Street Calls of the Week
Aritzia Inc. reported strong financial results for the second quarter of fiscal year 2026, with net revenue reaching $812 million, marking a 32% year-over-year increase. According to InvestingPro data, the company maintains impressive revenue growth of 22.6% over the last twelve months, with analysts remaining bullish as reflected in their consensus "Strong Buy" recommendation. Despite these robust earnings, Aritzia’s stock fell by 2.77% after hours, closing at $81.81, following an earnings call that outlined both impressive growth and future challenges. The company’s EPS forecast for the quarter exceeded expectations, but market sentiment seemed affected by broader concerns.
Key Takeaways
- Aritzia’s Q2 FY2026 net revenue increased by 32% year-over-year.
- Adjusted EBITDA surged by 123%, reflecting strong operational performance.
- The stock fell 2.77% after hours, despite positive earnings results.
- Strong growth in U.S. and Canadian markets, with a 41% increase in U.S. net revenue.
- The company plans to expand its digital and retail presence further.
Company Performance
Aritzia’s Q2 performance highlighted its continued momentum in the market, driven by a successful transition from summer to fall products and strong sales across multiple categories. The company’s strategic focus on expanding its digital footprint and enhancing customer experience has paid off, with international e-commerce sites performing beyond expectations.
Financial Highlights
- Revenue: $812 million, up 32% year-over-year
- Comparable sales growth: 22%
- Gross profit margin: 43.8%, up 360 basis points
- Adjusted EBITDA: $123 million, up 123% year-over-year
- Cash balance: $352 million, with no debt
Market Reaction
Despite strong financial results, Aritzia’s stock dipped by 2.77% in after-hours trading. InvestingPro data shows the stock has been volatile, with a beta of 1.51, while trading at a P/E ratio of 40x. The stock’s decline may reflect investor concerns over broader market conditions or specific challenges highlighted during the earnings call, such as tariff pressures impacting margins. Notably, the stock remains up 73.8% over the past six months, demonstrating strong momentum despite recent volatility.
Outlook & Guidance
Aritzia provided a positive outlook for the rest of the fiscal year, forecasting full fiscal year revenue between $3.3 billion and $3.35 billion, representing a 21-22% increase. The company plans to open 12 new boutiques and expand 4-5 existing locations in fiscal year 2027, with continued investments in digital initiatives.
Executive Commentary
CEO Jennifer Wong emphasized the company’s strong market position, stating, "Our product is resonating extremely well with our clients." CFO Todd Ingledew discussed the impact of tariffs, noting, "Without reciprocal tariffs and the removal of the de minimis, we would otherwise be tracking an adjusted EBITDA margin of 18% to 19% for this year."
Risks and Challenges
- Tariff pressures: Expected to impact margins by 280 basis points for the full fiscal year.
- Market expansion: Challenges in entering new markets like Pittsburgh and Scottsdale.
- Economic conditions: Broader macroeconomic pressures could affect consumer spending.
- Supply chain: Potential disruptions could impact product availability.
- Competitive landscape: Maintaining differentiation in a crowded market.
Q&A
During the Q&A session, analysts focused on Aritzia’s digital strategy and cost management. Executives expressed confidence in achieving high-teens EBITDA margins by fiscal year 2027 and highlighted ongoing initiatives to improve inventory management and operational efficiency.
Full transcript - Aritzia Inc (ATZ) Q2 2026:
Conference Operator: Thank you for standing by. This is the conference operator. Welcome to Aritzia’s second quarter 2026 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. To join the question queue, you may press 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing 0. I will now turn the conference over to Beth Reed, Vice President of Investor Relations. Please go ahead.
Beth Reed, Vice President of Investor Relations, Aritzia: Thanks, Operator, and thank you all for joining Aritzia’s second quarter fiscal 2026 earnings call. On the call today, I’m joined by Jennifer Wong, our Chief Executive Officer, and Todd Ingledew, our Chief Financial Officer. As a reminder, please note that remarks on this call may include our expectations, future plans, and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions, as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts, or projections expressed by the forward-looking information. We would refer you to our most recently filed management’s discussion and analysis and our annual information form, which include a summary of the material assumptions, as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information.
Our earnings release, the related financial statements, and the MD&A are available on CDAR Plus, as well as the Investor Relations section of our website. I’ll now turn the call over to Jennifer.
Jennifer Wong, Chief Executive Officer, Aritzia: Thanks, Beth. Good afternoon, everyone, and thank you for joining us today. I’m delighted to share that our results for the second quarter of fiscal 2026 exceeded the outlook we provided in July across sales and margins. Trends in July and August surpassed even our highest expectations as we fueled exceptional broad-based strength across channels and geographies. This was driven by continued robust demand for our high-quality, beautiful products as our summer assortment seamlessly transitioned to the launch of our fall campaign, which began at the end of July. This, combined with our strong inventory position, strategic marketing investments, and new boutique openings, drove a 32% top-line increase over last year. We achieved net revenue of $812 million in the second quarter, well above the top end of our guidance range.
We’re extremely pleased with our performance in both channels, with net revenue increasing 34% in retail and 26% in e-commerce. Comparable sales grew an outstanding 22%, fueled by double-digit positive growth in all channels and all geographies, led by our US e-commerce business. Our performance in the United States continued to drive our overall results. In the second quarter, we generated a 41% increase in US net revenue, underscoring the strength and growing awareness of the Aritzia brand. Our results were fueled by the strong performance of our new and repositioned boutiques over the last 12 months. In addition, elevated demand for our products drove continued momentum in e-commerce, which we supported through strategic investments in marketing. We also generated outstanding comparable sales growth in our existing boutiques. During the quarter, we continued to focus on driving brand awareness and fueling the growing appreciation for our everyday luxury offerings.
