Aritzia Inc.
Q4 2017 Earnings Call Transcript

Published: 10 May 2017

[Executives Jamie Kokoska - Director, Investor RelationsBrian Hill - Chief Executive OfficerTodd Ingledew - Chief Financial OfficerJennifer Wong - President and COOAnalysts Mark Petrie - CIBCIrene Nattel - RBC Capital MarketsLorraine Hutchinson - Bank of AmericaCamilo Lyon - Canaccord GenuityJohn Morris - BMO Capital MarketsMegan Annette - TD SecuritiesJanet Kloppenburg - JJK ResearchOperator Welcome to Aritzia Fourth Quarter and Fiscal 2017 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions]I would now like to turn the conference over to Jamie Kokoska, Director of Investor Relations. Please go ahead.Jamie Kokoska Thank you, operator and thank you for joining us for Aritzia's fourth quarter and fiscal year 2017 earnings conference call. My name is Jamie Kokoska and I have recently joined as Aritzia's Director of Investor Relations. I look forward to working with you all.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 session period open to the analysts and investors.Please note that remarks made in the 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 significant assumptions underlying such forward-looking statements and certain risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.The fourth quarter earnings release, the related financial statements, management's discussion and analysis and annual information form are available on SEDAR as well as the Investor Relations section of Aritzia's website at aritzia.com. And finally all figures discussed in this conference call are in Canadian dollars unless otherwise noted.So I will begin with the highlights in our fourth quarter and for the fiscal full year followed by an update on our strategic growth initiatives. You will then be told by Jennifer who will provide an overview of our operational initiatives, Todd will then provide a detailed review of our financial results.I will now turn the call over to our Founder, CEO, and Chairman, Brian Hill.Brian Hill Thank you, Jamie. And on behalf of the whole team, our partners and shareholders we give you a warm welcome. And thank you everyone else for joining us here today. We capped off a remarkable year with a strong fourth quarter. Fiscal 2017 was our 21st year of consecutive revenue growth. I'm incredibly proud of what we've accomplished as an organization both this year and throughout our history. Our consistent growth is a testament to our business model as well as our dedicated and talented team.Net revenue for the quarter increased 17.4%. Comparable sales growth was 11.5% on top of 9.2% growth in the fourth quarter last year generating a three-year compounding stack of 35.9%. This marked our 10th consecutive quarter of strong comparable sales growth with double-digit increases in nine of the last ten quarters. Our continued revenue growth was in part driven by strong customer response to our fall winter collection which consisted of a combination of successful key product categories and new styles that resonated with our customers.We also saw significant gross profit margin expansion of 440 basis points in the fourth quarter. This was primarily the result of continued sourcing initiatives that enabled us to enhance the quality of our products while reducing product costs as well as leverage on occupancy costs and strong sell-through resulting from fewer markdowns in the prior year period.The robust sell-through of our merchandise at full price early in the season demonstrated both the strength, direction and quality of our sermon and the discipline and effectiveness of our inventory management systems. Our performance in the fourth quarter resulted in 38.8% growth in adjusted EBITDA and 55.5% growth in adjusted net income. Our strong consistent performance is a testament to our business model which unites beautiful high quality products, attainable price points and an aspirational shopping experience.Our meticulously designed retail stores are in prime, high-traffic real estate and our e-commerce site is optimized to best showcase our product. These strengths combined with our measured and analytical approach distinguishes us from our peers and will enable us to continue to deliver profitable growth over the long-term. These underlying strengths were behind our consistently strong performance throughout the year and strong fiscal 2017 results.For the year we achieved net revenue growth of 23.0% with comparables sales growth of 14.0% on top of 16.7% last year. Our new expanded and repositioned stores performed in line with or above expectations. We are equally pleased with the momentum of our e-commerce business which saw meaningful growth. We continue to capture the attention of our loyal Canadian customers in the stores and online and have seen growing awareness and affinity in the United States.Gross profit margin for the year increased 320 basis points driven by our sourcing initiatives and occupancy leverage. Adjusted EBITDA grew 38.5% and adjusted net income grew 60.4% for the year which is exceptional growth given we also made long-term investments in our systems, our infrastructure and our talent to support our growth initiatives. As we look ahead our momentum remained strong. We will continue to focus on executing the strategic initiatives that will drive revenue and profitability growth in fiscal 2018 and beyond.First, we will continue to strategically expand our premier real estate portfolio in North American high-traffic locations. These locations enable us to maintain highly productive stores and generate strong four wall EBITDA margins. Based on the strong sales volumes in our stores we are seeing heightened attention from landlords in the United States. Prime real estate opportunities are being presented to us more frequently allowing us to selectively add real estate locations in Class A malls and high street locations that continue to see healthy traffic trends.We plan to open five to six new stores including two flagship locations in order to raise brand awareness. In April we opened two new stores, a flagship store in Los Angeles and our first location in Southern California and a Wilfred store in Toronto. The remaining three to four new locations include a flagship store in Chicago and two to three Babaton stores in Toronto Vancouver.We also plan to expand our reposition six to seven high-volume locations in Canada and the United States with increased square footage and elevated store designs. In the first quarter of fiscal 2018 we relocated our Richmond Center store in the Vancouver area upgrading from 3600 to 7400 square feet. Upcoming projects include the repositioning of our existing 2400 square feet locations in San Francisco Center to an 11,300 square feet flagship store with prominent market street frontage