says its “operational pivot” to move all fulfillment of U.S. orders to its expanded distribution center in Ohio is positioning it to cope with the lifting of the de minimis rule in the United States, which came just two days before the end of the Canadian retailer's second quarter.
The loophole, which ended on August 29, was beneficial to the international community.
because it allowed packages worth less than $800 to be sent duty-free to the United States.
“Despite the headwinds associated with de minimis waivers and higher reciprocal tariff rates for Vietnam and Cambodia, our proactive mitigation strategies and strong revenue growth position us very well,” Aritzia CEO Jennifer Wong said on a call with analysts.
“Previously, as part of a de minimis exception, we used our existing
network in Canada to fulfill a portion of US e-commerce orders.”
The Vancouver-based retailer had already expanded its Ohio distribution center to 560,000 square feet, more than double its previous size, before the trade war began, which it said will allow it to handle U.S. order volumes over the next two years.
Chief Financial Officer Todd Ingledew said headwinds related to de minimis and tariffs led Aritzia to forecast a 280 basis point decline in gross profit for the full fiscal year, although its forecast for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the fiscal year remains unchanged at from 15.5% to 16.5%.
He said the company expects to “fully offset” tariff and minimum pressures based on the strength of its business and actions such as cost-sharing with suppliers, reducing the share of products sourced from China to mid-single digits, as well as its ongoing “smart spending” cost-saving initiative and improvements to the multi-year initial markup (IMU).
For the quarter ended Aug. 31, Aritzia reported year-over-year net revenue rose 32% to $812 million, driven by broad retail and e-commerce growth across all regions.
Aritzia said its U.S. business continued to deliver results, with net revenue there up 40 percent year-on-year to $486 million, representing just under 60 percent of total net revenue. Half of Aritzia's retail operations are now located south of the border, as are 68 of its 134 stores.
The company previously identified the potential to open up to 150 stores in the U.S., but Wong said it could be around 180-200 in the long term.
“We continue to see there's a lot of runway there, a lot of empty space, and our strategy is clearly proven and strong,” she said. “The good news is that we have a number of well-known stores and we see that as something we can really capitalize on over the next few years.”
Net revenue in Canada rose 20 percent to $326 million, “an impressive performance for a mature market,” Martin Landry, an analyst at Stifel Nicolaus Canada Inc., said in a note.
Ingledew said investments in digital marketing, strong traffic growth and the “halo effect” of new store openings helped net e-commerce revenue increase 26 percent to $240 million.
Aritzia's mobile app will become the retailer's “digital flagship” when it launches at the end of the month, Wong said. In August, the company also unveiled an international e-commerce website that “significantly exceeded” expectations in the first six weeks of launch.
“We are confident that we will achieve our goal of tripling sales in two years or less,” Wong said.
Aritzia's real estate expansion strategy and new stores “are the most predictable driver of revenue growth,” she said, as net retail revenue increased 34 percent to $571 million. Comparable sales, a metric that measures the performance of existing stores, rose 22 percent.
“The acceleration of its international website contribution, the launch of a digital app by the end of October and the opening of several new stores, including the Flatiron NYC flagship ahead of Black Friday, should support the pace of sales growth,” CIBC Capital Markets analyst Mark Petrie said in a note.
Aritzia said it had strong liquidity at the end of the second quarter, with $352 million in cash, no debt and cash drawn from a $300 million revolving credit facility.
Based on continued outperformance in the U.S. and the strength of its Canadian business, Aritzia updated its net revenue guidance to $3.3 billion to $3.5 billion for the full fiscal year, up from the $3.1 billion to $3.25 billion it forecast in its first-quarter earnings report in July.
“We continue to manage macroeconomic events from a position of strength,” Wong said. “The fact that we are still growing our profits this year despite these events speaks volumes about our capabilities and ability to perform with excellence.”
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