% in the first quarter last year. Gross profit margin benefited from the strengthening of the Canadian dollar and continued improvements in product costs related to ongoing sourcing initiatives. These improvements were partially offset by higher warehousing and distribution costs. Selling, general, and administrative expenses increased by 15.1% in the quarter in line with our revenue growth.SG&A as a percentage of net revenue was down 10 basis points to 28.1% as we benefited from leverage of selling labor costs partially offset by the impact of our continued investment in people. Adjusted EBITDA increased by 18.4% to $28.4 million or 17% of net revenue in the first quarter. Adjusted net income increased by 22.2% to $15.2 million or $0.13 per diluted share.Our balance sheet continues to strengthen with a cash balance at the end of the quarter of $122.3 million. On May 15th we implemented a normal course issuer bid to repurchase a portion of our subordinated voting shares. In the last two weeks of the quarter we repurchased 52,100 shares at an average price of $13.65 for a total cash consideration of $711,000. Subject to market conditions we will continue repurchasing shares opportunistically in part to offset the dilution from the exercising of employee options.Subsequent to the end of the first quarter we amended our credit facilities with our syndicated lenders. The amendment agreement included a $43.7 million reduction of the term credit facility from $118.7 million to $75 million and a $30 million increase of the revolving credit facility from 70 million to 100 million. The amended credit facilities have no amortization payments and mature in May of 2022. The facilities provided increased flexibility to manage our operating and investing capital requirements while reducing financing and interest costs. These amended credit facilities along with the loan repayment will result in annual financing and interest cost savings of approximately $1.2 million.Turning to our outlook we're pleased with a strong start to the second quarter driven by an enthusiastic response to our spring summer product offering. Once again we look forward to delivering our 16th consecutive quarter and 4 full years of comparable sales growth in Q2. For fiscal 2019 we continue to expect to deliver low to mid teens revenue growth and consistent adjusted EBITDA margins as compared to fiscal 2018. Gross profit margin is expected to benefit from reduced product costs related to ongoing sourcing initiatives, however, a reminder that in the second half of the year we expect these product cost improvements to be offset by higher raw material costs through the fall winter season. As discussed in the first quarter we continue to expect SG&A to grow proportionally with revenue for fiscal 2019. The expected growth in SG&A is related to investments we are making in people, technology, and infrastructure. Overall we continue to make strong progress on our strategic initiatives as we continue to strengthen our business. 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 [Operator Instructions]. Our first question comes from Mark Petrie from CIBC. Please go ahead. Mark Petrie Good afternoon. I just wanted to ask about the drivers of the comp and you guys gave some good color but I'm just curious if you can sort of elaborate in terms of when you see a quarter like this one where the comp clearly accelerates from the last couple of quarters, what is it in the business that's outperformed and I guess maybe specifically regards to your efforts and -- search optimization and social media, how can you track the sort of response from those efforts?Todd Ingledew Well, I will answer the first question Mark and Jen will take the second one. So, our product continues to be the main driver of our comp as we said in the last quarter. Our spring and summer assortments were well received by our customers and that manifested itself in higher traffic and higher transactions. And we are seeing it both online and in stores. We are seeing strong performance again across both channels and across all geographies but in particular this quarter our U.S. stores were performing extremely well.Jennifer Wong And specifically to your question on SEO Mark, we have put in some infrastructures to analyze -- basically it is Google Analytics and we are continuing to refine the analytics with an external party and we can easily see the results quite immediately in terms of Google Search, specifically SEO. So we have ways of tracking it. Mark Petrie I guess how far down the path are you on that and do you feel like there's further room to kind of accelerate the benefits from it?Jennifer Wong Absolutely, yes. Mark Petrie Okay and then just back to the performance in the U.S., I guess did that translate from both in stores and online?Todd Ingledew Yes, and we continue to see strong momentum both online and in the stores. Mark Petrie Okay. Brian Hill I'm going to wade in here, when we -- as Todd and everybody says here, when we have comps of that amount generally everything's working.Mark Petrie Okay, and could you just maybe give a little bit of context around the trajectory for Q2, I mean you said it's off to a strong start and it's positive but any more color in terms of the relative performance versus the Q1 trajectory or the Q4 trajectory -- Q4 results?Todd Ingledew Again, we are very happy with our comp performance in the first half of Q2. Our spring summer product continues to resonate and our inventory is well positioned for the remainder of the sale period. But we aren’t providing any specifics.Mark Petrie Okay, I will pass the line. Thank you.Operator Our next question comes from Irene Nattel from RBC Capital Markets. Please go ahead.Irene Nattel Thanks and good afternoon everyone. Just continuing discussion around the same store sales, wondering the degree to which weather may have been contributing and continues to contribute to that and also whether there were any particular categories that you saw very strong and perhaps maybe what kind of basket you saw in conjunction with the roll out of the leather?Todd Ingledew I will