and access from Westfield San Francisco Center. With the 11 to 13 new expanded and repositioned stores planned in fiscal 2018 we are right on track to achieve our store network enhancement targets by fiscal 2021.Second e-commerce remains a significant growth opportunity for us and generates strong operating margins. The performance of our e-commerce businesses been exceptional since we launched in fiscal 2013 with increased traffic and conversion rates each year since. Our website also gives customers the same aspirational shopping experience as they would receive in our stores. We are extremely pleased with the results of our online strategies to date and are excited about our long runway for growth.In fiscal 2018 we are starting the journey towards using advanced business intelligence and behavioral analytics to further enhance our understanding of our customer which will in turn position us to accelerate traffic and conversions and drive continued strong growth in our e-commerce business.Third, our talented and house creative teams will continue to push the envelope on product innovation. Our competitive advantage lies in our exclusive brands, beautiful designs and product innovation. The strength of this innovation spurred customers' strong response to our spring and summer 2017 collections where new style reorders exceeded our targets. Along with styles developing new brands is also part of our business.In March 2017 we saw great success with the launch of the The Constant, a brand combining technical performance and elegant design. In the past two weeks and also launched another new brand called Little Moon. We will continue to leverage our creative talent to fulfill our customers' needs through developments in our existing inclusive brands and through our news exclusive brands. The art is continually balanced with the science of analyzing our sales data to deliver the right product in the right place at the right time.Fourth, we will continue to make strategic investments in our business while creating supply chain efficiencies and leveraging our infrastructure to drive profitable growth. We have made and continue to make technology investments such as new point-of-sale and human resource information systems which Jennifer will discuss shortly. We will also continue to invest in acquiring and elevating talent. We're encouraged by the exceptional creative and retail talent we are seeing in the marketplace.Finally, we will continue to drive brand awareness through real estate and marketing strategies designed to attract new customers in North America. In our brand initiatives we highlight our exceptional design and quality as well as unique ethos and aesthetic of our exclusive brands. This is what distinguishes us from our peers in the marketplace. We have seen a strong response to these programs thus far that are sending new customers into our stores and online with the number one indicator of the success being our revenue growth.When you look across the landscape of consumer companies, the ones that have consistently outperformed and the ones that have the right product we have an innovative design house with a proven track record of providing customers with the products they want. The solid start to our first quarter which we attribute in large part to strong customer demand for our spring summer servings is further evidence we are giving our customers what they are looking for.Also critical to our success our portfolio of highly profitable stores in premier locations, state-of-the-art e-commerce site, highly disciplined merchandising and planning strategies and a talented team. This combination of strength has enabled us to deliver consistent growth since our inception. We see strong momentum in our business and we believe we are positioned to continue to deliver growth in the shareholder value in both the near and long-term.With that, I'll turn it over to our President and Chief Operating Officer, Jennifer Wong to discuss our operational initiatives.Jennifer Wong Thank you, Brian and good afternoon everyone. As Brian mentioned we are in the process of implementing a new retail point-of-sale system which will enhance our omni channel operations and CRN capabilities and ultimately further elevate our overall customer experience. This new system will help to provide us with a more comprehensive view of all customer purchases as well as more robust and more accurate customer data both in-store and online. This will enable us to better serve our customers and make more relevant recommendations every time they shop with us.The data provided by the systems will also allow us to refine our marketing initiative and deepen our connection with our customers. In addition, the new systems capabilities will enable us to improve automation for a number of processes leading to a more seamless and efficient shopping and selling experience. It will also provide us with a more accurate and timely view of our inventory. We expect this system will be fully in place by this fall.In addition, we have been working to rollout Phase 2 of our new human resources information system or HRIS for short, which will facilitate more strategic HR planning and decision making. We implemented a set of enhances during the fourth quarter of last year and will launch additional capabilities in the second half of this year.We will continue to make investments in our future growth including the enhancement of our supply chain. In April we expanded the capacity of our Columbus Distribution Center from 45,000 square feet to 138,000 square feet. The increase size and scale of the operation will allow us to meet our U.S. demand today and will support our growth over the next several years.We have also leased a new location in the greater Vancouver area and will be relocating our existing 83,000 square feet DC to a new 223,000 square foot facility. The expansion of these two distribution centers will enable us to more effectively service both, our fleet of stores and our e-commerce business in Canada and the United States. We expect the new Greater Vancouver DC to be operational by spring of next year.Overall these physical upgrades as well as investments we are continuing to make in elevating the talent and technology across our business will enhance our customer experience and support our growth for the long-term. We're currently finding exceptional talent in the marketplace and are taking advantage of this opportunity to expand our talent pool across the organization and at all levels to facilitate our expected future growth.With that, I'll turn the call over to our CFO, Todd Ingledew to review our financial results in further detail.Todd Ingledew Thank you, Jen. Good afternoon everyone. Net revenue for the quarter increased by 17.4% to $296.4 million