Aritzia Inc

TSX:ATZ

Earnings Call Transcript 2019-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Aritzia's Second Quarter 2019 Earnings Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Catherine Tang. Please go ahead.

[Catherine Tang]

Thank you, operator, and thank you all for joining us for Aritzia's Second Quarter 2019 Earnings Conference Call. Joining me today for the results are Brian Hill, Founder, CEO; and Chairman, Jennifer Wong, President and COO; and Todd Ingledew, CFO.We will begin today's call with management's discussion followed by a question-and-answer period, open to analysts and investors. Please note that remarks on this conference call may provide certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements. We would refer you to our most recently filed management's discussion and analysis, which includes a summary of the material assumptions underlying such forward-looking statements, and certain material risks and factors that could affect our future performance, and our ability to deliver on these forward-looking statements.The second quarter 2019 earnings release, the related financial statements, management's discussion and analysis, and the annual information form are available on SEDAR, as well as the Investor Relations section of Aritzia's website at aritzia.com.Finally, all figures discussed on this conference call are in Canadian dollars, unless otherwise noted.I will now turn the call over to Founder, CEO and Chairman, Brian Hill.

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Thank you, Catherine. And thank you, everyone, for joining us today. I would like to start by welcoming Marcia Smith as the newest member of Aritzia's Board of Directors, replacing Kevin Callaghan of Berkshire Partners. We are thrilled to have Marcia join our board. Marcia has an impressive background with 30 years of experience in public affairs and expertise in the areas of health and safety, sustainability, environment, communities, government relations and corporate affairs. We look forward to drawing on her broad range of knowledge. I would also like to take the opportunity to thank Kevin Callaghan from Berkshire Partners for his contributions. Kevin's guidance was invaluable over the past 12 years as we grew our net revenue tenfold. With these changes, Aritzia's Board of Directors now has a majority of independent members. Turning to the business, we delivered an exceptional second quarter with sales growth reflecting strength across all geographies and all channels. The growing affinity for our brand, coupled with our beautiful, high-quality products, and aspirational omnichannel shopping experience, fuels an 11.5% increase in comparable store sales, marking the 16th quarter of comparable growth. We generated positive comps in Canada and the U.S. We were particularly pleased with the incredible performance of our United States business, where revenue increased 40% in the second quarter. This was driven by accelerated comp growth, both in stores and online, and the success of our new and expanded stores in our American market. Yesterday, marked our 2-year anniversary as a public company. Looking back, I'm extremely proud of what we've accomplished. I would like to take this opportunity to thank everyone for their support, and exceptional Aritzia team for their contributions.In 2 years, our store network grew from 75 to 90 stores. Through that same period, we expanded or repositioned 12 additional stores. Net revenue grew 31% from $607 million to $797 million. Adjusted EBITDA grew 54% from $97 million to $150 million. And adjusted net income grew 74% from $50 million to $87 million. These results are a testament to the strength of our business model, which consists of 3 pillars: our differentiated global sourcing strategy; our innovative creative development; and our aspirational omnichannel shopping experience. These pillars are supported by best-in-class infrastructure and an extremely talented team. Looking forward, we will continue to take a long-term approach to managing our business, while delivering on our growth strategies. Our vision since the IPO hasn't changed, we want to be the most relevant and loved fashion brand for women all over the world. Turning back to the second quarter, we delivered 18% revenue growth and 60% adjusted EBITDA growth as compared to the second quarter last year. We continue to make excellent progress on our key initiatives, including growing our eCommerce business, expanding our premier store network and driving product innovation, while building our best-in-class infrastructure. Growth accelerated in our eCommerce business in the second quarter as a result of continued progress on our strategic initiatives. We will continue to build on our successes, as we further invest in expanding our capabilities. Jennifer will speak to these initiatives shortly.During the second quarter, we continued to expand our premier real estate portfolio, reaching new markets including Westfield UTC in San Diego, Georgetown in Washington D.C., and Conestoga Mall in Greater Toronto. We also completed the expansion of our location in Victoria B.C. We are extremely pleased with our new, expanded and repositioned stores, which are all performing at or above our expectations. Turning now to product, our beautifully designed assortment continues to resonate with our customers. We saw a strong sell through of all our spring and summer product. At the end of August, we launched our Denim program, Denim Forum. Our customers responded enthusiastically to the product as evidenced by the incredibly strong sales that exceeded our expectations. We have already sold approximately half of our uncharacteristically large initial buy and are actively placing reorders. This success has us excited about Denim Forum and its growth potential. That Denim launch is a perfect example of how we leverage our world class product innovation and sourcing capabilities to enter new categories. We believe the expansion of new categories should help drive increased sales among our existing customers as well as attract new customers well into the future. As I mentioned at the start of the call, our powerful business model is underpinned by best-in-class infrastructure and extremely talented team. We continue to focus on developing our people, processes and technology, infrastructure to support our long-term growth. I will now turn the call over to Jennifer to speak to our accomplishments in this area of the business. And then I will update you on our strategic growth initiatives.