take the product. Hi, Irene, thank you for that. Our leather program as we have a test and react strategy, our leather program was just a test phase of it. So we're selling out, I think you mentioned to me we're selling out of our product fairly short order. Where we really start to leverage this is on our reorders and expanding the program and things. So although we're extremely excited and had an incredible launch lot of it is not coming down to the bottom line yet and won't until this fall when all the reorders are coming in. So, we're not seeing that affect our profits at this point in time in our revenues. As far as basket size that has not changed we just -- we have great product in our stores and are continuing to execute well on e-commerce and continuing to execute well in our customer services. And through all that we've just seen incremental growth coming from all regions across all departments and categories. Generally everywhere, so there's nothing really that's been singled out. Everything seems to be performing well for us right now.Irene Nattel Just and continuing since I don’t want to start beat the leather horse or cow too strongly but presumably it is a very, very compelling price point and as you roll out leather, and sort of where you tend to position things do you think that that could give sort of a lift to your average transactions bring in incremental customers?Todd Ingledew Most certainly we do. We think well the price point is high although we think it is extremely well priced and well sourced. And truthfully it's not any different than the rest of our product and that we think our whole -- all our product is well priced and we think there is a value proposition there and leather is no different. It does appear obviously with a higher price point it should affect our basket size and as it gains momentum we should see that happen for sure. So we're kind of looking at the sales rather than increasing basket size as incremental baskets so to speak. And so that's how we're actually viewing it because it's a program that although we had sold leather in the past in the scheme of things we hadn't really sold leather in the past. So we're looking at this as a whole other category that will be incremental and we probably -- when we analyze our sales or probably look at the leather basket separately from the rest of the baskets and the rest of the basket so we can compare like for like in the future.Irene Nattel That's really helpful, thank you and just one final question if I may, coming back to sort of the enhanced data analytics and sort of the 360 view of the consumer and the whole concept of personalization, if we think about where you are today so where is it that you want to be in two, three, five years and how do you think that impacts sort of the customer spend and I guess the efficiency of the promotional activity?Jennifer Wong Hi Irene, it is Jennifer. Right now we are -- as I mentioned in my prepared remarks we're building the foundation to a lot of the data and analytics and specifically customer analytics. I would say that we are in the phase of hindsight reporting so we do know what happening. We're collecting data where we actually have lots of transactional data on our customers. I would say the next step would be to gain insights from that data so we are understanding more about the customer and why the customer is behaving the way she is. And then eventually we will get into foresight which is the predictive analytics. And this is a roadmap that we see over the next three years and we do plan to see benefits as we go along in terms of the hindsight, insight and foresight. Irene Nattel That's great, thanks so much.Operator Our next question comes from Stephen MacLeod from BMO Capital Markets. Please go ahead. Stephen MacLeod Thank you, good afternoon. I just wanted to take a quick look at the Q2 outlook and you’re expressing lot of confidence coming off a strong Q1 and I'm just curious how you view your visibility into the comp for the back half of the quarter. Like is there any reason to think that sales would -- the sales trends would sort of change dramatically as we get into the doldrums of the summer?Todd Ingledew Well again as you know that we are very pleased with the start and the first half of Q2. We do have our fall season which starts then in August so that comes in the back half of the year. So we don't like to predict how that is going to perform. We manage our business in a prudent fashion and therefore for the rest of the year we're expecting our comps and our revenue growth to be in line with our original expectations.Stephen MacLeod Okay, that's helpful. You mentioned the pop up stores and I'm just curious is that -- is the one you have in Santana Row, is that a new initiative, and can you talk a little bit about how that store performed and maybe some learning you have as you look to add two more pop up stores in Chicago, in Georgetown, and how long do you typically keep these stores open?Todd Ingledew Well the leases all vary and it depends on the vacancy and things and the sizes vary depending on availability and things like that. You know this store is performing meaningfully higher than we expected although my head of real estate or our head of real estate would suggest it is exactly what she expected. So, she's right and I'm wrong but it's all positive. And we're doing the pop ups, ironically we have a store right next door in San Jose, right next door in Valley Fair Mall. And so the purpose of this pop up was to gain a little bit more square footage because we need square footage in that area. The Valley Fair is under construction right now and so from that perspective we wanted to make sure that we were protecting the business that we had there by adding another store here. You know the byproduct of that is the landlords of Valley Fair have gotten a little bit more anxious with the factory opening next door. So that's been quite positive too. So as far as the other ones go pop ups we're doing them in this case to protect the business we have right now, but also in some of the other ones we're exploring