from $167.4 million in the fourth quarter last year. The increase was driven by comparable sales growth of 11.5% reflecting strong momentum in both our stores and our e-commerce business. Revenue growth was also attributable to the addition of five new stores and the expansion or repositioning of five existing stores since the end of the fourth quarter last year.Gross profit increased by 32.4% to $75.4 million compared to $56.9 million in the fourth quarter last year. Gross profit margin was 38.4% of net revenue compared to 34% of net revenue in the fourth quarter last year. The 440 basis point increase in gross profit margin was primarily due to lower product related costs resulting from our sourcing initiatives, leverage on store occupancy costs and fewer markdowns due to strong sell-through of fall and winter product.Selling, general and administrative expenses increased by 26.9% to $49.5 million compared to $39 million in the fourth quarter last year. SG&A expenses in the fourth quarter included costs related to our secondary offering of approximately $900,000. Excluding these one-time costs SG&A expenses were 24.7% of net revenue compared to 23.3% of net revenue last year. In the fourth quarter of this year we saw higher store labor costs related to continued effort to elevate our in-store customer experience. In addition, we increased investments in support of this talent to support our growth.Stock based compensation expense of $4.4 million in the quarter was comprised of $2.3 million in costs related to our legacy option plan and $2.1 million in costs primarily due to the company's new option plan. Adjusted EBITDA increased by 38.8% to $32.3 million compared to $23.3 million in the fourth quarter last year. Adjusted EBITDA was 16.4% of net revenue compared to 13.9% of net revenue last year. Adjusted EBITDA excludes stock based compensation expense of $4.4 million, unrealized foreign exchange losses on U.S. dollar forward contract of $1.7 million and secondary offering related costs of $900,000.Finance expense was $1.3 million in the quarter a decrease from $2.3 million in the fourth quarter last year. The decrease was primarily driven by both lower average debt outstanding and lower average interest rates. Income tax expense for the quarter was $7 million compared to $3.9 million in the fourth quarter last year. The increase was primarily due to higher income from operations as well as the non-deductibility of stock based compensation expense in the fourth quarter of this year compared to the fourth quarter of last year. When stock based compensation expense for legacy time based options was treated as a deductable expense.Adjusted net income increased by 55.5% to $18.3 million or $0.16 per diluted share compared to $11.8 million or $0.10 per diluted share in the fourth quarter last year. Our adjusted figures exclude the after tax effects of stock based compensation, unrealized foreign exchange losses on U.S. dollar forward contracts and secondary offering related costs. Reported net income was $11.5 million in the quarter compared to reported net income of $10 million in the fourth quarter last year.We have a strong balance sheet with a 1.14 times total debt to LTM adjusted EBITDA ratio. As of February 26, 2017 we had $79.5 million in cash and cash equivalents, total debt at the end of the quarter was $134.1 million compared to $145.6 million last year and we had zero drawn on our revolving credit facility at the end of fiscal 2017.Before we open the call to questions, let me provide some highlights from our fiscal year results. Net revenue increased by 23% to $667.2 million from $542.5 million in the prior year. Comparable sales growth was 14%. Gross profit margin increased to 39.8% from 36.6% in the prior year. Adjusted EBITDA increased by 38.5% to $117.7 million from $85 million in the prior year. Adjusted net income increased by 60.4% to $64.6 million or $0.55 per diluted share up from $40.3 million of adjusted net income or $0.34 per diluted share in the prior year.Finally, we generated $112.1 million in cash flow from operations. Overall, we are very pleased to have ended fiscal 2017 on a strong note and to see this momentum extend into the first quarter. As Brian said, we saw a highly favorable response to our spring and summer assortments and we are on track to achieve our 11th consecutive quarter of positive comparable sales growth.We plan to open five to six new stores and expand or reposition six to seven existing locations in fiscal 2018. We have already opened two new stores and repositioned one during the first quarter. In addition we expect a continuation of meaningful growth in our e-commerce business and expect to maintain the improved gross profit margins we achieved in fiscal 2017.As a reminder, our product cost initiatives began to meaningfully benefit our gross margin in the first quarter of fiscal 2017 and we will be lapping these gains in fiscal 2018. We will continue to invest in our infrastructure, systems and talent as Jen discussed. Therefore as we expand our business we expect our SG&A costs will increase alongside revenue growth in the near term.Overall we are right on track to achieve our fiscal 2021 financial targets and remain well positioned to drive long-term revenue and earnings growth.We are now ready for questions. Operator, if you want to open the line?Question-and-Answer Session Operator [Operator Instructions] The first question is from Mark Petrie with CIBC. Please go ahead.Mark Petrie Hey, good afternoon. Hoping you could just provide a little bit of color in terms of what you saw in store traffic, basket size, number of items in the basket and maybe some color in terms of the regional performance U.S. versus Canada and even within Canada how that relatively high level how the regions performed?Brian Hill Mark, Brian here. Are you referring to the year or the quarter?Mark Petrie Yes, sorry for the quarter and on a same-store basis.Brian Hill As I mentioned on our last call in January, we continue to see a shift in, the biggest shift we’re seeing is in Canada, isn’t in basket size or foot traffic or anything else at this point in time. It was still sort of the effect of the sales in over the whole or in December getting shifted into early or late November through the Black Friday promotions and things like that that have occurred that we've mirrored from the United States.Specifically in the United States we haven't seen a lot of different foot traffic. It's hard for us to understand specifically some of these things because our brand is becoming more influential in the United States and so we are - our foot traffic in the U.S. is actually increasing versus decreasing from our reports we get. So from that perspective we are truthfully seeing our e-commerce grow at a faster