We’ve seen outstanding new customer growth in the United States, where our base of loyal clients expands quarter after quarter. We’re also super pleased with our second quarter results in Canada. We accelerated our sales growth for a third consecutive quarter, achieving a 21% increase in net revenue in Q2. We continue to maintain strong loyalty in Canada as clients responded well to our product assortment. In addition, our marketing investments helped drive double-digit growth in our active client base. In our retail channel, we delivered net revenue growth of 34% in the second quarter. This was driven by the success of our real estate expansion strategy, as well as strong comparable sales growth in both the United States and Canada. Over the past 12 months, we increased our retail square footage by 25%, opening a total of 13 new and four repositioned boutiques.
This included three new boutiques and one repositioned boutique in the second quarter, all in the United States. We also generated high-teens comparable sales growth in our existing boutiques. This was primarily driven by traffic growth due to the elevated demand for our products and supported by our strategic investments in marketing. Our real estate expansion strategy continues to yield exceptional results. This underscores the vast opportunity for growth in the United States, where we have just 68 boutiques today. The boutiques we’ve opened in the United States in fiscal 2026 are tracking to pay back in less than one year on average. That exceeds our target of 12 to 18 months. Boutique openings continue to be our most predictable driver of top-line growth. They enhance brand visibility and support client acquisition in both new and existing markets.
In Q3, we expect to open six new boutiques in the United States. This includes locations in Pittsburgh and Scottsdale, which are new markets for us, as well as in Denver, Miami, and Minneapolis. We also plan to open our newly repositioned Flatiron flagship in Manhattan. In e-commerce, we delivered an increase in net revenue of 26% in the second quarter. This was driven by the robust demand for our product, from our summer assortment to the launch of our fall campaign. Notably, our focus on full-funnel marketing fueled an increase in website traffic of nearly 50% in the United States. In addition, we benefited from site enhancements, operational improvements, and higher omnichannel engagement. In late August, we launched our new and improved international e-commerce platform. The site offers an enhanced shopping experience, which is fueling higher revenue growth through increased conversion.
Its performance in the first six weeks has meaningfully exceeded our expectations, and we’re confident we’ll hit our target to triple sales within two years or less. That is before we’ve even launched any dedicated marketing, which is still to come. In addition, I’m excited to report that we’re on track to launch our mobile app later this month. The Aritzia app is the introduction of an entirely new shopping channel for our clients. It will place duration, selling expertise, and our quality product right in their hands. These new platforms provide clients with greater access to our product assortment while reducing friction, increasing conversion, and most importantly, further fueling the momentum in our e-commerce business. Turning now to product, throughout the second quarter, demand for our assortment was broad-based across multiple categories.
We saw an outstanding response to our fall launch across all geographies as clients responded well both to our iconic franchises and our new styles. These included exciting new colors and prints. Due to the success of our spring/summer styles and focus on seasonal transitions, we drove stronger full-price selling year over year. In addition, we remain well-positioned with the right inventory in the right place to drive sales. Looking ahead, new winter styles and exciting drops and collaborations will surprise and delight our clients. We’re confident these will keep clients engaged and attract new clients, all driving continued strong performance. We’re continuing to refine our marketing engine across the organization to help grow awareness and spotlight all the different aspects that set Aritzia apart, namely high-quality, beautiful product, aspirational shopping environments, engaging client service, and captivating communication, all of which is provided at an attainable price point.
In Q2, we continued to deepen our focus to ensure that everyday luxury is synonymous with the Aritzia brand. Partnerships with Sperry and Thistle helped solidify Aritzia as a destination for exciting brand collaborations. In addition, celebrity sightings in iconically Aritzia pieces reinforced Aritzia as a much-loved and highly sought-after brand with aspirational appeal. Our increased investment in digital marketing continues to fuel our growth both online and in our boutique. We’re continuing to refine our programs and tactics across existing channels while launching new channels to further drive brand awareness. Our focus remains on reinforcing our everyday luxury brand ethos, growing awareness across U.S. demographics, and acquiring new clients and retaining existing clients to drive incremental revenue. Shifting to the current trade environment, previously under the de minimis exemption, we utilized our existing supply chain network in Canada to fulfill a portion of U.S. e-commerce orders.
However, the removal of the de minimis exemption in August required an operational pivot. We’ve relocated all U.S. order fulfillment to our distribution center in Ohio, which we strategically expanded last year to 560,000 square feet, more than double its prior size. We’ve also hired additional staff and pulled forward retrofitting work. We are now operating at triple the capacity compared to prior to the de minimis removal, and eventually, further optimization will allow us to quadruple our prior capacity. More importantly, there was no impact on the exceptional client service for which we are known and loved. This will allow us to handle U.S. order volume for the next two years. I’m extremely proud of our teams for this seamless transition.
