ATZ Aritzia Inc

Q4 net revenue decreased by 2.9% to $267.5 million
Q4 eCommerce revenue increased by 81.1%

VANCOUVER, BC, May 11, 2021 /PRNewswire/ - Aritzia Inc. (TSX: ATZ) ("Aritzia" or the "Company"), a vertically integrated, innovative design house of fashion brands offering Everyday Luxury in its boutiques and online, today announced its financial results for fourth quarter and full year fiscal 2021 ended February 28, 2021.

"Our financial results for the fourth quarter demonstrated the strength of our multi-channel business and the growing affinity for our brand. Our eCommerce channel sustained 80% growth while productivity in open, yet severely constrained boutiques remained at 80% compared to last year. Despite the government-mandated reclosure of 39% or 39 of our boutiques for the majority of the quarter, we delivered net revenue of $267.5 million, representing 97% of last year's revenue. For the full fiscal year, our eCommerce business surged 88% to comprise approximately 50% of net revenue, more than doubling the penetration of 23% in the prior year. Throughout the pandemic, we protected the health and financial well-being of our people as we continued to offer our much loved Everyday Luxury experience through engaging service, beautiful product, aspirational environments and captivating communications to our clients. In addition, throughout the year we improved our strong liquidity position, which allowed us to continue our strategic investments to capitalize on the opportunities ahead," said Brian Hill, Founder, Chief Executive Officer and Chairman.

"We're excited by the strong start to fiscal 2022, on-track to more than double our first quarter net revenue compared to last year, reflecting a previously unseen acceleration of sales in the United States and continued growth in our eCommerce business. Looking ahead, we are expediting investments across our four key strategic growth drivers: digital innovation of eCommerce and omni, geographical retail expansion, ongoing product development, and brand awareness. We will continue to expand our high performing team, evolve our processes for even greater efficiency, and enhance our technology to fuel our long term growth. I remain incredibly grateful for the enduring loyalty of our clients and our team's tireless efforts and remarkable resilience this past year," concluded Mr. Hill.

Fourth Quarter Highlights

• Net revenue decreased 2.9% to $267.5 million from Q4 last year, despite the reclosure of 39 of 101 boutiques for the majority of the quarter
• eCommerce revenue growth of 81.1% compared to Q4 last year
• Sales productivity of reopened boutiques trended on average at 79.6% of last year's levels despite severe occupancy restrictions and limited operating hours
• Gross profit margin⁽¹⁾ increased to 38.5% from 37.3% in Q4 last year
• Adjusted EBITDA⁽¹⁾ decreased to $35.2 million from $42.4 million in Q4 last year
• Adjusted Net Income⁽¹⁾ of $0.16 per diluted share, compared to $0.21 per diluted share in Q4 last year

Strategic Accomplishments in Fiscal 2021

• Successfully navigated COVID-19 to-date, prioritizing the health and safety of our people, clients and communities while taking swift action to position Aritzia to take advantage of the unprecedented opportunities ahead
• Accelerated momentum drove eCommerce revenue growth of 88.3% to comprise 49.7% of net revenues
• Drove revenue by pivoting product assortment and optimizing inventory to align with stay-at-home lifestyle
• Opened seven new boutiques and repositioned three existing boutiques in premier real estate locations
• Launched the Clientele App, Product Lifecycle Management system, Fit Analytics, Afterpay and other digital capabilities as we accelerated investments across infrastructure and talent to support future growth
• Advanced strategic initiatives to support Aritzia's communities, cultivate diversity and enhance sustainability

Unless otherwise indicated, all amounts are expressed in Canadian dollars. Certain metrics, including those expressed on an adjusted or comparable basis, are non-IFRS measures. See "Non-IFRS Measures including Retail Industry Metrics" and "Selected Consolidated Financial Information".

Fourth Quarter Results

All comparative figures below are for the 13-week period ended February 28, 2021, compared to the 13-week period ended March 1, 2020.