clip than our overall retail sales and I think every retailer in the world is probably seeing that or they're doing something wrong.And so we're seeing that shift but on a region by region perspective we didn't see a lot, you know we had a pretty cold winter right across the country this year and I think it probably helped us a little bit with some of our fall winter product and helped us a little bit with our markdowns towards the end because we're still driving a lot of those sales early into our fall winter versus our new spring collection. That said, our new spring collections we had the best launch we've ever had. So we're still seeing sort of success practically everywhere we're looking right now. And both in basket size and in sales and everywhere we look we're seeing success right now.Mark Petrie Okay, thanks and then on e-commerce, I didn't see a specific number, but are you going to disclose sort of e-commerce as a percentage of total sales and then if not maybe just give us a sense of how much did e-commerce outperform the 11.5 comp.Todd Ingledew So we aren’t planning to provide a breakdown of the e-commerce versus store growth. However, our e-commerce did grow meaningfully as we've been discussing, continues to grow meaningfully and is on track to hit our targeted levels for 2021, so we're on track to hit the 25% of revenue through the outlook period.Brian Hill And I’ll add to that, I mean we look at ourselves as a full omni channel retailer and I think with the infrastructure that we're putting in that Jen discussed on the POS system, we are going to see us become more and more omni channel. So for instance I believe we get a lot of returns from e-commerce come into our stores probably more than get brought back through the e-commerce channels and those are a lot of times turned around into sales.And so we're finding our customer more and more and more is shopping online, shopping in our stores, returning in our stores, returning online and doing a bit of everything and so, it would be very difficult for us we don't look at the customer, we’re looking at the customer and the customer experience. And we're not really worse so somewhat agnostic as to where we actually, where the customer and what channel they're shopping in.Mark Petrie Okay, that's helpful and sorry just last on that POS rollout you talked about investing in SG&A, so probably not really seeing much in the way of surprisingly not really seeing much in the way of leverage despite the top line growth but is that going to be phased in relatively, smoothly throughout the year how should we think about the seasonality of those investments?Todd Ingledew Are you talking about the POS investment, can you mention...Mark Petrie Yes, the POS and I guess any impact from the DC’s as well.Jennifer Wong We generally have a plan our projects to be there is some strength is the resources and that we have this year in terms of the people to carry it out. So generally speaking when we plan all of our projects there are initiatives, that are planned throughout the year based on peak seasons and last peak seasons as well as the bandwidth of our folks here.So to be specific point-of-sale will roll out, you know we'll start our pilot end of July and then eventually roll out that also are coming online by fall. The DC is something that we've already initiated, we initiated that few months ago. It's a longer term project that we're working on throughout the next year and that is expected to go live in the spring.So I'm just using those two projects as an example. You could see that they are phased out between the seasons. HRIS the phases are smaller and are happening more in terms of day to day. They're not major impactful changes to the business.Mark Petrie Okay, that's very helpful, thank you very much.Operator The next question is from Irene Nattel with RBC Capital Markets. Please go ahead.Irene Nattel Thanks and good afternoon everyone. I'm just wondering if you could talk a little bit about the response that you're seeing in the newer markets in the U.S. that you're going into?Brian Hill So the newest market we've gone into is Los Angeles. We've opened a flagship in Century City in Los Angeles. It was an extremely good center. It is a Westfield Center. They spent they are claiming $1 billion on renovating it. We opened there about four weeks ago and it is exceeding our expectations on its performance up to this point in time. The mall, they are opening in the shopping center sort of 50% and 50% as it turned out they opened it 30% and 70%, so only 30% of it is open and so the traffic counts are low and everything else in there and we're doing extremely well.So it is our best store on the West Coast quite frankly right now and the shopping centers and we will have people, parking isn't even open the restaurants aren't open two thirds of the stores aren’t open and so we're really excited about our Los Angeles opening. It's as I say surpassed our expectations. I don't think since our last call we've opened any other stores in the U.S. at this point how we?Todd Ingledew The Broadway plazaBrian Hill Oh and then Walnut Creek Broadway Plaza we opened up. We're already kind of in that market, we're already in San Francisco. But it's performing at or above our expectations as well so our new stores have been as Jen mention in the lead up are opening at or above our expectations and we're particularly excited about our flagship Los Angeles.Irene Nattel That's great. That's really helpful and you know presumably you're doing a best of track e-commerce penetration along with the new store openings are you seeing them those two grow in lockstep?Todd Ingledew We typically do and we do track and we typically do. I have not asked for a report on that of the last sort of three weeks because the store just opened. I'll be getting something in the next couple of months, but we certainly will see that if it's consistent with what we've seen in the past. But one store doesn’t do it alone, the several stores do, so we have other stores planned in the Southern California marketplace and we were hoping and become this even more of a vibrant e-commerce market that already is extremely good e-commerce market forces in United States is Southern California.Irene Nattel That's great and just moving on to new line launches, you know that you've had a couple of new line launches. Again consumer response very strong and if you could talk a little bit just about what the thought process was and why you chose to launch those two particular lines?Brian Hill Yes, we you know one of the things I think one of our biggest advantages Irene is that we are able to move with fashion and we're not known for one look necessarily. And so we're how we actually do that is fashion changes from the you know the