Despite headwinds from the elimination of the de minimis and higher reciprocal tariff rates on Vietnam and Cambodia, our proactive mitigation strategies and strong revenue growth have positioned us very well. As a result, our margin outlook for fiscal 2026 is unchanged at 15.5% to 16.5%. We’re leveraging our agile global supply chain to minimize tariff exposure where possible. We continue to expect our China sourcing mix to be in the mid-single digits, if not lower, for spring 2026. We’ve also received cost-sharing support from our longstanding supplier partners. In addition, we’re continuing to focus on smart spending and IMU improvement to key multi-year initiatives to drive margin expansion. We continue to navigate macro developments from a position of strength. The fact that we’re still growing our margins this year in spite of these developments speaks to our agility and ability to execute with excellence.
Without reciprocal tariffs and the removal of the de minimis, we would otherwise be tracking an adjusted EBITDA margin of 18% to 19% for this year. That’s in line with our long-range target one year early. Looking ahead, we’re pleased with the start to our third quarter. The outstanding momentum in our business has continued across all channels and all geographies. We continue to be in a strong product position with the right product in the right place at the right time. We’re also in a strong inventory position to meet the robust demand for our product. In addition, we continue to make progress with our digital initiatives. We’re launching our mobile app later this month, delivering ongoing site enhancements and operational improvements, and continuing to refine our strategic marketing investments, which are all driving traffic and creating demand.
Last but certainly not least, we have a terrific pipeline of nine new boutiques opening in the back half of this year, as well as the reposition of our Flatiron flagship. The momentum in our business, our proven operating model, and our healthy balance sheet give us confidence in our path forward as we capitalize on our vast opportunity for growth in the United States and beyond. In closing, I would like to thank our people for their hard work and commitment to excellence as we grow the Aritzia brand. Our consistent, strong results would not be possible without all of our exceptional teams across the business. With that, I’ll now hand it over to Todd to discuss the details of our financial performance.
Todd Ingledew, Chief Financial Officer, Aritzia: Thanks, Jennifer, and good afternoon, everyone. In the second quarter of fiscal 2026, we generated outstanding net revenue growth above our expectations and delivered meaningful gross profit margin expansion and SG&A leverage. This resulted in over 600 basis points of improvement in our adjusted EBITDA margin and adjusted net income per diluted share that nearly tripled compared to the second quarter last year. Turning to the details of our performance, we delivered net revenue of $812 million in the second quarter, an increase of 32% from last year. This was above our guidance range of 19% to 22% as trends accelerated meaningfully in the back half of the quarter. Comparable sales grew 22%, driven by double-digit growth in all channels and across all geographies. Here’s what drove this strong performance.
First, our summer product performed extremely well, and we saw an exceptional response to the launch of our fall product in late July, supported by our strong inventory position. Our growth was further fueled by a 25% increase year over year in total retail square footage. Finally, our increased investments in digital and brand marketing resulted in significant traffic growth across both channels. All of this manifested in a meaningful increase in active clients. In the United States, second quarter net revenue increased 41% to $486 million, exceeding our expectations. Our U.S. e-commerce business was driven by traffic growth of nearly 50%. In U.S. retail, our performance was driven by the opening of highly productive new and repositioned boutiques, as well as strong comparable sales growth in our existing boutiques. Our ongoing success in the United States underscores the strength of our brand and our long runway for continued growth.
In Canada, our performance also came in ahead of expectations. Net revenue growth accelerated for a third consecutive quarter, increasing 21% to $326 million. In addition to the strong performance of our product, we continued to benefit from our strategic investments in marketing. Turning to our sales channels, retail net revenue was $572 million, an increase of 34%. This was driven by high teens comparable sales growth in our existing boutiques, as well as the strong performance of our new and repositioned boutiques. In e-commerce, net revenue was $240 million, an increase of 26%. This was driven by strong traffic growth that was fueled by the positive response to our product, as well as the halo effect from new boutique openings and our investments in digital marketing. We delivered gross profit of $356 million, an increase of 44% compared to the second quarter last year.
Gross profit margin expanded 360 basis points to 43.8%, despite 220 basis points of pressure from tariffs and the start of the de minimis elimination. The increase was primarily driven by IMU improvements, leverage on store occupancy costs, lower warehousing costs, and improved markdowns. SG&A expenses for the quarter were $250 million, leveraging 160 basis points as a percentage of net revenue to 30.8%. The improvement was primarily driven by expense leverage and savings from our smart spending initiative. Adjusted EBITDA was $123 million, an increase of 123% compared to the second quarter last year. Adjusted EBITDA margin expanded 610 basis points to 15.1%. This was driven by our ongoing efforts to deliver multi-year gross profit margin expansion, as well as SG&A expense leverage. The margin improvements we’ve now delivered for six consecutive quarters continue our progress toward achieving our previous adjusted EBITDA margin levels in the high teens.
Turning to the balance sheet, inventory was $527 million at the end of the second quarter, up 9% from last year. We are pleased with the composition and quantity of our inventory and are well-positioned to meet client demand. Our liquidity position is strong with $352 million in cash, no debt, and zero drawn on our $300 million revolving credit facility at the end of the second quarter. Turning to our outlook, the strong momentum in our business has continued into the third quarter. Given quarter-to-date trends, we now expect net revenue in the third quarter to be in the range of $875 million to $900 million. This represents growth of 20% to 24%, driven by double-digit comparable sales growth and the contribution from our boutique openings. Our net revenue outlook for the third quarter is based on continued outperformance in the United States, as well as strength in Canada.