Net revenue decreased by 2.9% to $267.5 million, compared to $275.4 million in the fourth quarter last year. The decrease in net revenue was primarily driven by a decline of $57 million in retail revenue due to 39 government-mandated boutique reclosures and $18 million related to occupancy restrictions and reduced operating hours in its open boutiques, offset by revenue from new boutiques. This was almost completely offset by a $67 million increase in revenue associated with the continued accelerated momentum in the Company's eCommerce business, which grew by 81.1% from the fourth quarter last year.

Gross profit increased to $102.9 million, compared to $102.8 million in the fourth quarter last year. Gross profit margin was 38.5% compared to 37.3% in the fourth quarter last year. The increase in gross profit margin was primarily due to lower markdowns and rent abatements and government subsidies recognized during the quarter, partially offset by the deleverage from reduced retail revenue and higher warehousing and distribution centre costs driven by the growth in the Company's eCommerce business. 

Selling, general and administrative ("SG&A") expenses increased by 12.5% to $72.4 million, compared to $64.3 million in the fourth quarter last year. SG&A expenses were 27.0% of net revenue compared to 23.4% of net revenue in the fourth quarter last year. The increase in SG&A expenses was primarily due to the continued investment in talent and COVID-19 related health and safety measures. 

Adjusted EBITDA⁽¹⁾ was $35.2 million, or 13.2% of net revenue, compared to $42.4 million, or 15.4% of net revenue in the fourth quarter last year.

Net income was $16.1 million, compared to $21.7 million in the fourth quarter last year.

Adjusted Net Income⁽¹⁾ was $17.7 million, compared to $23.4 million in the fourth quarter last year.

Adjusted Net Income per diluted share⁽¹⁾ was $0.16 compared to $0.21 in the fourth quarter last year.

Cash and cash equivalents at the end of the fourth quarter totaled $149.1 million, compared to $117.8 million at the end of the fourth quarter last year.

Inventory at the end of the fourth quarter was $171.8 million, compared to $94.0 million at the end of the fourth quarter last year. This intentional increase was to fuel the acceleration of sales in the United States and continued growth in its eCommerce business. The Company is very pleased with this decision and it is seeing the results in its first quarter sales. The Company is confident in its inventory position and has made the decision to cancel its Spring sale and pushed back the launch of its Summer sales event in the United States by four weeks to align with the Canadian event. The Company expects to finish the season with a clean inventory position, as usual.

Capital cash expenditures (net of proceeds from leasehold inducements) were $9.4 million, compared to $9.7 million in the fourth quarter last year.

Fiscal 2021 Results

All comparative figures below are for the 52-week period ended February 28, 2021, compared to the 52-week period ended March 1, 2020.

Net revenue decreased by 12.6% to $857.3 million, compared to $980.6 million last year. The decrease in net revenue was primarily due to the impact of COVID-19 and the associated temporary boutique closures, as well as ongoing severe occupancy restrictions and reduced boutique operating hours, partially offset by meaningful eCommerce revenue growth throughout the year.

• eCommerce revenue increased by 88.3% to $425.9 million, or 49.7% of net revenue, compared to $226.2 million or 23.1% of net revenue last year, driven by higher traffic and conversion
• Retail revenue decreased by 42.8% to $431.4 million, compared to $754.4 million last year 
• Store count at the end of the year totaled 101 compared to 96 boutiques last year. During the year, the Company opened 7 new boutiques (5 in the United States and 2 in Canada) and repositioned three boutiques (1 in the United States and 2 in Canada)

Gross profit decreased to $312.5 million, compared to $403.4 million last year. Gross profit margin was 36.5% compared to 41.1% last year. The decrease in gross profit margin was primarily due to higher warehousing and distribution centre costs driven by the growth in the Company's eCommerce business and deleverage from reduced retail revenue, partially offset by rent abatements and government subsidies recognized during the year.

Selling, general and administrative ("SG&A") expenses increased by 3.0% to $250.7 million, compared to $243.4 million last year. SG&A expenses were 29.2% of net revenue compared to 24.8% of net revenue last year. Deleverage in SG&A expenses this year was primarily due to the continued investment in talent, loss of retail revenue and the implementation of additional health and safety measures, partially offset by government payroll subsidies recognized during the year.