obviously the lines of all but as fashion changes if a line isn’t going to naturally evolve we need to create a new collection and new line. And so from our perspective we’ve seen some influences that off the runway that were very highly embellished, high impact saturated colors and things like that.And we just didn't think we had a line with that kind of ethos, so we created our Little Moon collection. We have a designer who's worked for us for several years from Chloe here who was pretty excited about it and we gave her the opportunity to design and we're thrilled with it. You know we had besides now my wife wore it to an event the other night and everybody asked her where she got a Gucci dress and she said she got it at Aritzia. So there is - so we're really thrilled with the response that's been and the other one you're referring to I think you're aware of is the Constant.We brought the designer over, she's been with us about a year and a half. She was at the Little Moon lemon lab and she had a vision for some collection and we thought we had opening an opportunity in the marketplace with that and so that's launched as well and had an incredibly successful launch. So our new lines of launch I think both launched extremely well.That said, the way we - our strategy, our merchandising and things go I mean it's not there neither one of them in the first season or two are going to make up a meaningful amount of our business until we start sort of being able to exponentially work off all the successes and things like that. And we've explained that before when I was on the road show how we go about it merchandising lot of season so in time those will certainly hopefully become meaningful parts of our business, but we're not expecting anything for the next year or so.Irene Nattel And you know presumably as fashion moves wongone, if for example little moon is something that you could just easily, we would just as easily drop or mark into something else correct?Todd Ingledew Yes, but I think it's just as easy for us to create a new line versus more for existing lines so, I mean that's the beauty of our model and so little moon for whatever reason fashion changes and it doesn't become meaningful we shrug our shoulders and move on to the next and so that’s the beauty of our model.Irene Nattel That's great and just one final question if I might, just a point of clarification for Todd. On the gross margin you're not suggesting that we should see any gross margin pressure in S18 but rather that we should not be expecting the same kind of risk is that right?Todd Ingledew That's right exactly. So you know I think as we've been discussing our product cost initiatives began its meaningfully benefit our gross margin in the first quarter of last year and so now we're lapping those improvements. So, we're expecting to maintain the improved gross profit margins that we thought this year we'll maintain that level on an annual basis.Brian Hill And if I could add on to that, I mean we do, do a lot of business in Canada all our products are purchase in the U.S. Dollars, so that always has an effect on us as well and so we are at the mercy of the benefit of what's happening politically and from an FX perspective as well and we can hedge all we want, but the end of the day that has a big play a role in our margins as well.Operator The next question is from Lorraine Hutchinson with Bank of America. Please go ahead.Lorraine Hutchinson Thank you. Good afternoon. Just maybe following up on that gross margin, I know that we're lapping the product cost benefits but at what cost do you think you might leverage occupancy this year.Todd Ingledew Again I guess, we aren’t looking at it that way and then don't have, we have additional occupancy costs coming in this year from the new stores that we're building. We built 10 new stores last year, if you count the five, expansion and reposition in the five new stores and then this year we have five to six new stores as well as six to seven expansions and repositions. So we have obviously additional rent coming from that as well as we are repositioning our Vancouver Distribution Center and from a straight line rent perspective will be paying rent there.So there is some pressure from an occupancy cost perspective this year and that's one of the reasons. That we aren’t forecasting any improvements while along with you know the fact that we are continuing our sourcing initiatives and we'll see some benefit, but we think it will be offset by the pressure from occupancy.Brian Hill That said, in the long term we're not going to see any immediate impact because we have long term leases in place, meaning were assigned five, six, eight, ten years ago, but we are seeing more competitive offerings from our landlords right now in the marketplace, It's no secret to anybody on this call that the industry is struggling a little bit and we're just so excited about the opportunities that are in front of us, both from a leasing perspective, a talent perspective and other cost saving opportunities perspective. But you know for our leases and some of the leases we're putting in place now that we're seeing more competitive offers and better locations and better space they don't kick in two, three, four, five years of those deals under your belt.So we'll probably start seeing some a little bit more in the mid to long term, but in the short term we're not going to see any sort of reflections in the market and our business is so strong in the malls we can't really go in and try waltz a little bit with them because they see all our sales and they know that our business is extremely strong so we can't ask them for help.Lorraine Hutchinson Great. Thank you.Operator The next question is from Camilo Lyon with Canaccord Genuity. Please go ahead.Camilo Lyon Thanks, good afternoon everyone. Brian, you mentioned that the momentum from Q4 has continued in Q1, that this was the best spring launch you've had to-date. Are we to interpret that is meaning that the comps that you delivered in Q4 that double-digit comp has continued at that pace in Q1?Brian Hill I think well when we go from season to season the comps from one season to the next season are mutually exclusive. All we've suggested is the comps are healthy again in Q1.Todd Ingledew Yes, we expect positive comparable sales growth Camilo, as Brian is saying that our spring summer collection is being well received and we are anticipating our 11th consecutive positive comp sales, but beyond that we haven't specified.Brian Hill And we still have quite a ways to go here as well. So in the quarter but we've had an excellent launch, one of our best ever and we're pretty excited about our sales. And they're coming up, as you know they're coming up comping on comping now some pretty aggressive comp