Aritzia reported that sales grew in both its stores and online.Ryan Remiorz/The Canadian Press
Aritzia Inc. ATZ-T more than tripled its profits in the second quarter, as the fashion retailer’s growth continued to be fuelled by its strong performance in the United States.
On Thursday, the Vancouver-based retailer reported net income of $66.3-million in the quarter ended Aug. 31, representing a 263-per-cent jump from the same period last year, when the company’s net income was $18.2-million. On a per-share basis, net income was 56 cents per diluted share, compared to 16 cents per share in the prior year.
Aritzia reported that sales grew in both its stores and online, and in all geographies where it operates. But the retailer has been expanding its presence south of the border, where the brand has seen increased awareness among shoppers. The U.S. market accounted for roughly 60 per cent of Aritzia’s sales in the quarter. Revenue in that market grew by 41 per cent.
“We see a ton of runway in the U.S.,” chief executive officer Jennifer Wong told analysts on a conference call to discuss the company’s results on Thursday. Aritzia currently has 68 American locations, and Ms. Wong said she believes the retailer could eventually reach a number closer to 180 to 200 stores in the U.S.
Aritzia profit, revenue soar in first quarter as U.S. customer base grows despite trade war
Store expansion has already been significant: In the past 12 months, Aritzia’s retail square footage has grown by 25 per cent in total, with 13 new store openings and four locations that have been renovated or relocated – mostly in the U.S.
“Boutique openings continue to be our most predictable driver of topline growth,” Ms. Wong said on the call. “They enhance brand visibility and support client acquisition in both new and existing markets.”
Performance in Aritzia’s home market also improved, with a 21-per-cent increase in net revenue, marking the third consecutive quarter of accelerated sales growth.
Ms. Wong hinted that the company may consider opening physical stores outside of North America in the future. “We continue to gather more data about how we could perform beyond the borders of Canada and the U.S.,” she said.
Shoppers’ demand for the company’s products was not isolated to certain styles or categories, Ms. Wong said. “All of it was working.”
The company’s net revenue grew to $812-million, a 32-per-cent increase compared to the same period the prior year.
The results far exceeded analysts’ expectations, and the company’s own outlook provided in July. Analysts had expected net revenue of roughly $754-million and net income of $44.8-million, according to the consensus estimate from S&P Capital IQ.
Comparable sales – an important metric in the retail industry, which tracks sales growth not tied to new store openings – were up 22 per cent, led by increases in U.S. e-commerce sales.
Aritzia has been experiencing some pressure on its profit margins, as a result of the U.S. government’s decision to axe a tariff exemption for packages coming into the country that were valued under US$800.
Prior to the removal of that “de minimis” rule in August, Aritzia fulfilled a portion of its e-commerce orders from its distribution centres in Canada. The retailer was then forced to relocate those shipments to its distribution centre in Ohio, which was expanded just last year. The Ohio facility is now operating at triple the capacity compared to before the rule change, Ms. Wong explained.
The company also faced some pressure due to increased tariffs on imports from Vietnam and Cambodia, where some of its products are produced.
“We are leveraging our agile global supply chain to minimize our tariff exposure,” Ms. Wong said, noting that longstanding supplier partners have agreed to share some costs. Because of those mitigation strategies, and continuing initiatives to cut costs, the company’s forecasts for profit margins remained unchanged for the current fiscal year.