Adjusted EBITDA⁽¹⁾ was $76.8 million, or 9.0% of net revenue, compared to $172.6 million, or 17.6% of net revenue last year.

Net income was $19.2 million, compared to $90.6 million last year.

Adjusted Net Income⁽¹⁾ was $26.0 million, compared to $97.4 million last year.

Adjusted Net Income per diluted share⁽¹⁾ was $0.23, compared to $0.87 last year.

Capital cash expenditures (net of proceeds from leasehold inducements) were $42.5 million, compared to $36.3 million last year.

Outlook

The first quarter of fiscal 2022 is off to a strong start. Aritzia is on-track to deliver net revenue growth of approximately 110% in the first quarter compared to last year, implying a target of approximately $234 million. This reflects a previously unseen acceleration of sales in the United States in both its retail and eCommerce channels, as well as, continued momentum of the Company's eCommerce business in Canada. This revenue target for the first quarter is in spite of 50% or 34 of the Company's boutiques in Canada mandated to reclose starting on April 8, 2021 and expected to remain closed for the remainder of the quarter.

For fiscal 2022, Aritzia currently expects the following:

• Net revenue to increase 30% to 35% from fiscal 2021, led by continued growth in the Company's eCommerce business, the ongoing recovery in retail performance, as well as contribution from its retail expansion with:
• • Six to eight new boutiques in the United States, including The Grove in Los Angeles, Woodbury Commons in New York, and Topanga in Canoga, which are slated to open late in the first quarter or early in the second quarter; and
  • Six boutique expansions or repositions, including four locations in Canada and two in the United States.
• Gross profit margin to be relatively flat compared to pre-COVID-19 levels in fiscal 2020, reflecting leverage on fixed costs and the strengthening Canadian dollar, offset by continued investment in talent to drive the Company's product expansion strategy;
• SG&A as a percent of net revenue to modestly increase relative to pre-COVID-19 levels in fiscal 2020 as accelerated investments in people, processes and technology more than offset the leverage on fixed costs. In addition, the Company expects to incur ongoing operating expenses related to COVID-19 protocols of approximately $10 million, weighted to the first half of the year;
• Net capital expenditures in the range of $55 million to $60 million, comprised of:
• • Boutique network growth, and
  • Ongoing investments in technology and infrastructure to enhance the Company's eCommerce capabilities and omni-channel experience, including capacity expansion at its distribution centre in the Greater Vancouver area.

Conference Call Details

A conference call to discuss the Company's fourth quarter results is scheduled for Tuesday, May 11, 2021, at 1:30 p.m. PT / 4:30 p.m. ET. To participate, please dial 1-800-319-4610 (North America toll-free) or 1-416-915-3239 (Toronto and overseas long-distance). The call is also accessible via webcast at http://investors.aritzia.com/events-and-presentations/. A recording will be available shortly after the conclusion of the call. To access the replay, please dial 1-855-669-9658 and the access code 6500. An archive of the webcast will be available on Aritzia's website.

About Aritzia

Aritzia is an innovative design house and fashion boutique. We conceive, create, develop and retail fashion brands, each with its own vision and distinct aesthetic point of view and all with a depth of design and quality that provide compelling value. As a group, they are united by an effortless appeal, a focus on fit and an of-the-moment point of view.

Founded in Vancouver in 1984, Aritzia has more than 100 locations in select cities across North America, including Vancouver, Toronto, Montreal, New York, Los Angeles, San Francisco and Chicago. We pride ourselves on creating immersive, human and highly personal shopping experiences, both in our boutiques and on aritzia.com — with a focus on delivering Everyday Luxury.

Comparable Sales Growth

Comparable sales growth is typically a useful operating metric in assessing the performance of the Company's business. However, as the temporary boutique closures from COVID-19 have resulted in boutiques being removed from its comparable store base, the Company believes comparable sales growth is not currently representative of its business and therefore the Company has not reported figures on this metric in this press release.