We expect gross profit margin in the third quarter to be approximately flat compared to the third quarter of fiscal 2025. This is driven by IMU improvements and leverage on store occupancy costs, offset by approximately 400 basis points of pressure from tariffs and the elimination of the de minimis exemption. We forecast SG&A as a percentage of net revenue to also be approximately flat compared to the third quarter last year, as strategic investments in projects to support our growth are offset by expense leverage. Given our year-to-date performance and improved expectations for the second half of the year, we are raising our net revenue forecast for the full fiscal year to the range of $3.3 billion to $3.35 billion, representing growth of 21% to 22% from fiscal 2025.
Turning to tariffs, we now forecast 280 basis points of tariff-related headwinds for the full fiscal year, compared to 150 basis points previously. There are two factors driving the 130 basis point increase. First, reciprocal rates on Vietnam and Cambodia increased to 20% and 19% respectively. They had been at 10%. This results in an incremental 50 basis points of gross margin pressure for the fiscal year. Second, as Jennifer mentioned, the removal of de minimis exemption means that we will no longer be able to realize duty savings on a portion of our U.S. e-commerce orders. This creates an additional 80 basis points of gross margin pressure for fiscal 2026. Despite the incremental 130 basis points of pressure, our adjusted EBITDA margin forecast for the fiscal year is unchanged at 15.5% to 16.5%.
Our ongoing mitigation strategies and the strength of our business fully offset the incremental tariffs and de minimis pressure. Importantly, excluding the 280 basis points of total tariff and de minimis related pressure, our adjusted EBITDA margin for fiscal 2026 would be in the range of approximately 18% to 19%. We are extremely pleased with the consistency and the strength of our performance. We are well on track to achieve our fiscal 2027 revenue target. We also continue to make strategic investments in our future growth while delivering ongoing margin improvement, despite the incremental tariff impacts. In closing, our product is resonating extremely well with our clients. We have a robust pipeline of new boutiques, and our growth opportunity in the United States remains sizable, with only 68 locations currently.
Our digital initiatives are helping to build brand awareness, generate loyalty, and drive revenue, all positioning us for continued growth now and into the future. The combination of our anticipated revenue growth and margin expansion will drive meaningful multi-year EPS growth and deliver long-term value to our shareholders. Thank you.
Beth Reed, Vice President of Investor Relations, Aritzia: With that, Operator, let’s please open up the line for questions.
Conference Operator: Thank you. We will now begin the question and answer session. To join the question queue, you may press 1 on your telephone keypad. You will hear a tone acknowledging your request. If you’re using a speakerphone, please pick up the handset before pressing any keys. To withdraw your question, please press 2. We do need to accept one question and a related follow-up. The first question comes from Irene Ora Nattel with RBC Capital Markets. Please go ahead.
Thanks, and good afternoon, everyone. Great quarter. It certainly sounds as though there’s very strong momentum in the business. Wondering whether, as we look ahead to F2027, how confident you are in that high-teens guide. What would be the factors that would cause you to either over or under-deliver relative to the soft guide that you included in the release?
Todd Ingledew, Chief Financial Officer, Aritzia: Hi, Irene. It’s Todd. The high-teens guide, we updated that for FY2027 just due to the fact that we’ve now had another incremental 130 basis points of pressure from the tariff changes for Vietnam and Cambodia, as well as the de minimis removal for the rest of the world. That will create, obviously, pressure next year. We still expect to deliver high-teens adjusted EBITDA margin, which does include 19%, but we thought it was prudent to give ourselves a bit more of a range on that. We still have multi-year IMU opportunities. Obviously, the strength in the business is supporting operating leverage. Diversification of our sourcing continues, as well as negotiation with suppliers. Our spend management initiatives are delivering benefits. We still anticipate continuing to grow our margins next year, despite all of the added pressure. We do continue to have a multi-year runway for margin expansion.
That’s really helpful. Thank you, Todd. How would you, just following up on that, are you satisfied with sort of the margin mix that you’re delivering across different categories at this point in time?
We’re extremely satisfied. We obviously delivered 600 basis points of EBITDA expansion, saw meaningful gross profit margin expansion, 360 basis points, and also SG&A leverage. We couldn’t be more pleased with what we’re seeing in the business. Obviously, if we didn’t have any of this tariff and de minimis pressure, we’d be talking about our EBITDA margin forecasts for this year being in the 18% to 19% range. We’re incredibly proud of the teams across all components of the business.
Thank you.
Conference Operator: The next question comes from Martin Landry with Canaccord Genuity Corp. Please go ahead.
Hi, good morning, guys. Todd, I would like to touch on your cash balance. You know, you guys are exceeding expectations, your own expectations for a couple of quarters now, and your cash is building up. I think it’s around $350 million for the quarter. What is at the level that you need to operate your business on a daily basis? What is the level of extra cash that you currently have according to you?
Todd Ingledew, Chief Financial Officer, Aritzia: I think we’re obviously above the level of what we need from a working capital perspective. Anywhere between $100 million and $200 million would be a comfortable position from a working capital perspective, depending on the time of year. We have started repurchasing shares last quarter during the open trading window. We purchased 200,000 shares under the NCIB, and we actually also purchased 250,000 shares to use for the settlement of our RSUs that are vesting this year. We have actually purchased back a meaningful amount of shares in the last several months. We continue to target offsetting our option dilution for the year and, at a minimum, buying back about a million shares.
OK. Your targets for a million shares of buyback this year, what could we expect that to accelerate next year? I mean, your CapEx should not expand a ton, and your earnings will continue to expand. Is it fair to expect that your buyback could accelerate in fiscal 2027?