different markets before we sign long term leases and just trying to get a feel for what the markets and the recognition of Aritzia and the brand. So we can understand the real estate strategy and help form our real estate strategy really going forward and make some money while we're at it. So, rather than paying consultants to come tell us and form us a real estate strategy we're actually taking in money building our real estate strategy which we think is quite clever actually.Stephen MacLeod Yeah, interesting so would you expect that these pop ups you would use them in the future to dip your toe in the water in a new market so to speak? Todd Ingledew Yes, I mean it could be in a new market, it could just be in a new area in the market. The one in Chicago we're opening we already have four stores in Chicago. So this is really testing out a shopping center to ensure that it is a place that we're prepared to sign a long term lease and commit the capital to. So, I mean this is one of the byproducts of the retail environment that's out there right now. And years ago you could open pop up stores but they were extremely small, extremely temporary, and/or in places you didn't want them. And because of the retail environment out there right now we're able to open up and try pop up stores -- pop up shops in AAA locations that historically we weren’t able to execute.Stephen MacLeod Right, that's helpful. Thank you. And then just finally I just wanted to circle around on the omnichannel fulfillment, can you just remind us sort of where you are in having full omnichannel fulfillment and how that aligns with the new deal [ph] in Vancouver?Jennifer Wong Yeah, well right now we are offering some -- in the preliminary form of omnichannel so customers are able to buy online and return to stores. And actually the majority of our returns do come back to us which we love, but if our sales associates keep it as an opportunity to turn that return into an exchange or even upsell as well customers who are in the store and cannot locate the specific item that they are looking for we have the ability to locate it out, put in our network, store network, distribution center network and bring it back into the store or even ship directly to our homes. So we've been doing that with great success and offering it as a customer service to our customers for quite some time now. And now with the new point of sales system in place, a foundational piece that allows us to get visibility into our inventory at a near real time basis that was the first basis of the visibility into the inventory. And so now we're building upon that to increase inventory accuracy and then beyond that we will be looking at buy online, pick up in store, or buy online to silicon store and the different permutations such as that. And certainly with our new distribution center in Vancouver it will allow us to fulfill -- quite frankly it will allow us to fulfill within Canada as well as across border. So, one of the things that we are looking at is leveraging the distribution center in Vancouver on the West Coast to fulfill along the whole West Coast, north and south.Stephen MacLeod That's great, thank you for the color.Operator Our next question comes from Meaghen Annett from TD Securities. Please go ahead.Meaghen Annett Thank you and good afternoon. I am scoping on the conversation of data analytics, just curious as to how you're leveraging customer loyalty and how that's really changed over time and more specifically have you touched on any opening commentary, can you just talk to the evolution of the POS [ph] telling program and what the future holds for that initiative in particular?Brian Hill Hi, thank you for that question. At this point in time we weren’t able as we mentioned in the past for the POS system to really take advantage of the clientele and the information we had with the old POS system. It was too cumbersome and we weren't able to mine the data. We collected it but we weren’t able to mine it and access it and leverage it whatsoever. We're just in the process, we had a big clientele event in June but we are stabilizing our POS system and focusing on our POS 2.0 versus 1.0 which we went live with -- which we're going to go live with shortly are 2.0. And so at this point in time we still haven't taken the opportunity to access and mine is data and put some programs in place. We're building some programs on the back end presently that we will want more ready to press a button and go as well as we're collecting much better data at the point of sale system as well from our clients. So we're doing all the work in the back but we haven't yet mobilized on any initiatives at this point in time. But we plan to start later this year and then really ramp it up in the following years.Operator Our next question comes from Camilo Lyon from Canaccord Genuity. Please go ahead. Camilo Lyon Thanks, good afternoon everyone. I just had a few questions. First I wanted to -- Brian I wanted to get your thoughts on -- and your updated thoughts on how he denim program is progressing, I know that's something that you spoke about in the past, the excitement around launching your private brand, your own brand of denim and so it seems like there's a good trend that would support that launch. So, I am just trying to get your -- would love to get your thoughts on where that's progressing, how that's progressing, and what we can expect over the coming quarters from that program?Brian Hill Yes, thanks for the question and nice hearing from you. Yes, the denim program has progressed really well. Obviously we haven't gone live with it. We're going to go live with it towards the end of August. We've at this point in time we being in our factories ensuring the quality of the product, the fit of the product, the finishing of the product is all executed to perfection. We have no reason to believe it is not really confident that it is. We've done our photo shoots and things like maybe give you a sneak peek if you like on our photo shoots, they look wonderful. And so we're all ready to go. We're launching it in four phases, I don't remember all four