on comp numbers here as well. So again our three years stacks kind of look incredible, but you know so but we are comping now and it's great. We're pretty excited about it and are ahead of where we expected to be.Camilo Lyon Got it. Thank you. And you also talked about the tremendous amount of talent that's available in the market. Certainly it seems that way with some of the new brand launches and the other designers that you've been able to bring on. Did this talent pool that you're now that, that now is becoming richer, do you see you know tapping into that talent pool an opportunity to expand the number of brands that you're offering or how do you see that helping your business reach meet and exceed your goals on a long term basis, is that's just from a cash flow perspective or brand expansion what really does that allow you to do more of?Brian Hill So we're seeing just to be specific we're seeing this talent availability across all aspects in sectors of our business so we're not just seeing in the product category. We're seeing it in our retail operations and retail positions. We're seeing it in our support operations whether it be distribution centers or human resources. IT is obviously still tight and will probably remain tight because everybody is low on IT people. But generally most other places in the business then they could be as smaller departments like loss prevention and then departments such as that and larger ones like retail where we're seeing a lot more talent available to us.I think this is also coupled with the fact that we're becoming more and more famous in the United States is helping us as well and attraction I think one of those things when we're on the road we talked about was the, was the being public and the press and awareness in the marketplace we're getting from that as well. And so it's all seems to be helping for us and I will say it's not coming in at an inexpensive price.We're seeing talent available to us, we've seen before, but it's not because a lot of the talent we're seeing is coming out of the U.S. we used to getting paid in U.S. dollars as well as moving into Vancouver which everybody knows is not the most inexpensive place to live and having an 18% tax on new houses and things isn't helpful as well. But that said we're seeing the talent we're getting a look at it and high end talent right across the board we're pretty excited about the level of talent. Obviously our talent acquisition department is taking all the credit for it, but I think there's a lot of external factors that are playing more to it.Jennifer Wong And Camilo what I, its Jennifer here how are you. What I’ll add to that is specifically as we're able to attract some of the expertise, specific expertise at higher level. In terms of what we're see in the marketplace and adding that and complement our existing workforce basically continually improving on our talent pipeline so that as Aritzia grows, as we take new initiatives as you look at it expanding our footprint, we have the talent that can enable that growth and I think it’s specifically levels of expertise in all of these areas that Brian mentioned that will be key to our growth.Camilo Lyon That’s great and then my final question is on international and e-commerce you’re your ability do now ship if you turn that ability on last quarter to ship internationally I'm wondering if you have any more insight into what countries are getting the most demand from and if that's starting to inform, the longer term international rollout plan, total rollout plan?Brian Hill What's ironic is that it actually hasn't changed. So before we're shipping internationally we had a fairly vibrant international business. It was just we were making the super hard for people to conduct the business with us. Since we've turned that on, we found that countries we're shipping too and before and now it hasn't changed whatsoever even the percentage contribution of those countries has changed very little so, up to this point in time.I mean sometimes you get new learnings and sometimes you get reinforced existing learnings can be just as valuable and so we're getting reinforced of existing learnings which has been quite valuable to us and but it hasn't changed if we had to sort of put expansion, international expansion strategy based on where we're at in the past. And now we do it, with the information we have now it probably wouldn't change based on what we've seen so far. There would be other factors that may change that, but as far as that goes it wouldn't have changed.Camilo Lyon Right, all the best. Thank you.Operator The next question is from John Morris with BMO Capital Markets. Please go ahead.John Morris Thanks. Congratulations everybody to really good execution there and pretty challenging environment sounds like a very strong start too. Question relating to the, I guess the overall context of the inventory, are you happy where things stand you know, where you exited the quarter which now is several months ago. But where, where you feel about the current mix of the inventory currently a little bit about how the semiannual sell went for you all to run about the same length on a year-over-year basis and would you be planning, sort of a normal sale period coming up as well, kind of what to expect there?Todd Ingledew Yes, John we don't change our sales periods and our strategies around that if for whatever reason we have a weaker season we probably increase the markdowns a little bit more but when we go on sale and come off sale that doesn't really change so our calendars had not shifted. We had a probably a slightly weaker than normal sale period in the quarter that we announced from a pure sales perspective off price perspective which I think helped with our margins.I mean some of those margin contribution numbers were contributed to by lower markdowns and usual and I think that was just a reflection of having such a great fall and winter season and having less product. And as I've said to many people if you have a great, great sales season and probably means you had a poor regular price season and reiterate that again.We had a great fall and winter season and we're just thrilled with our business and because of that we had less merchandized the off price and in that season. As far as inventory levels go, we go clean more or less the end of every season and we plan we've been doing that for decades to this point in time.We plan on doing it again and so that's never going to change our inventories going to be clean every season. And so we started at a great inventory level that we expected to, we’ve had a great sell-through so far with the spring season and we're pretty confident that we're going to be in really good shape by the end of the season as well, so nothing out of the ordinary