At this point, our plan is, as has been communicated, which is to buy back to offset option exercising. We will, as we do every quarter, discuss our cash position with the board. At some point, we may increase the cadence, but at this point, we don’t have plans currently to do that.
OK. OK. Thank you.
Conference Operator: The next question comes from Mark Robert Petrie with CIBC Capital Markets. Please go ahead.
Good afternoon. Obviously, the consumer is reacting incredibly favorably to the assortment. I know it’s broad-based strength, but helpful to hear anything specific that is working better than expected or where you sort of see opportunity to further lean in. I’m also hoping you can talk about the U.S. specifically and your momentum with regards to brand awareness and maybe layer that into how you’re approaching the marketing around the final New York City flagship opening next month or later this month.
Beth Reed, Vice President of Investor Relations, Aritzia: Yeah. Thanks, Mark. That’s a great question. As usual, when our performance is great, everything is working really well. In particular, in Q2, we mentioned we saw our business accelerate in July and August. There wasn’t anything in particular to call out in terms of categories or styles, colors, fabric. All of it was working. One of the things that did happen in the quarter was our summer to fall transition was particularly very well executed. I think our timing was impeccable. We did have some marketing around that. The product marketing around the earlier launch in July was very, very effective. That does lead to probably the second part of your question, which is our marketing is getting better. We’re getting better at it, and we’re seeing that it’s really quite effective.
Certainly, last year, when we opened three flagships, always in a matter of weeks of each other, right around Black Friday, and we marketed it, it was very, very effective. That was somewhat of an unprecedented moment. That said, our Flatiron flagship will be opening around the same time. The timing happened to coincidentally work out for us. Given the success of what we saw last year, we do hope to have similar programming around the flagship in November. That said, it’s one flagship. It is also in Manhattan. The scale won’t be necessarily the same as opening three flagships at once, but certainly, we do see that when we open a flagship and we amplify the news, it is quite effective.
OK. That’s helpful. Given the even further improvement in the store paybacks, I’m wondering what you’re thinking for new stores next year and also if there’s sort of value or merit in kind of further tweaking the store experience, whether that’s store sizes or more cafes or other features.
Maybe I’ll sort of frame it up, zooming out in terms of the bigger picture, and then Todd could speak to some more of the details. Certainly, what we’re seeing with our store openings right now, and in particular as it relates to the flagship, they are an amazing showcase of our everyday luxury experience. What we’re seeing with the flagship and in some of our bigger format stores introducing the AOK cafes has been really, really successful. We just opened in Brickell in Florida a couple of weeks ago last week, and the AOK cafe had lineups around the door, just like when I talked about the one here locally just outside of Vancouver. Those aspects of our retail experience really seem to be resonating very well with the customer.
That, coupled with the in-store experience with the ateliers and just our style advisors in the store, are some of our biggest differentiators when it comes to our retailing. As you know, over the years, we’ve increased the size of our stores. Ten years ago, we were talking about stores that were 6,000 square feet. A few years after that, 8,000 square feet. Now we’re talking about an average store size of 10,000 square feet. We are seeing lots of momentum in our retailing and our retail experience. A lot of these aspects that we’ve introduced over the years are really, really catching on and really resonating with our customer.
Todd Ingledew, Chief Financial Officer, Aritzia: Great. Just to add on from a specifics perspective, we do have a strong pipeline of boutiques planned for next fiscal year with, again, a minimum of 12 new boutiques and four to five expansions and repositions, with leases signed on a majority of those locations. We have already the specific locations for the others already identified and the negotiations underway. We’re pleased with the cadence for next year, and it’ll be slightly more balanced to the first half, second half than weighted to the back half.
OK. That’s excellent. Appreciate all the comments and congrats on the quarter. All the best.
Beth Reed, Vice President of Investor Relations, Aritzia: Thank you.
Conference Operator: The next question comes from Stephen MacLeod with BMO Capital Markets. Please go ahead.
Thank you. Good afternoon, everyone. Firstly, congrats on the very solid quarter. Great to see. I had two questions. One is sort of high level, and one is a bit more nitty-gritty, I suppose. On the high level, picking up with the commentary you were currently discussing around the U.S. stores, can you talk a little bit about how you’re thinking about your total U.S. store growth potential over time, whether it’s new locations, new markets, or just total sort of store count?
Beth Reed, Vice President of Investor Relations, Aritzia: Thanks, Steven. Yeah, we see still a ton of runway in the U.S. As we’ve mentioned, there’s only 68 boutiques in the U.S. today. Long term, we see an opportunity that might be closer to 180 to 200. Our focus is on attracting and acquiring new clients. We still see that there’s a lot of runway there, a lot of white space. Our strategy is clearly proven and strong. The great news is that we have a pipeline of stores that are identified, and we see that this is something that we can really capitalize on over the next few years.
That’s great. Just along those lines, can you just remind us how many new markets you’ve entered or will be entering in fiscal 2026?
Todd Ingledew, Chief Financial Officer, Aritzia: The new markets this year are total five: Raleigh, Salt Lake City, Pittsburgh, Cincinnati, and then two stores in Scottsdale.
OK. Great. Thank you. Just my more specific question was around just on the SG&A leverage. I mean, you know, obviously, this strong top line is continuing into fiscal Q3, but you’re not seeing, not expecting SG&A leverage. Can you just talk a little bit about some of the strategic investments that you called out in your guidance commentary around SG&A?