[Jennifer Wong, President, COO, Corporate Secretary & Non]

Thank you, Brian, and good afternoon, everyone. Once again, I'll speak about the investments we're making in our infrastructure to ensure that we continue to have a solid foundation in place to support our multiyear growth plan. In keeping with our operating philosophy and culture, of planning and managing our business for the long term, we invest in infrastructure to safeguard and maximize our existing business and to enable growth. First, I'm thrilled to provide my final update on our new Vancouver distribution center. We successfully completed the opening of the 225,000 square-foot facility with an upgraded warehouse management system in August. I'm very proud of the project team, who executed the transition flawlessly with absolutely no disruption to our business. In fact, the original cut over plan was to take 7 days, and we were fully ready and positioned to go live a day earlier than scheduled. This facility is now the flagship distribution center and will serve as a model for all distribution facilities as we expand the network. It will primarily service the West Coast, and serve as a hub for the rest of the network. In terms of talent, we continue to attract exceptional people to our organization that are focused on building out teams in key areas of our business, including eCommerce, marketing and technology. In the first half of the year, we hired 11 new positions on our eCommerce team, building our depth of knowledge in digital experience, analytics, software development and digital merchandising. We now have teams focused on building out incremental improvements to our sites to enhance every part of the customer journey. All of these incremental changes are helping to improve the customer experience and grow our eCommerce business. In technology, Phase 2 of the point-of-sale implementation began its roll out. We implemented verified eCommerce returns and integrated payments, which will allow us to improve the customer experience at the cash desks, and increase accuracy on the back end. The product life cycle management system or PLMs is the next business transforming foundational technology we are implementing. The PLM system will manage all of the data and support all of the processes to bring a product to market. This will enable us to focus on innovation, drive quality, reduce speed to market where appropriate and ultimately, optimize costs in our manufacturing processes. We're in the final stage of our vendor selection process and expect to have a vendor chosen by the end of the year.The investments we're making in people, process and technology have us poised for the growth that we expect to deliver in fiscal 2021 and beyond. And with that, I'll turn the call back over to Brian to speak to our growth strategies.

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Thank you, Jen. Our growth strategy include growing our eCommerce business, expanding our store network, driving exclusive brand and product innovations, building brand awareness and enhancing long-term profitability.Our eCommerce business is strong in Canada and United States, putting us on track to meet or exceed our target eCommerce penetration of 25% by fiscal 2021. We continue to work on 5 eCommerce strategies, which include improving the digital experience, growing our clienteling program, developing our omnichannel fulfillment capabilities, increasing digital marketing, and expanding our international online business. While we are in the early stages, we believe these strategies will increase brand awareness, drive site and store traffic and lead to higher conversion. Overall, we are pleased with our store network expansion, as we capitalize on opportunities to secure premier locations in North America. We are excited about the opportunities we are pursuing in the United States. Or to be clear, in almost all cases the landlords are actually pursuing us.Our growing brand awareness among consumers and landlords continue to fuel new store opportunities. This has manifested itself into a strong pipeline of new stores for fiscal 2020 and beyond. We expect store openings in fiscal 2020 to be predominantly weighted to locations in the United States, and look forward to sharing more details as our leases are finalized. We remain highly focused on executing our disciplined real estate strategy as our stores are not only instrumental in building brand awareness in this market, but are also very profitable growth engine for the company. We drive product innovation at every stage of the creative development process. We are working directly with best-in-class mills to develop and elevate the raw materials we use. We are extending the reaches of our supply chain upstream to partner directly with raw material and fiber innovators to continually innovate our product. Our in-house designers focus on creating designs that build on historical successful styles while incorporating new fashion trends. Our technicians are enhancing the fit and construction of every garment along every step of the development process. We continue to enhance our marketing strategy and build brand awareness. As I mentioned last quarter, we are elevating our influencer program and securing celebrity and digital influencer coverage. These efforts are paying off as we've now seen a 300% increase in placements in the United States. In addition, Aritzia was selected by Facebook as a test brand in their evolving effort to expand social commerce. This is an exciting area of growth for us, as we have seen over 200% increase in revenues from social to dotcom. At the time of our IPO, we said we would seek to enhance gross profit margins through further sourcing efficiencies while continuing to improve the quality of our products. We accomplished this once again in the second quarter with gross margins up 110 basis points year-over-year. Todd will speak to that in more detail shortly. However, I would like to note again that we're continuing to face rising raw material costs, particularly, wool, down and polyester. We have already seen the cost of wool increase over 25% in the past year. This trend is driven by severe drought situation in Australia that's expected to continue. We're working diligently with raw material suppliers to secure long-term positions to mitigate and offset these cost increases without impacting the value we deliver to our customers. In conclusion, we are extremely pleased with our momentum in both Canada and United States as we continue to drive engagement with our highly loyal customer base as well as attract new customers to Aritzia. Our growth in the U.S. market has been exceptional and we expect to gain continued market share as we expand our retail presence and further expand our brand awareness. We are pleased with the growth in our eCommerce business and excited about the opportunities ahead as we innovate the digital experience for our customers and grow our clienteling and omnichannel capabilities. The strong performance in all our new and expanded or repositioned stores gives us tremendous confidence as we continue to open locations in existing and underpenetrated markets across North America. We believe that our unique multibrand strategy, continued product innovation, expansion of our premier store network, and enhanced eCommerce capabilities will enable us to maintain strong and consistent financial performance. We are proud of our accomplishments over the past 2 years as a public company. We are even more excited about the future growth potential in the coming years. With that, I'll turn the call over to Todd to review our financial results in further detail.

