Aritzia Inc.(TSX: ATZ), a vertically integrated, innovative design house of exclusive fashion brands offering Everyday Luxury in its boutiques and online, has announced first quarter financial results for fiscal 2021 ended May 31, 2020 and provided an update on recent developments related to the COVID-19 global pandemic.
“The first two weeks of the quarter, we saw a meaningful decline in our sales leading up to the closure of our 96 boutiques on March 16. We took immediate action to drive eCommerce revenue and manage expenditures to maintain liquidity and preserve our solid financial position. Our beautiful product assortment, best-in-class distribution centre operations, aspirational website and loyal clientele led to eCommerce growth in excess of 150% through to the end of the quarter. This corresponding eCommerce growth, coupled with prudent inventory and expense management, enabled us to end the quarter in a solid cash position,” said Brian Hill, Founder, Chief Executive Officer and Chairman.
“The crisis has accelerated the shift toward eCommerce across the retail landscape, and we are well-positioned to benefit from the meaningful infrastructure investments we have made in this area. Looking ahead, we continue to enhance our eCommerce capabilities and omni-channel experience, while capitalizing on the unprecedented expansion opportunities in real estate. While the retail environment is likely to continue to be uncertain through the remainder of the year, we are confident in the tremendous growth potential of our business and we will continue to invest in exceptional talent and world-class infrastructure. I thank our Aritzia clients for their deep loyalty and our outstanding team for their remarkable resilience as we navigate through these unprecedented times,” concluded Mr. Hill.
Highlights for the First Quarter
- Aritzia experienced a significant decline in sales during the first two weeks of March
- The Company temporarily closed all of its 96 boutiques on March 16, 2020 due to COVID-19
- eCommerce revenue growth was in excess of 150% from boutique closures to the end of the quarter
- A phased reopening of its boutiques commenced on May 7, 2020, with 30 boutiques reopened by the end of the quarter
- Net revenue decreased by 43.4% to $111.4 million from Q1 last year
- Gross profit margin(1) decreased to 11.7% from 43.5% in Q1 last year, due to the significant deleveraging of occupancy, warehousing and distribution costs from the loss of retail revenue, including higher markdowns as the Company moved swiftly to decrease its inventory exposure in anticipation of prolonged boutique closures
- Adjusted EBITDA(1) decreased to $(25.2) million from $35.4 million in Q1 last year
- Adjusted Net Income (Loss) per diluted share(1) was $(0.23), compared to $0.17 in Q1 last year
- Cash and cash equivalents at the end of Q1 totaled $224.3 million, compared to $35.8 million at the end of Q1 last year
- Inventory at end of Q1 was $114.6 million, compared to $109.1 million at the end of Q1 last year. Notably, seasonal inventory decreased to $11.0 million this year compared to $26.0 million last year
Unless otherwise indicated, all amounts are expressed in Canadian dollars.
COVID-19 and other developments
As previously announced in May, the Company undertook prudent measures to enhance its short-term liquidity and protect its cash position.
Recent developments and ongoing efforts include:
- 89 boutiques have been reopened as of July 9th, 2020, with initial sales exceeding expectations;
- eCommerce revenue growth remains strong, although the trend has moderated since boutique reopenings;
- Inventory well-positioned for Fall/Winter with lower initial buy and flexibility to reorder to meet demand;
- Continuing to leverage applicable government business support programs, when qualified, for COVID-19;
- Drove additional cost reductions by minimizing non-essential operating costs and ongoing negotiations with suppliers and landlords for concessions;
- Extended payment terms where possible;
- Recommenced capital expenditures on boutique construction; and
- Increased access to work at Aritzia’s Support Office in British Columbia to select employees on June 1, 2020 under stringent health precautions on a voluntary basis.
In addition, Aritzia undertook several initiatives in support of its people and communities:
- Paid $20 million through the Aritzia Community™ Relief Fund to ensure financial continuity for its people during boutique closures and to enable seamless boutique reopenings;
- Gifted 100,000 Aritzia Community™ clothing packages to frontline healthcare heroes in Canada and the United States;
- Investing $1 million towards internal Diversity and Inclusion initiatives; and
- Donated $100,000 to Black Lives Matter and the NAACP.
Outlook
Net revenue for the first five weeks of the second quarter was down approximately 25% to 30% compared to last year. As of July 9, 2020, 89 of the 96 boutiques have reopened and are trending, on average, at 55% to 65% of last year’s productivity levels. While Aritzia anticipates boutique performance to improve sequentially, it continues to expect an extended ramp up to a new normal. To-date, eCommerce revenue growth in the second quarter has moderated with the reopening of the majority of its boutiques and is currently trending 50% to 100% higher than last year, varying by region based on store reopenings and the extent of impact by COVID-19.
In order to ensure the health and safety of its people and clients, Aritzia has implemented stringent protocols for its boutiques, distribution centre and support offices. These incremental measures are expected to add additional labour and operating expenses of approximately $4 million per quarter for the foreseeable future.
Aritzia expects capital expenditures for fiscal 2021 to be approximately $30 to $35 million. In addition to the opening of McArthur Glen in British Columbia on May 27, 2020, the Company currently anticipates opening another five to six new boutiques, two exclusive pop-ups and repositioning three existing locations during the remainder of fiscal 2021. Approximately 50% of these new leases reflect compelling post-COVID financial terms.
Given the ongoing uncertainty related to COVID-19, the Company will not be providing guidance for the second quarter and full year fiscal 2021 financial results.