Yeah, absolutely. One is the distribution center here in Vancouver, where we have both capital and expenses related to that project. There’s incremental investment happening there compared to the prior year. We just have a number of projects underway that are across the business, whether that be RFID, merch planning software, ongoing investments in digital. We have workforce planning software development underway, really just improving on our world-class infrastructure. As it works out, the cadence between our project spend in Q3 and Q4 last year wasn’t at the same level as the project spend for the back half of this year.
OK. That’s helpful. Thanks, Todd. Thanks, Jennifer. Appreciate it. Congratulations.
Beth Reed, Vice President of Investor Relations, Aritzia: Thank you.
Conference Operator: As a reminder, please limit yourself to one question and a related follow-up. The next question comes from Dylan Douglas Carden with William Blair & Company. Please go ahead.
OK. Thanks. It seems sort of a not insignificant piece of the acceleration over the last three quarters is in part some of the incremental marketing and obviously the awareness boost you’re getting from the flagships. I’m just curious, you had a comment in there about sort of the meaningful increase in active customers. And Todd, I think some of your last comments touched on sort of loyalty. Do you have a read or are you sort of confident in the profile quality of some of these customers that are coming into the business quick? Particularly as you have a view to lapping 20+% comp on the back end of this, presumably you keep marketing at a similar level, you gain efficiencies. You know, anything around kind of how you’re thinking about how these customers roll forward would be helpful. Thanks.
Beth Reed, Vice President of Investor Relations, Aritzia: Thanks, Dylan. That’s a very good question, and I do appreciate it. I just want to reframe something before I get into the marketing aspect, because ultimately, our business is driven by product. The reason why our business is so good is because we have what the customer wants, and our product is resonating extremely well. I just want to start off by saying the assortment is performing exceptionally well. Of course, the marketing amplifies that. Yes, we have introduced more marketing in the last year and a half, and we are getting better at it. Certainly, it’s driving, we’re looking at full funnel marketing. It’s driving brand awareness at the top of the funnel and then driving traffic and conversion at the bottom of the funnel, kind of classic.
What is really the headline here is that the new customer growth is a combination of both boutique openings and the marketing. The great news is that this is a customer that’s very consistent with our existing active client base, meaning that it is a high-quality customer. We have enjoyed and benefited from a very loyal customer for decades now. What we’re seeing is a very similar customer. In particular, what we love is when a young customer discovers Aritzia, falls in love with our brand, and continues to grow with us for many years to come. Certainly, we’ve been able to attract this customer, and we are seeing the new customer come back. I think all of those points point to that it’s all working, starting with having a great product that then we can tell people about and amplify through our store openings and marketing.
Certainly. There is a huge difference between acquiring a customer with product and with a discount. I appreciate that. The last one from me, I assume that we are going to hear a lot about sort of a warm fall in the United States come earning season. It sounds like between pulling forward your fall launch and kind of the trends continuing in September, you are not seeing any of that. I just was hoping you could sort of square that circle for us.
Yeah. Another great question. We have had some internal conversations about the weather. Certainly, with the 30°C, 30°C in the east in Toronto as of late, that does affect the product mix. The great thing about us, as we’ve said in the past too, is that we have such a broad assortment that we sell more sweaters instead of jackets when it’s a little warmer. We did have some great transitional pieces. Maybe some of the outerwear, even though the outerwear is selling and a lot of folks are buying that early to get a jump on the season, we do have things that suit the weather. I would say, on the whole, we’re not going to be citing weather. We’re not citing weather at all right now in terms of the performance of our business.
Clearly, you can see that we have many other things going on that allow us to perform the way that we are. Really, that’s not a factor for us.
Appreciate it. Nice work, guys.
Conference Operator: The next question comes from Dana Telsey with Truist. Please go ahead.
Hey, guys. Congrats on a great quarter. Just wondering if you could give a little bit more color on the IMU and smart spending opportunities. What inning are we in on those? Where are the biggest opportunities you’re looking at on the efficiency side? Thanks.
Todd Ingledew, Chief Financial Officer, Aritzia: Yeah. From an IMU perspective, obviously, we have benefits from cost improvements with negotiations with suppliers, sourcing, relocations. As we grow and scale, we just have more and more negotiating power. That’s a key benefit that we’re seeing on the IMU side. Our seasonal pricing adjustments would obviously be another. We have an ongoing tailwind from just the mix of our business as our business grows in the United States. There’s IMU benefits there. From a spend management perspective, for this year, we’re really focused on process improvement and looking across the business, as we do every year. We have a really distinct focus on it this year, as well as procurement and just, again, dialing in our negotiations across the business. Those are the key things that we’re focused on in those two buckets for this year.
Got it. Thanks so much. Great to hear on the international website surpassing expectations. Just wanted to see if we could drill down a little more color and also how we’re thinking about those markets eventually for a physical footprint. Thanks so much.
Beth Reed, Vice President of Investor Relations, Aritzia: Thank you. Joe? Yeah, I don’t think I’ve met you yet. Nice to hear from you. Certainly, the day we turned on our international e-commerce site, we immediately saw our dailies double, effectively. That was driven primarily by conversion. As we mentioned, we hadn’t even turned on any dedicated marketing yet. That is to come. We’ll start that next month. Again, really encouraged by our efforts with that platform. The customer experience has significantly improved. I’ll remind you that the e-commerce business before we had the new international site was just a little over 1% of our e-commerce sales. We’re not talking about big dollars here. Certainly, seeing that there is worldwide demand for Aritzia and everyday luxury in our products, it spans over three different continents in terms of where our top countries are. I think it’s very encouraging.