[Todd Ingledew, Chief Financial Officer]

Thank you, Brian. And Good afternoon, everyone. To echo Brian, we are extremely pleased to have delivered an exceptional second quarter, following our strong first quarter. Net revenue for the second quarter increased by 18% to $205.4 million from $174 million in the second quarter last year. The revenue increase was driven by strong retail and eCommerce performance across all geographies. Comparable sales in the second quarter increased 11.5%, accelerating from the 10.9% growth that we achieved in the first quarter. The growth in comparable sales was driven by an increase in transactions, both online and in-stores. Net revenue also benefited from the addition of 7 new stores and 8 expanded or repositioned stores since the end of the second quarter last year. Gross profit margin for the quarter increased by 110 basis points to 37.4% from 36.3% in the second quarter last year. Gross margin benefited primarily from the lower product costs related to ongoing sourcing initiatives, the strengthening of the Canadian dollar, and a favorable shift in sales mix to exclusive brands. These improvements in merchandise margins were partially offset by warehousing and distribution costs, primarily related to the transition to our new distribution center. In the quarter, nonrecurring costs related to the DC transition included $600,000 of expenses related to the move, and $260,000 of rent expense from our old DC. The lease on the old distribution center expires at the end of the third quarter.Selling, general and administrative expenses for the quarter increased 18.5% to $52.8 million. Excluding secondary offering cost of $420,000, SG&A expenses would have been 25.5% of net revenue compared to 25.6% of net revenue in the second quarter last year. Adjusted EBITDA increased 59.6% to $33 million, or 16.1% of net revenue in the second quarter. Adjusted net income increased 76.3% to $18.3 million or $0.16 per diluted share. Our cash balance at the end of the second quarter was $55 million, effectively flat with the end of the second quarter last year, despite our capital investments in the business, working capital timing differences, and the debt repayment of $43.7 million. During the quarter, we repurchased 194,000 shares through our NCIB. This brings our total repurchases to 246,000 shares since we implemented the NCIB on May 10. The repurchases to date have been done at an average share price of $15.49 for total cash consideration of $3.8 million. Subject to market conditions, we will continue repurchasing shares opportunistically. Turning to our outlook, we are pleased with the strong start to the third quarter. The warm weather in the east at the beginning of September impacted sales in the first 2 weeks of the quarter. But we've regained momentum in the last 4 weeks as weather has become more seasonable. For fiscal 2019, we now expect to deliver mid-teens revenue growth. As a reminder, we expect our gross margin in the second half of the year to continue to benefit from our sourcing initiatives. However, these benefits will be offset by the impact of higher raw material costs. We continue to expect SG&A to grow proportionally with revenue for fiscal 2019. The growth in SG&A is related to the investments we're making in people, technology, and infrastructure. Overall, we are extremely pleased with our performance in the first half of the year, and the continued strength in our business. We are well-positioned to drive consistent sustainable revenue and earnings growth and to increase shareholder value, as we remain on track to meet or exceed our stated fiscal 2021 performance targets. With that, we will now welcome questions. Operator?

[Operator]

[Operator Instructions] The first question comes from Mark Petrie of CIBC.

[Mark Robert Petrie]

Clearly, a very strong result in the U.S. New stores helped, but looks like eCommerce would've been the key driver. I know you touched on it, but I just want to make sure we understand sort of the work you've done to accelerate U.S. or brand awareness in the U.S. and eCommerce penetration? And what you view as sort of the most important drivers of that revenue growth?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Thanks, Mark, it's Brian. First of all, everything was firing and has been firing in the U.S., our retail stores have been comping positively. Our eCommerce has been comping positively, our new stores have been resonating and been meeting or exceeding our projections. So first of all, everything is working for us right now in the United States. We've always said that having key real estate is our #1 marketing tool. And it is -- we continue to open up stores where we are propelling our brand. And whether that be UTC in San Diego, or that be an expansion that was completed in our SoHo store of late, whether it be a new store in Washington. So our retail presence, we look as a strategic advantage that we have and it continues to propel our brand. I think improvements to our eCommerce and our digital site is resonating, as we continue to push the envelope on our catalog. And the functionality and then the content that we have on our site I think is world class. And I think of the -- our social channels and working with all the influencers and various people we're working with, and our PR initiatives with celebrities has worked incredibly well. So we think we're just really are the tip of the iceberg as far as our recognition in the United States. That said, it's growing very helpfully and we're super excited about our business and will -- looking forward to continued growth in United States.