Non-IFRS Measures including Retail Industry Metrics

This press release makes reference to certain non-IFRS measures including certain retail industry metrics. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including "EBITDA", "Adjusted EBITDA", "Adjusted Net Income", "Adjusted Net Income per diluted share", and "gross profit margin". This press release also makes reference to "comparable sales growth", which is a commonly used operating metric in the retail industry but may be calculated differently compared to other retailers. These non-IFRS measures including retail industry metrics are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. We believe that securities analysts, investors and other interested parties frequently use non-IFRS measures including retail industry metrics in the evaluation of issuers. Our management also uses non-IFRS measures including retail industry metrics in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. Definitions and reconciliations of non-IFRS measures to the relevant reported measures can be found in our MD&A. Such reconciliations can also be found in this press release under the heading "Selected Consolidated Financial Information".

Forward-Looking Information

Certain statements made in this press release may constitute forward-looking information under applicable securities laws. These statements may relate to our future financial outlook and anticipated events or results and include, our ability to sustain momentum in our eCommerce business, the impact of health and safety measures including capacity restrictions and mandated closures on retail performance and labour and operating expenses,  our ability to drive digital innovation of eCommerce and Omni, geographic expansion, product development, and brand awareness, our ability to weather further uncertainty, achieve meaningful growth and take advantage of opportunities, our ability to invest in critical infrastructure across our people, processes and technology, our outlook for net revenue growth in the first quarter of fiscal 2022. Particularly, information regarding our expectations of future results, targets, performance achievements, prospects or opportunities is forward-looking information. As the context requires, this may include certain targets as disclosed in the prospectus for our initial public offering, which are based on the factors and assumptions, and subject to the risks, as set out therein and herein. Often but not always, forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology.

Implicit in forward-looking statements in respect of the Company's expectations for net revenue growth of approximately 110% (approximately $234M) for the first quarter of fiscal 2022 as compared to last year, are certain current assumptions including the continued acceleration of sales in the United States both in retail and eCommerce channels as well as continued momentum of the Company's eCommerce business in Canada.  The Company's forward-looking information is also based upon assumptions regarding the overall retail environment, the COVID-19 pandemic and related health and safety protocols and currency exchange rates for fiscal 2022. Specifically, we have assumed the following exchange rates for fiscal 2022: USD:CAD = 1:1.25.

Given this unprecedented period of uncertainty, there can be no assurances regarding: (a) the limitations or restrictions that may be placed on servicing our clients in reopened boutiques or potential re-closing of boutiques; (b) the COVID-19-related impacts on Aritzia's business, operations, supply chain performance and growth strategies, (c) Aritzia's ability to mitigate such impacts, including ongoing measures to enhance short-term liquidity, contain costs and safeguard the business; (d) general economic conditions related to COVID-19 and impacts to consumer discretionary spending and shopping habits; (e) credit, market, currency, interest rates, operational, and liquidity risks generally; and (f) other risks inherent to Aritzia's business and/or factors beyond its control which could have a material adverse effect on the Company.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the factors discussed in the "Risk Factors" section of the Company's annual information form dated May 11, 2021 for the fiscal year ended February 28, 2021 (the "AIF"). A copy of the AIF and the Company's other publicly filed documents can be accessed under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

The Company cautions that the list of risk factors and uncertainties described in the AIF is not exhaustive and other factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. The forward-looking information contained in this press release represents our expectations as of the date of this press release (or as the date they are otherwise stated to be made), and are subject to change after such date.  However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Selected Consolidated Financial Information

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

RECONCILIATION OF NET INCOME TO EBITDA, ADJUSTED EBITDA AND ADJUSTED NET INCOME

RECONCILIATION OF COMPARABLE SALES TO NET REVENUE

CONDENSED INTERIM CONSOLIDATED CASH FLOWS

FREE CASH FLOW:

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

BOUTIQUE COUNT SUMMARY

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SOURCE Aritzia Inc.