or no red flags out there for us whatsoever right now.John Morris Yes the stores look great. Good luck for the rest of spring.Brian Hill Thank you, I appreciated that.Operator The next question is from Megan Annette with TD Securities. Please go ahead.Megan Annette Thank you good afternoon. On the SG&A could you give us a little bit more detail on the efficiencies that you are expecting from the HRIS, the POS and also the supply chain initiatives that you're putting through right now?Todd Ingledew Sure, I'll put Jen.Jennifer Wong Hi Megan, it's Jennifer.Megan Annette Hi Jennifer.Jennifer Wong Specifically on the HRIS we were completely manual for the HRIS went into place last year, so you can imagine with a few thousand employees I think it’s about 4000 and 4500 that go through our organization in here managing that manually very inefficient, it is a very manual process as we're not able to truly optimize performance, but our employees and be precise with that and develop careers with our employees across the board. So this system was strategic for us in terms of our people being one of our most important assets in the business.We talk about a lot of the talent and lot of time on talent and so having a system to support the acquisition, the retention, the development of our talent is really important. So there's the administrative aspect to it that is kind of a no brainer but then there's a more strategic element to it which we think will be super important as we move forward.On the point-of-sale I pointed out is a legacy system, that’s a system that we put in place I think in 1997. The company has since been bought out I want to say three times. And so its, so there's several aspects to the point-of-sale implementation and number one is there is just technology has moved forward so quickly in the last three years. We have to keep up to speed with technology particularly as we want to support an omni channel vision, it’s critically important that we have a point-of-sale that allows us to have a 360 degree view of the customer.Our current point of sale does not so it's again about enabling our growth and realizing our vision for our growth plan. More administratively, again a lot of our transactions in the store are manual. A lot of our customer services are manual done by telephone, done, with sheets of paper with binders and again as we grow it becomes more and more difficult to manage, more and more prone to error another example would be credit card and debit card processing.With this new point-of-sale we will be able to integrate those payments into our point-of-sale and again reduce error, reduce loss. And then I would say that the, the other thing is basically the point-of-sale will be a foundational platform for the omni channel vision that we have. On the distribution and supply chain improvement, largely that's a function of growth and capacity and throughput in our DCs as we grow it's just a necessary fact that we're going to have to expand our capacity. When we really put in the distribution center in Vancouver I want to say was it was about 10 years ago.The growth since and you know we put it in place expecting to be there for seven years, but a certain growth projection we've outperformed our growth projection in the last 10 years and so moving out of our DCs and Columbus and in Vancouver quite frankly is a function of our growth and our anticipated growth. And the fact that we brought fulfilment for e-commerce in-house rather than outsourcing it adds another layer of complication. So we will see service levels to our customer online as well as through our stores improved and we'll get better efficiencies with cost during processing.Megan Annette That's great, thank you. And then my next question would just be on the balance sheet. So Todd you mentioned the strength of the balance sheet currently and if we reasonably assume that the results continue to come through the way they have, the balance sheet would only further strengthen into the end of the year. So could you just talk about some of the - your priorities for uses of excess cash?Todd Ingledew Well, our primary use of our excess cash continues to be investment in our business. So we've discussed the number of stores we're opening this year and the repositions and expansions as well as significant investment in our distribution centers, our POS system. So we have significant capital investment this year and that's our primary use for our capital at this point. We don't feel that we're currently at the level where we will be exploring opportunities that we may look at down the road from a capital structure perspective, but we're happy with our current leverage ratio and we're focused on growing the business and using our cash to do so.Megan Annette And can you just update us on the CapEx expectation for this year and maybe next year?Todd Ingledew Yes, so I mean as we've discussed there are significant projects this year. Last year we spent only about $6 million on infrastructure as we've previously communicated we are planning to spend approximately $15 million a year. So the projects from this year, like the POS that we planned for last year, some of those have moved into this year and then DC01 was initially planned to straddle 2018 and 2019 and so that's been pulled back from 2019 into 2018. So we will be seeing an elevated level from the $15 million point, but expect to be still remain at that on average over the three years.Megan Annette Great, thank you very much.Operator The next question is from Mark [indiscernible] with Robert W. Baird. Please go ahead.Unidentified Analyst Great, good afternoon and congrats on a successful year. I wanted to followup on a couple of things, just first Brian, regarding the new lines you mentioned identifying some runway trends realizing the brands that you have didn’t fit that ethos and so you decided to launch the new line. I was just hoping you could give us a sense of how long that process took meaning just trying to get a better sense of how flexible the model is and how quickly you can go from concept to launch in response to market trends like that?Brian Hill Yes, I mean, that's a good question and I think just so you understand that when we see trends in marketplace and things there are all these trends and all these influences are picked up in the various lines in various ways. So it's not like we're – we can – we have no flexibility there whatsoever. As fashion changes we've proven year in, year out, season in, season out that we're able to follow those trends and capitalized on those trends and that's part of our model, the flexibility of our model.We were just seeing some a little bit more of a romantic so to speak and flow over romantic and a bit of lightness in the marketplace. We've seen a resurgence