[Mark Robert Petrie]

Okay, and I guess in the past you've said that the eCommerce growth sort of accelerated in markets where you improved or introduced new stores. Is that still the case? Or are you seeing that balance shift a little bit where eCommerce growth even in markets where you don't have stores is catching up a bit?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

We're seeing eCommerce growth everywhere, first and foremost. But we still see that in stores and certainly stores and in markets where we're opening stores, we're seeing continued growth. Sometimes when we're in a store like when we are in Halifax, for instance, it's a remote market. And we had a very healthy eCommerce business there because we didn't have an Aritzia store present there. And then we opened an Aritzia store, it gave the consumers, that we already had a large following with, an option. We don't see quite as much growth as we do when we're new to a market, and we're opening up a store, and we might not be known. So in places like San Diego and Georgetown, we do see that eCommerce accelerate, whereas in places like Halifax, where people generally knew and there's a lot of students there from right across the country that knew our brand. We don't see quite as much as pop when that happens. So it's all dependent on market-by-market, but overall, yes, we do see continued growth in eCommerce at a higher rate when we're opening up the store in that market.

[Mark Robert Petrie]

Okay, thanks and then just sort of last one on same-store sales front. Did Denim actually have an impact in Q2 or is that all Q3 and will you be able to replenish that assortment in time for sort of Black Friday and holiday shopping?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Some of the styles will be replenished in time for Black Friday and holiday shopping for Black Friday, the remainder will be replenished by holiday sort of in December. We're looking forward to building a long-term Denim program in Aritzia so although we're trying to scramble to get the product in as best as we can, I think, at the end of the day, we're looking at this long-term. Our Denim team just got back from Asia where they are monitoring all our reorders and our spring releases. We did see the Denim sales in both Q2, and we'll be seeing probably a little bit more of it in Q3. That said, it still isn't meaningful, I mean, our comps are so good, our business is so good that although they are helping, the comps are not being driven by the Denim at this point in time.

[Mark Robert Petrie]

And one more just on the margin side. Obviously, strong top line results. double-digit comps year-to-date, you improved the revenue outlook. but no change on the margin side. You called out the raw material cost pressures. Is that accelerated and effectively offsets the benefits from a stronger top line, or are you accelerating investment elsewhere in the business to support the growth?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

No, I don't think it's offsetting our top line growth. Our top line growth is very, very healthy. I don't think it's affecting that. What it does affect though is sort of some of the other improvements we've done to the cost base on our products and the gross margin, so we're seeing offsets there. So we're seeing pressures increasing our cost of goods sold, but we're also seeing the opportunities that we'd been pursuing coming to a fruition. So in the past where we're just seeing those drop right down to the bottom line, we're seeing them offset a little bit more than we had in the past.

[Operator]

The next question comes from Lorraine Hutchinson with Bank of America.

[Lorraine Corrine Maikis Hutchinson]

Just a follow up on the gross margin question. Understanding that you have lot of raw material pressure, have you tested any price increases or trying to pass some of that -- some of those costs back to the consumer?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

We're hesitant to increase our prices and pass those costs back onto the consumers. As I mentioned, what we're trying to and have been successful in offsetting our cost of goods sold through other initiatives, whether it be better negotiations, better transportation initiatives and where we're not having to air as much product, things like that. So we're trying to offset these and to date we've actually been successful. So we typically don't put our prices up at Aritzia, unless we need to, and we haven't found the need to do so. That said, new products when we're introducing new products into our assortment, they are priced, based on the reality of what we see going on in the marketplace. Whereas products that we've carried for some time prior to that we're very hesitant and seldom put those prices up. So there's a little bit on some new products and price creep on new products, but it's not really noticeable to the consumer, and at the end of the day, I think, will help us a little bit, but I think, all our other initiatives will have a bigger impact on our gross margins.

[Lorraine Corrine Maikis Hutchinson]

And are you happy with the price points that you're -- that you initially tested on the Denim program?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

From all feedback so far from the consumer as well as all feedback from internally, we're extremely pleased with them. We're extremely pleased with the position it's at and the price, where we think the value that we're delivering for the price is second to none in the industry which sort of mirrors all the rest of our product that we have and we are making meaningful margin on it compared to branded product. So the pricing and the cost structure and everything, we're extremely comfortable with and it's in line with what we had hoped.

[Operator]

The next question comes from Irene Nattel with RBC Capital Markets.

[Irene Ora Nattel, Managing Director of Global Equity Research]

Just thinking about the very strong revenue growth. Where it sounds like it was across-the-board, but were there any categories other than the early Denim reaction that really stood out or anything in the quarter that kinds of surprised you and made you go, "Hmmm! Maybe we need to rethink this or that?"

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Irene, it's Brian. No, I don't think we're surprised with anything. I mean, our business was strong across all categories, and I don't think we're really surprised about anything. Right now from an outlook perspective with all the snow in Calgary and it was quite brisk here in Vancouver, we've seen an uptick in outer wear sales now which we're quite excited about, but generally speaking, the spring and summer, it was as per plan and we just had a great assortment as we've had for season-after-season and quarter-after-quarter, so we're continuing to drive all categories successfully right across the board.