It’s still obviously early days, but it’s very encouraging because what this is helping us with is we continue to gather more data about how we could perform beyond the borders of Canada and the U.S. I think it’s just a really good start for us to continue to monitor.
Awesome. Thanks so much. Yes, great to talk to you for the first time as well.
Thanks. Nice to talk to you.
Conference Operator: The next question comes from Michael W. Glen with Raymond James Ltd. Please go ahead.
Hey, thanks for taking the questions. Maybe just first, Jennifer, can you maybe give some thoughts on the mobile app launch, what you would expect? Do you expect this to be a contributor to sales, like how you think about increased spending per customer? Anything along those lines that you think will happen with the mobile app launch?
Beth Reed, Vice President of Investor Relations, Aritzia: Yeah. Thanks, Michael, for raising that. We’re all very excited about the mobile app that’s scheduled to launch at the end of this month. I’ve talked about it now for a few quarters about it being our digital flagship. Just like our boutique flagships have been a huge brand-propelling marketing vehicle that, again, showcase everyday luxury, they offer a great product assortment. The same thing goes for our mobile app. It will certainly drive brand awareness. I believe it will be a best-in-class experience. It completely embodies the everyday luxury ethos. I see this being a vehicle for driving frequency among our existing base of clients, as well as a growing base of clients. We do envision a meaningful amount of our digital business running through the mobile app.
Obviously, it hasn’t launched yet, so we can’t really talk too much about what that is, other than we know that our peers do have anywhere between 20% to 40% of their business running through their app. We always pride ourselves on being best in class. Right now, when we launch it, it’s going to be about the downloads. It’ll be about monitoring the downloads. That’ll be a great early indicator as far as the potential for the app. It’s an iterative kind of process in terms of making sure that we keep up with interesting releases and engaging releases. We’ll be able to report more once it’s launched. Right now, very excited for the launch and monitoring the downloads.
Thank you. Just on the store fleet, I know we talk about store openings a lot. What’s the opportunity for renovations and relocations within the store fleet right now? Are you able to give any indications what that type of activity, like how much it contributes to top line, what some of the paybacks are on those types of investments, how they impact square footage? Anything you can add there?
Todd Ingledew, Chief Financial Officer, Aritzia: Yeah. I mean, it’s highly dependent, obviously, on the type of relocation you’re talking about. Last year, when we relocated our SoHo and 5th Avenue stores, we had meaningful expansions of square footage. This year, we have the Flatiron store. Our typical expansion would be moving from, say, 5,000 to 7,000 square feet to maybe 10,000 to even 15,000 square feet. It’s very dependent. I wouldn’t say there’s one tried and tested rule on that. We do have a pipeline of what we feel is about four to five expansions or repositions a year, and that evolves. As Jennifer mentioned, our store size has been growing larger and larger. Our average new store is now 10,000 square feet. Obviously, as we grow the optimal size of our stores, that creates more opportunity for expansions and repositions. From a payback perspective, we typically target 18 to 24 months of payback.
Payback for those stores is a little higher than the new store paybacks of typically under 12 months. That’s because we’re only using, obviously, the incremental revenue and contribution against the capital expenditures for the store. We continue to be extremely pleased with how they’re performing, and they’re a meaningful component of our real estate expansion strategy.
OK. Thank you.
Conference Operator: The next question comes from Brian Morrison with TD Cowen. Please go ahead.
Good evening. First question for Todd, please. The strategic initiatives that you announced that are going away a little bit in the margins in the back half of the year, were any of those incremental to your prior guide for fiscal 2026? I’m talking about the RFID, the merge software. Or were those also included in your previous guidance?
Todd Ingledew, Chief Financial Officer, Aritzia: No, those had all been contemplated, the ones that I listed.
OK. Nothing incremental then?
Not from those, no. We do have incremental projects, but they’re not ones that I just listed.
OK. I guess the second question is for Jen. You have many top line category drivers, including the mobile app that you just talked about. Clearly, your products resonate very well. Absent in terms of your revenue drivers or potential offsets, the tariff pressures and the price increases, I’m just wondering how you think about that lever.
Beth Reed, Vice President of Investor Relations, Aritzia: Yeah. Fair question. We are thinking about pricing the same way we always think about pricing, which is our pricing strategy is to uphold everyday luxury. It is not based on tariff. We will continue to do what we’ve always done, which is we do evaluate our pricing every season. It’s on a seasonal basis. It’s very important that our priorities stay true to that everyday luxury value proposition. That said, any pricing actions we take is more part of a broader IMU improvement initiative that Todd’s referenced. I think I’ve referenced it as well. That’s a multi-year initiative that involves cost savings, negotiations, as well as pricing action.
OK, thank you very much.
Conference Operator: The next question comes from Mauricio Serna Vega with UBS Investment Bank. Please go next.
Great. Greg, good afternoon. Thanks for taking my question. First, on Canada, could you talk a little bit more about what kind of customer? Like, describe a little bit more about the new customer that you’re having there, because it’s pretty impressive considering the brand in there for over 40 years. I’m more curious to hear about the type of customer that you are attracting. Maybe could you just talk about, for the fourth quarter, what is the implied comp range that you are contemplating in your current guide? Thank you.