in lines like Gucci and people like that that are showing a lot of these locked in and we just didn’t think they – although we were picking up some of these looked at some real lines we didn’t think that they were – there was a real home to put them all in. But that was sort of a compromising maybe those lines.So I don’t know if you can seriously [indiscernible] but so we endeavored to launch this line. You know we were in discussions probably 12 months prior to it launching or may be not quite, may be 10 months prior to it launching and we're able to turn the line around in probably six months or so. But depends when you win you, when you start to go by the time the decision on making, once we made the decision to actually go ahead and create the line and bring it to market and things like that we – there is a four-week shipping, six weeks for manufacturing and CM, eight weeks for fabric and then sort of four-weeks for going back and on the design approvals and things like that. So that's how we're kind of, that's sort of the basic data that we were looking we were working within.All right, what also happens here is we have to decide when we want to launch it. So we were able to launch this line and this collection probably two months prior to that we were able to do what we did, but there was so much other noise with our new collections and things like that were more important. So we wait to launch certain lines too, so they fit in when one is less noise and things like that and so in this particular case, I'd say we were able to launch this line probably six to eight weeks prior to us doing so, but we choose to launch it sort of in between our spring and summer seasons because we thought it made the more sense for the line, made the more sense of the ads and more sense for the business as well.Operator The next question is from Janet Kloppenburg with JJK Research. Please go ahead.Janet Kloppenburg Good afternoon everyone. I'm sorry if I interrupted the last gentleman. I don’t know that he finished his questions. Do you want me to go ahead Todd?Todd Ingledew Yes, I didn’t hear the question, so may be if he is interested he can, I don’t know, maybe he can come back and we can answer your question while we are figuring out all those.Janet Kloppenburg Okay, thank you so much. I just wanted to hone in a little bit on the online business and how you are just storing assortments online versus the stores, online exclusives are there categories of business that are more robust online than in-store and just how you are configuring your assortments online versus brick-and- mortar?And I also wondered about your shipping offer which has become a very competitive scenario for most apparel retailers, but it seems like you are able to avoid the free shipping on any order that there is a minimum order size, I wondered if you could talk a little bit about that? And also about the overall marketing spend for the channel and what vehicles are best in terms of driving customer acquisition? Thank you.Todd Ingledew Thank you for that and if I – please remind me if I forget to answer any portion of that question, but I – first of all we look at our business as an omni channel business and so every product that we have online we also sell in our stores. Now we do, the stores came from north to south and east to west and suburban to urban and all sorts of things and so all our stores are sorted differently based on the store itself.And we continue to do that and we think that's actually a strategic event as we have our ability to do that. Because e-commerce does not have the four walls so it does hold 100% of our collection, whereas any given store there are very few of them that hold 100% of our diverse collection. So we are able to do that and so the e-commerce offering is deeper and broader from every aspect in our stores, but nothing is specifically made or designed or developed for e-commerce at this point, not to say it won't be in the future, and then e-commerce is becoming so meaningful to everybody's business, but ours as well that we do have the ability now and with the minimums and things like that to do things specifically for that.But we don't really see the shopping patterns change from line to line that much online nor do we see a change from online to our bricks-and-mortar, nor do we see a change from region to region or anything else. It is pretty consistent and so I'd like to think our customer is an omni channel customer and is shopping our stores and our e-commerce site the exact same way.Janet Kloppenburg Okay, great. Thank you.Todd Ingledew As far as shipping goes we've managed to, we do our for free shipping on purchases over a certain size and I think most of our customers are purchasing over that size. So we do offer quite a bit of free shipping and because of the levels we set which is not in different than a lot of other competitors out there. It makes a lot of sense for us on purchase of certain size to ship free and the purchases that are small does not necessarily any able to get away with that?Janet Kloppenburg And just on customer acquisition and marketing for the channel?Todd Ingledew We don’t do any specific paid digital at this point in time. We still think there is lots of opportunity in the essentially free digital aspects that will show in places like that that we can still utilize although we do pay amounts for some of these things that are somewhat insignificant. So we don’t actually have a strategy there is first customer acquisition goes we have a diverse set of customers and we're able to continue to work with that.Janet Kloppenburg Okay, if I could just squeeze one more in, I was just wondering what the impact of the growth of that channel would have on overall company operating margins now for the next couple of years?Brian Hill The contribution is very similar in stores and our online channels, so we don’t see any real difference on that aspect, but Todd is there anything that…?Todd Ingledew No, that's exactly. It is pretty similar the contribution in both models.Operator This concludes the question-and-answer session. I would now like to turn the conference back over to Brian for concluding remarks.Brian Hill Thank you everybody for joining us today. We are extremely excited about our results at this point in time and business going forward. The whole industry is suffering a little bit and there are all sorts of reasoning out there that people seem to - or in some cases excuses on why people's business is suffering, but we managed to continue to perform as we always have and we expect to continue to perform going forward. So I appreciate everybody joining us today and then look forward to talking to you again in the near future.Operator This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.:]