[Lorraine Corrine Maikis Hutchinson]

That's right, thank you. And could you just expand a little bit on the partnership that you alluded to with Facebook and what exactly is going on there and what we can expect going forward?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Yes, we're in the preliminary stages right now with that partnership. I truthfully haven't had too much insight into what exactly it is we're tapping there, because we have quite a few eCommerce and digital initiatives we're working on right now. So I haven't been briefed on all of them. I have sort of the framework of what we're doing, and I'd actually wouldn't insert particularly intelligent, if I tried to explain it because I'm not sure I got a complete handle on it, but I know the team is exceptionally excited about it and it just shows overall though the presence of our brand, not just in Canada, but the United States and we have large American organizations reaching out and wanting to partner with us and that's happening in quite a few places whether it be landlords or companies like Facebook or whomever. We're seeing just a lot of presence generally in the United States now with our brand.

[Irene Ora Nattel, Managing Director of Global Equity Research]

So Brian, I mean, is it safe to say that as you continue to open stores in these primary locations that really are getting a whole lot of visibility that more and more doors are opening to Aritzia and not only from a real estate perspective, but even Facebook as an example or maybe there's some others who can tell us about that really strengthen the sort of the visibility and the outlook?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Yes, I'm not in a position really to discuss any other specifics here other than the fact that we are seeing presence, both in the United States, Canada but we're also seeing it internationally. Lot of people reaching out and wanting to do business with us right now and whether that be landlords or partners or people wanting to do eCommerce with us or wholesale opportunities continually knocking on our door, and we're seeing it all in all the approaches from a business development perspective continue to increase. And that -- we look at that and think that's a reflection really of both the corporate presence we're having, but obviously, it's translating into the consumer as well, which is equally as exciting to us.

[Operator]

The next question comes from Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod, Analyst]

Thinking about the raw material outlook, can you just give a little bit more color around product that you're buying today, say at elevated wool prices? How far ahead are you buying? Like how far into the product cycle does that go, I mean, in terms of the time line? I'm trying to think of how the gross margin could evolve into 2019, sorry, into calendar 2020 and beyond?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Yes, we don't know the exact effects of our gross margin other than the fact that we have pressure on it. We've purchased a lot. We placed a lot over the last month, of our wool position for next fall. And so, that's been placed now. We had placed a lot of down for the following season as well, and we have a bit of a good news story in that, in that we're probably going to use a bunch of that as well this season due to the demand that we're having in our outer wear. So there will be initiatives to offset these. But we are feeling the pressure. We alluded to it at the last call, we saw it coming. It has arrived and is with us now this new reality of these higher costs, and we think it's actually going to continue. The good news is, we have positions for next fall already in place at prices in some cases lower than we could get on the market today, as well the competitors and the competitive set is going to see and feel the same increases in the market. So the playing field is rather level right across-the-board here. So I still think, though, that we have other opportunities in our pipeline to offset these. And at the end of the day, strong top line sales that we've had, both eCommerce and retail in Canada and the United States will continue to offset any price increases we have -- so cost increases that we have. So we're still equally excited about the business, and I know, it's a little difficult to put numbers on things, but raw material prices we can't control. All we can do is sort of take positions on things and try to mitigate any increases as best we can.

[Stephen MacLeod, Analyst]

Right, that's helpful. And then in an environment where you've historically have not -- haven't increased price. Can you just talk a little bit about what some of those other opportunities are, absent just a strong top line to offset some of the cost inflation you're seeing?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Well, first and foremost, the old-school trick of negotiating better prices is always our first go to. So that's always there. And we always think we can continue to negotiate. But we've seen some currency opportunities as well as different currencies come and go, and go up and down. We see some opportunities, once there's some currency arbitrage that we can -- because of course we're buying everything in the American dollar and the American dollar continues to be strong. So we think there's been opportunities there we can realize. I know there's opportunities, for instance, with our European trade pact into Canada has been an opportunity for us for sure. So there's little opportunities all over the place in our business from sampling and more efficient sampling. We spend a lot of money on sampling every year from that, and then pushing some of the costs of things back to our manufacturers and suppliers as well. So there's no real silver bullet here. There's a lot of opportunities here. And we just continue to pursue them. And if we're effective, we're going to offset these manufacturing costs, and the increase -- sorry, raw material costs. And by the end of the day, as I mentioned, top line growth solves all, provided you have it.

[Stephen MacLeod, Analyst]

Yes. Okay. That's helpful color, thank you. And then just what you think about Denim. Obviously, it sounds like a very strong launch that sort of just -- you know we're just seeing the beginning effects of it right now. Can you talk a little bit about how you view Denim seasonally?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

You know the seasonal windows haven't changed. And it was ironic when I was sitting down because I went over this with my father 35, 40 years ago when I was a teenager, and he broke down all the different seasons. And I wanted to buy cord in spring and because it was very important. And we are sitting there in October, and my father would tell me. It never sells in the spring and seldom does it sell in spring. So it's ironic because when I sat down, and we've done all our placements and look at our projections on Denim, it's not any different than it was almost 40 years ago, as far as the actual ebbs and flows throughout the year. So we have a fairly good handle within sort of 1 or 2 percentiles of what it is we're going to sell from season-to-season. And so far we've been very accurate with that. And just to let you know, I mean, we've been in the Denim business every year for the last 40 years. So we've seen, since Aritzia of 35 years. But prior to that, we've seen the Denim come in ebb-and-flow. So our brand won't be -- act any differently than any these other Denim brands that we've been carrying. So we've got a pretty good handle on what's going to happen with our business site from a season-to-season basis.