Beth Reed, Vice President of Investor Relations, Aritzia: Thanks, Mauricio. I’ll take the first part, and then maybe I’ll let Todd take the second part. Regarding the new customer in Canada, I guess I’ll start off by saying we continue to attract the same sort of profile of customer. Remember that we have a very, very broad appeal across three generations, effectively: Gen Zers, Millennials, Gen Xers. The majority of our customers do tend to be in the Gen Z Millennial category. As I alluded to earlier in the call, when a younger customer discovers Aritzia and falls in love with our brand, they become a very, very loyal customer and continue to grow with us. In spite of being in Canada now for over 40 years, we continue to attract a customer that’s between the ages, you know, the core of 15 to 45 and even younger and even older.
The fact that that customer still remains and loves high-quality, beautiful products at an attainable price point and really enjoys the boutique experience as well as our online experience, it’s, again, very encouraging for us to know that our brand still resonates with our new customer, even in Canada. We are seeing, in fact, double-digit growth in our customer in Canada.
Great. The second part of the question was about our comp for Q4. Is that correct, Mauricio?
Yeah, just like the implied range of that comp.
Todd Ingledew, Chief Financial Officer, Aritzia: Yeah. We’ve updated our guidance to $3.3 to $3.35 billion for the fiscal year, which is growth of 21% to 22%. Maybe I’ll just talk about Q3 first and then give you some color on Q4. As we’ve discussed, quarter-to-date trends in Q3 are consistent with what we saw in Q2, with total growth outpacing 30%. We’re just above 30%. We’re only five weeks into the quarter, and our highest volume period of the quarter is still ahead. We’ll be lapping exceptionally strong growth from last November. Therefore, in Q3, our guidance range assumes a total comp growth in the mid-teens, delivering that total growth of 20% to 24% that we’ve guided to. For the fourth quarter, we’re lapping extremely robust growth with comp of 26% last year. There are actually some FX headwinds with our forecasted rate at 1.38 compared to 1.43 last year. There is also some conservatism.
Our Q4 guidance assumes mid-single-digit comp growth and high single-digit total growth for Q4. I think it’s important to remember that we do have great momentum in our business. I don’t know if you want to go into some of the things that we’re doing.
Beth Reed, Vice President of Investor Relations, Aritzia: Let me just remind everybody that we’re definitely set up to succeed with all the elements in place to deliver in the back half of the year. We talk about it a lot, but let me just run through it all. It starts with product, having the right product in the right place at the right time. Our product assortment is outstanding right now. I love seeing it in the stores. It absolutely merchandises and presents well. We’re hearing anecdotally as well, obviously, to our sales results, that it’s resonating well. We are in an excellent inventory position between what’s on hand, on order, in transit. We are in an excellent inventory position. We have nine boutiques opening in the back half of the year, six of which are in Q3 alone. That includes the flagship in Flatiron.
As we said before, our new boutiques are the most predictable driver of top line growth. We’re well on track with all of our digital initiatives. We’re delivering those on time. The mobile app is scheduled in a few weeks. We do have these exciting collaborations that continue to drive interest and engagement and traffic to aritzia.com and in our boutiques. To top it off with some strategic investments in marketing. We are getting better in our marketing and more effective. We are seeing a return, creating demand and driving traffic and looking forward to some of our best campaigns ever during the holiday time. All of these things across the business, we have already executed very well on in the last couple of quarters and continue to go into the next couple of quarters in a very, very, very strong position.
I suppose what I would add at the end is, last but not least, our teams. Our teams are phenomenal. Our teams are highly motivated right now and highly poised to execute with excellence.
Great, thanks for that. Congratulations on the results.
Conference Operator: The last question comes from Chris Lee with Desjardins. Please go ahead.
Good afternoon. Thanks for all the great discussion so far. I want to just maybe ask a bit about your EBITDA margin guidance for the year. I guess, first, at a very high level, what needs to happen for you to achieve the higher end of your guidance? Maybe vice versa, what should happen to get you to the lower end of your guidance for the year?
Todd Ingledew, Chief Financial Officer, Aritzia: Yeah. I mean, I would just simply put that to the revenue and leverage at the top end of the range from higher revenue, and the bottom being more reflective of the lower part of our range from a revenue perspective. We obviously have all of our mitigation strategies in place that are what’s helping us offset the increased tariff pressure and why we’ve been able to keep the adjusted EBITDA range for the year unchanged at 15.5% to 16.5%. It’s predominantly the revenue range that would push us both up and down.
OK. That’s helpful. Maybe just a follow-up. If I did the math correctly, just based on your guidance, it would imply Q4 EBITDA margin might be down in that 100 to 150 basis point range, depending on your assumption. Is that directionally correct? That’s what you’re saying?
We’re expecting flat both gross profit and SG&A in Q4 also. It’s really, unfortunately, the other income. I hate to bring that up, but it is. It’s the other income that we benefited meaningfully in Q4 last year because of the exchange rate strength in Q4 last year. We can take that offline, but that’s really what’s driving the change in the fourth quarter.
OK, that’s very helpful. That was what I was trying to ask. OK, no, thanks. Thanks very much.
No problem.
Conference Operator: This concludes the question and answer session and today’s conference call. Thank you for joining and have a pleasant day. You may now disconnect your line.
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