phases and the name specifically but there's teasers coming out and then some other phases that come out as well with the denim program.It is a two phase program so first of all we're launching with our denim line and the second phase which we hope to have up mostly for spring 2019 is the integration as well of the existing denim that we were manufacturing for all our other exclusive brands because a lot of those brands have a denim in them as well. So Phase 1 was launching our new line, phase 2 is taking those products and existing and new products that we're going to develop into our existing exclusive brands and ensuring that they've been shored up to the same high degree of quality that are existing and styling that our new denim line will provide.Camilo Lyon Great, thanks for the color. Shifting gears a little bit, you mentioned the success of the time with the Meghan Markle, it's something that we noticed as well and we definitely saw a spike in online search activity and the trends that she wore. I'm wondering a lot of the press that you got from that partnership was really third party so I am wondering is there an opportunity that you've discussed and is there a potential for there to be more direct relationship so that she becomes a more prominent figure as you go to market through different seasons?Todd Ingledew From what I understand and I've just spoken to her stylist today she has an affinity to Aritzia because we've been supporting her for quite some time and so there's a loyalty there to Aritzia. But I imagine there's other pressures being in the royal family and living in the UK and supporting the designers there. So at this point in time really I don't think it's something we can push. I think we have to be there and support her when she wants the support and help style her whenever those opportunities present themselves. But I don't think we're in a position to start pushing that. That said as we have talked about with influencers and it's not just Meghan Markle, there's a lot of different people wearing our product these days and we can hope and are confident actually that they will continue to wear it as well as we can start pushing on the paid piece from the various channels as well as in so much as influencers and things. So I think it's a combination of celebrities wearing our product, I think it's a combination of influences wearing our product, and the combination of just people picking our product up and getting press for that. So I think it's a multi-pronged strategy and we're pretty excited of the positioning. Meghan wore our clothing I think on three or four occasions when she first went out in the polo match she had our blazer on and she was at the Invictus game she had a dress of ours on and a jacket she had purchased from our stores. So she has worn our product many, many times and they've all been successful.Camilo Lyon Great, and then my final question is really on the product, you have been known for having on trend fashion, great looking assortment, really season in and season out but it seems like there's been a heightened excitement around certainly the spring summer launch. I'm wondering have the recent hires that you have made over the last year has there been a change that they've now started contributing to the fashion that's in markets so that we can expect to see a continued elevation of what we are seeing in the marketplace in the fall seasons?Todd Ingledew Most certainly new people that have joined the team have contributed for sure but we have a lot of people who've been here for a long time that are contributing as well. And so you know it's a combination of the new people and the people that have been here a long time that are making and continuing to make meaningful contributions. I think realistically we just did a better job of color and we did a better job with seasonality this season. And so that's something we think we'll be able to continue to capture going forward and I think we just executed on that and it wasn't really a fashion thing, it was more just our attention on color and seasonality. And I think we have learned that we can -- by focusing on both those areas we will continue to drive our business not just in summer but in the fall and winter and in the other seasons as well. Camilo Lyon Fantastic, good luck with the fall season. Brian Hill Thank you very much.Operator Our next question comes from Drew North from Baird. Please go ahead. Drew North Good afternoon, thanks for taking our question. I wanted to ask about the margin outlook, wondering if you could provide some more specific detail around the puts and takes to the margin in the second half, more specifically the potential magnitude of the sourcing benefits you are seeing as well as the pressure from higher raw material costs and then the strategic priorities or strategies I should say you are pursuing to mitigate these raw material headwinds?Brian Hill Yeah, I'll take that. As we have said in the back half that we do continue to expect to benefit from our sourcing initiatives and we do expect that to be offset by the increased raw material cost leaving us in a position where we're expecting gross profit margin for the year to be flat. We don't provide the specific detail around the basis point expectations on the two but we do expect them to be offsetting. As far as strategies go towards mitigation we are looking at our pricing on certain items and maybe considering strategies in order to mitigate. But that's for continued discussion.Drew North Got it, that's helpful. And then just one more if I could, I thought it was encouraging to hear some of the website enhancements you are bringing on, I was wondering if you could speak to some of the trends you're seeing in e-commerce traffic and maybe conversion as these enhancements have evolved and then the opportunity you think you have to further improve conversion from here?Jennifer Wong Well we don’t specifically disclose details around website metrics like trafficking conversions. What I will say is that year-over-year we see consistency on both. And if you put AOV in there as well those