[Stephen MacLeod, Analyst]

Right. Okay, that's great. And then just finally, on the pop-up stores, I know that was sort of a new initiative with the last quarter. And it was a way to enter a market before committing capital to new leases. Can you talk about a, how those stores have performed? And b, any incremental leases that you've gained as of those pop-up stores?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Well, we had intended to open up 3 pop-up stores. One was in San Jose, next to Valley Fair. So we actually have been operating 2 stores that are a 2-minute walk from each other in that market. We've been extremely successful with that pop-up. We opened [ pop-up ] store in Georgetown in Washington, D.C. That has performed so well that we have decided, and when we've had these pop-ups, we've had options in most all cases to be able to turn those into long-term leases, either in that exact location or at adjacent spaces. So the Georgetown location, we've concluded a very short order. That's no longer going to be pop-up. That's going to be a permanent store for us. It succeeded our sales more than two folds here. And then we just opened one in Chicago. I think it was last Thursday. So we are yet to get a decent read on that, but that's in the shopping center where we've done a pop up there because we have an option to open up a full-line store, almost adjacent to that location as well. So they've just been, there had been opportunities that previously weren't there in the past for us because of our brand positioning now in the marketplace. And so there are opportunities that we're seeing that we're taking advantage of to test the market as well as be in a position that we could solidify long-term leases in those locations, where the pop-ups up to this point in time we haven't done any brand-propelling initiatives like a lot of pop-ups have done. These pop-ups are done. We're a retailer and digital eCommerce company. So we're using all these tests that we do to further enhance our store network and/or eCommerce initiatives. And so all these tests we do, we're not really doing for marketing purposes. We're doing them strictly for business purposes.

[Operator]

The next question comes from Meaghen Annett with TD Securities.

[Meaghen Annett, Analyst]

Just going back to your progress and the great success that you're seeing in the U.S. market. If we look back at the opening of the Rush Street store in Chicago, in particular. Following that opening, you noted a higher basket size, more affluent customer. So my question is, as you continue to expand on your footprint in that market and further penetrate it, how has your brand positioning evolved? And how are you looking at your target market?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Well, in Chicago, specifically, we've seen where we're comped over a year now in Rush Street, and we're starting to see the results we've had last year and now this year. The store, the business in Rush Street specifically remains exceptionally strong, still thrilled with our business there. We've seen an uptick in all our business, in all our stores with exception of our store that's 2 blocks away that we were planning on closing at the time. But because it still stayed strong enough, and the cannibalization, although, meaningful wasn't enough to make us close that store. So we're analyzing and trying to figure out what we're going to do with that to store to keep that open or even open another store in Michigan Avenue. We haven't decided what that strategy will be there yet. But all our stores, for instance, we've expanded our SoHo store of late. It went from -- well, it's our largest store we have to date, and complete with coffee bar. And we've added 12 fitting rooms and it's just been exceptionally -- the response to that. And it hasn't affected our Flatiron or our Fifth Avenue locations either at all. So we're continuing to see these flagship locations open in markets and continue to see those -- them help drive both the eCommerce, but also the surrounding stores in various areas. So it's a strategy we're going to continue to employ as we expand into United States.

[Meaghen Annett, Analyst]

And then just a question on the eCommerce initiatives. Can you touch on the mobile experience of Aritzia? And how you're approaching that vertical? And what opportunities you see to improve the mobile customer experience?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Well, it's interesting because we did decide over a year ago that we'd be a mobile first organization. We had seen a large movement into our visits to our site in mobile over our desktop site, which we expected we'd see. Obviously, it's a little bit more difficult on your phone versus a big-screen. So it does put pressure on your conversion unless you actually do things to mitigate that. And we're constantly looking at ways to mitigate and expand our mobile conversion. I sat with our head of eCommerce the other day, and as I mentioned, our eCommerce business is exceptional. I sat with him, and said, these initiatives, what part do you take, what credit do you take for some of these initiatives in our business. And he looked at me and said, none at this point in time. But I'll let you know when I do. So, he goes "they're all coming down the tubes." And so all these initiatives we've been working on and things, they do take time. And we are looking at our eCommerce as a mobile first company. But really, we haven't made too, too many initiatives, have seen -- have come to fruition with our mobile other than improved catalog. I think we've improved checkout now. We're adding some other features as well. But they aren't necessarily specific to mobile. However, we do and are looking at -- there have been a few particularly good mobile initiatives we've seen in the industry that we're looking at very hard. So we're going to continue to push mobile. We see the trend continuing to move to mobile. And quite frankly, I think we have a pretty darn good mobile site now. But there's always room for improvement.

[Operator]

The next question comes from Camilo Lyon with Canaccord Genuity.

[Camilo R. Lyon, MD & Head of US Consumer Research]

Talking about the international opportunity. Brian, you said something interesting that you're getting inbounds from a variety of different potential partners. I was curious to get your thoughts on where you're at in the thinking of partnering with someone like Tmall or Zalando to penetrate these markets, these vast opportunity markets that would be a very easy, fairly seamless way of doing -- of getting into those markets without a lot of infrastructure build? What are your thoughts on that? And is there some sort of time line that we can think about for what this international opportunity could be if you were to partner with these online players?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Appreciate the notes on the quarter. We -- I think we've mentioned in the previous call that we are in the process of a venture with Tmall here, and going live on Tmall here. So we're continuing to work on that initiative. So we're still pursuing that and continuing to pursue that. We don't have any ETA on what we're -- where we're going to net out with that at this point in time, though. But I will also suggest that nothing is easy and simple, regardless of who you're partnering with, particularly overseas when you're dealing with different languages and different markets and different warehousing and shipping and duties and things like that. So nothing is easy. That said, our strategy is to continue to explore the huge opportunity that's right in our back door in the United States of America. And then secondly, get our feet wet and some experience on international markets. And that's the strategy we've had for a couple of years. And that's what we're continuing to go with. It is a tough balancing act, because we have such a huge opportunity and we're seeing such great business and recognition and acceptance of our brand in the United States. And we have such a long -- and we're just at the tip of the iceberg of our business in the United States. So on one hand, we can argue we just want to stay with that, and focus on that and have a single focus in the U.S. and Canadian markets. On the other hand, there's a big world out there and a big world of opportunity. So we're continuing to pursue and analyze these. And in some cases do fairly in depth business analysis and pursuits of these international opportunities.

[Camilo R. Lyon, MD & Head of US Consumer Research]

Great. I guess shifting gears to the U.S. and you just called out that as the main focus and understandably so, given it's an opportunity in such market. You've been very disciplined in making sure that you have the right real estate and will wait for the right real estate opportunity to present itself. That's key, no doubt. I think though that there's been a big change in retail where it's not just about the right location, it's also about the right experience. I'm just curious at your thoughts on what you're doing within your stores? And may be your newer stores? And how you are formatting them? Or how do you think you should be formatting them to create more of an experiential feeling within those stores? So that there's an inspiration for more traffic and that will lead to better conversion and comp trends?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

That's a great question, and something we spend a lot of time talking about. So as you know, what we're doing is spending a lot of time initiatives, on repositioning our stores. And we're talking about repositioning. In some cases, we're repositioning to a better location in the mall, but most cases, or the streets. Most cases, we're just expanding our footprint. So there's a lot of locations we're expanding our footprints. And what do we do with the expansion of those footprints? Well, we don't necessarily just want to increase the amount of product we have on the floor. And so what we're seeing now is we're creating a larger, more experiential fitting room areas with larger boxes and more room within the fitting room areas. Or creating a more luxurious, probably less merchandise-intense experience in the stores. We're continuing to invest in our customer service initiatives we have and omnichannel. We're working on with the omnichannel, so people will be able to, in not too distant future, have visibility into our inventories and our stores, to be able to buy online, pick up in stores, things like that. So we're working hard to make sure that the experience just in the stores isn't just a store experience, it's a experience across omnichannel as well. That said, I don't know, if you've been to our Manhattan store. But on the second floor, we have a nice coffee shop and coffee bar up there. We're putting the same thing in Bloor Street with, as I mentioned, elevated fit rooms and things like that. We're doing the same thing with one outside of Toronto as well in Burlington. So we're working on all these initiatives to increase the experience within the stores. So that we're successful in attracting clients that want to come into our stores to look at the product, but also just experience our brand. And then at the same time, we want to continue to make sure we're doing that online as well. As so, how does that translate online? And how do we improve the experience online so people can enjoy that experience more too? So it's just not a commerce site. So all these things are top of mind for us. And I don't know, if you've had a chance to go into our SoHo store in the last 2, 3 months since we've reopened the second floor. But I think you'd see what we're doing up there. It's exceptional, the experience up there. And we're trying to duplicate that elsewhere in our new stores as well.

[Camilo R. Lyon, MD & Head of US Consumer Research]

Yes, I was just there a few days ago, so I know exactly what you're talking about. And then my final question. I would think it's more for Jennifer. Speaking of the clienteling efforts and the POS integration, how that's been put in place. Can you talk about where you're at in the use of data to drive a greater share of wallet every customer?

[Jennifer Wong, President, COO, Corporate Secretary & Non]

Camilo. Yes, we are again -- on the back end we have almost nearly completed building out the repository platform that will house all of the data that is being captured by the point-of-sale now, as well as what's being captured by our eCommerce platform, and for that matter, the customer care platform. So there's still a lot of foundational buildings to go to make sure we have all of that in place to leverage. But at this point in time, I think, we're sort of nearing the foundational part of it. The part that I'm speaking of is very much in the back end, it's a repository, the data repository. We're already starting on sort of the front end with the business, strategizing how we want to further analyze that data and segment the data. And what insights we want to gain from that data. I think, Brian's involved in that part there too with our marketing folks and our digital folks. And so, we're kind of doing that in parallel. And I think we're just continually building the bricks -- or adding the bricks to build what we need to build in order to gain the insights on the 4 sites. So that's moving along quite nicely.