are the three magic metrics. What we are seeing is no changes specifically with in each of those. Our growth is driven largely by number of transaction and volume.Drew North Great, thanks. I'll leave that to somebody else.Operator Our next question comes from Mark Petrie from CIBC. Please go ahead.Mark Petrie Yes, thanks. I just wanted to ask a question around how you think about the brand and obviously there's a ton of momentum in the business and it sounds like to me over the last couple years you guys have become at least somewhat more aggressive in terms of how you're marketing the brand and some of the tactics you're using. I just wanted to sort of ask if that kind of trend continues from here and I know you've mentioned something like limited wholesaling as a potential way to sort of further market the brand, you're thinking on that? And then I guess related how that relates to the international opportunity and I know you've been at international shipping for almost two years now sort of your latest thinking about the international opportunity?Todd Ingledew So what's your first question again, sorry I got tied up thinking about the international opportunity -- play at marketing. So I actually don't think we have done anything particularly different from a marketing perspective. Obviously we have a social media presence and some other presence but we haven't actually gone out and spend any money on paid advertising at this point in time which is something we have never done in the past. Not to suggest that we might -- we're not looking at it right now because we are, because the influencers and things like that. Obviously they're paid to play. But where we've been spending and focusing our marketing dollars is just ensuring that the customer experience is continuing to be elevated and that comes in the form of the marketing and communications in our stores. That comes in the form of our website, making sure that it's easier to use and more elevating and continuing elevate the catalog and the photography and the models and the styling and things like that. So that's something we've always done in the past, is really focused on spending those dollars on the presentation of what we're doing within those. Now that said we are in the process as we mentioned in looking at our marketing and focusing on some different strategies and at that point in time we may indeed decide to get more aggressive. But at this point in time I wouldn't really suggest that we've been aggressive we've just been investing in ourselves up to this point in time.Mark Petrie Okay, thanks and then any comment on international?Brian Hill We're still pursuing international. I think that we're still seeing growth in international. I think as we have mentioned in the past that focusing and launching TMall [ph] is something that is important to us. It's not -- we haven't really put a stake in the ground as to when we're launching TMall at this point in time and where the teams are busy working on it. And we hope to get it to launch this year early next year. And we're going to sort of gather a lot of data from that at which point in time we'll see what the next steps on investing in international are.Mark Petrie Yeah, thanks a lot. Best of luck. Operator Our next question comes from Patricia Baker from Scotiabank. Please go ahead. Patricia Baker Thank you very much. I know you Jennifer earlier you talked about in your opening remarks that one of the enhancements that you -- one of the impacts of the enhanced online platform is that you will see increased conversion. I understand you don't want to give specific metrics around conversion but I'm really curious if you can just address conversion as a topic and whether or not help how large the gap is in your store conversion rate versus your online conversion rate and then presumably given the strength that you guys have had overtime in your in your top line, I think it's probably right to assume that your conversion rates are better than industry averages, can you address that as well?Jennifer Wong Sure, I will maybe describe to you some of the enhancements that we're doing that I referred to on the site that we believe will positively impact conversion. For instance the digital experience, we do know that over 85% of our browsers land on three specific pages. And knowing this we're able to -- we're going to optimize these pages and continually optimize these pages and we can get the feedback from the analytics pretty much immediately in terms of how these refinements affect the user. And in the end -- at the end of the day it's about refining things such as that knowing where the browser is going to, the browser as in the user and then achieving an increased conversion. So, by identifying opportunities like that that we see and we think there are a number of straightforward opportunities translate low hanging fruit that the team have identified and it's about capitalizing on all of these things which in aggregate is what we're calling the core site optimization.Patricia Baker Thank you.Operator This concludes the question-and-answer session. I would now like to turn the conference back over to Brian Hill for any closing remarks.Todd Ingledew Maybe just before we close the call we thought we should bring out the Trump announcement today on the retaliatory tariffs against China and our teams have reviewed the product categories and the only one -- well there is no -- there is going to be no impact for us. The only category that potentially could is leather, that's the only material that we would have been impacted by except we don't source our leather through China. So we are not at this point anticipating any impact from the announcement that came out late last night.Brian Hill Thank you Todd and thank you everyone for joining us today. We apologize for the slight over overlap with the sporting event that was going on. We appreciate the questions and support from all of you as we grow our exciting company. We look forward to speaking with you soon. Enjoy your summer. Thank you.Operator This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.