[Brian James Beaumont Hill, Founder, CEO & Chairman]

And then if I could add to that Camilo, we're trying to make sure too that the customer and who our customer is, we're getting all the data necessary. So it's not just quantity of data we're getting on our customers, it's the quality of data we're getting on the customer. We've made great strides in that. Probably really over the last sort of 1 to 2 months, we've made great initiatives there as far as the quantity of data, and the quality of data we're getting from those -- from our customers as well. So we recognize that having all the data with our customers and her preferences and where she wants to shop? And when she wants to shop? And what she wants to buy is crucial for our ongoing success. We're working hard on that and realizing that once we're able to capture all that and make sure it's all in the central repository, as Jen mentioned, then we can start personalizing things, and editing things appropriate for that customer. And we see that as huge opportunity for us going forward.

[Operator]

The next question comes from Patricia Baker with Scotiabank.

[Patricia A. Baker, Analyst]

I did have a lot of questions and they've all pretty much been answered. But I just want to go back to the exceptional performance in the U.S. with revenue being up 40%, Q2-over-Q2. Just wanted to have your comment, Brian, on whether that kind of performance was something that was unexpected? I know you probably had great hopes for what would happen this quarter? But a 40% growth rate, was that beyond what you were expecting?

[Brian James Beaumont Hill, Founder, CEO & Chairman]

I mean, certainly ahead of where we had been tracking. We actually have been tracking pretty growth in the United States. It's a combination, though, of new store openings. It's a combination of repositioned stores. It's a combination of eCommerce. And it's a factor of comparable store sales. So I mean, with that 40%, I think, if we went back and look back on it, would we expected a 40% growth? To some degree, not. However, we did open a new store in UTC, San Diego. We did get Georgetown opened, both have trended at or above what we expected them to do. We did expand our SoHo store, which has added meaningful revenue to the top line. Our comparable store sales. So we knew those numbers were coming, albeit, they did, they are a lot better than we expected. We didn't expect our comparable store sales to grow as much as they did obviously. Nor would we've expected, either both the online or in stores. So there are pleasant surprises right across. On the other hand, we were working hard. Our brands has a lot of momentum, and we're seeing that momentum continue with our sales in the United States. So -- but we have a long way to go. It's a big market there in the United states. It's still -- it's not a majority of our business yet. And so there's huge opportunity for us to continue this growth there. And if we were comping along at 10% or 20%, we'd probably be sitting here 20 years from now telling you we had good opportunities to grow our United States' business. So on one hand, we're pleasantly surprised to some degree and thrilled with our business in the United States. On the other hand, if we're going to really explore and continue to expand in the United States, we need to see fairly healthy growth rate there as well.

[Operator]

The next question comes from Mark Altschwager with Baird.

[Andrew D. North, Junior Analyst]

This is Drew North on for Mark. On the cost side, you've talked a lot about pressures on the raw material front. But just as it relates to labor, are you seeing accelerating cost pressures there as well? Can you speak to some of the wage pressures you're seeing, specifically, in stores and/or your DCs? And how that has impacted your expense outlook for the second half of the year?

[Todd Ingledew, Chief Financial Officer]

Well, I'll start with the stores first. Our store labor where we maintain that at a relatively consistent percent of retail sales. And that's what we experienced this quarter and what we expect in the back half. Where we're seeing increases from a labor perspective or the investments we're making in headcount here at the sport office. So it really -- with the goal in mind to drive eCommerce and our other growth initiatives. So we've been adding headcount and that's why our SG&A is remaining flat as a percent of revenue, and why we expect it to do so for the rest of the year. And we do expect to see -- in the future, we expect to see leverage. But for this year, we expect it to be consistent with our revenue growth.

[Andrew D. North, Junior Analyst]

Right, that's helpful. And just on the Q2 comp, the 11% comp. Can you elaborate on how much of it was traffic driven versus tickets? And then maybe how much of the growth you're currently seeing which is impressive in the United States is from existing customers spending more versus new customers coming into the brand?

[Todd Ingledew, Chief Financial Officer]

With the 11.5% comp that we drove in the quarter was again, as has been really for the last 8 quarters, driven by transactions. So increased traffic online or in-stores. We have seen relatively flat or consistent average sales. So all of our comps are being driven by higher traffic.

[Operator]

This concludes time allocated for the question-and-answer session. I would like to turn the conference back over to Brian Hill for closing remarks.

[Brian James Beaumont Hill, Founder, CEO & Chairman]

Thank you, and thank you all for joining the call. We appreciate your questions and support as we continue to grow our world-class brand. In the past, I've mentioned that Aritzia's success lies in our ability to excel at both fashion and business. The results we saw today are testament to the strength we've shown in these disciplines in both Canada and the United States. In addition, it's evident that we're driving a best-in-class aspirational shopping experience in both retail and eCommerce, as we're now experts in both. And we will keep building on the success as both channels continue to grow. Thank you again for being on the call and we look forward to speaking with you soon. Bye. Bye.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.