Aritzia Inc

TSX:ATZ

Earnings Call Transcript 2020-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Aritzia's Second Quarter 2020 Earnings Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]I will now turn the conference over to Helen Kelly, Vice President of Investor Relations. Please go ahead.

[Helen Kelly, Vice President of Investor Relations]

Thank you, Karl. And thank you all for joining us on Aritzia's Second Quarter 2020 Earnings Conference Call. With me today are Brian Hill, our Founder, CEO and Chairman; Jennifer Wong, President and COO; and Todd Ingledew, our Chief Financial Officer. 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 contain certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements. We will refer you to our most recently filed management's discussion and analysis, which includes a summary of the material assumptions as well as certain material risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements. The second quarter 2020 earnings release, the related financial statements and MD&A are available on SEDAR as well as the Investor Relations section of our 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 Brian.

[Brian James-Beaumont Hill]

Thank you, Helen, and thank you, everyone, for joining us today. I hope you all had a nice Canadian Thanksgiving holiday. We're extremely pleased that we delivered yet another strong quarter of financial results. Our consistent performance reflects Aritzia's growing brand awareness in the United States, enduring customer loyalty in Canada and our ability to execute on our powerful business model. Revenue grew 17.4% from last year, fueled by meaningful eCommerce growth and 4 new boutiques, 2 expansions and positive comparables retail sales.We also remain excited that the U.S. continues to be our fastest-growing market. Overall, comparable sales increased by 8.4%, marking our 20th consecutive quarter of growth, compounding 11.5% from the second quarter fiscal 2019 for a 20% 2-year comp. Behind our growth is an increased affinity to our unique brand positioning of everyday luxury, which is comprised of our beautiful high-quality products, exceptional clientele service and an aspirational omnichannel shopping experience.At the end of the quarter -- end of the last quarter, our inventory levels were atypically high. However, as discussed on our last conference call, we are confident they would be in line as we entered the fall. The team did a magnificent job managing through the sales season and we entered the fall with no excess inventory.As a note, our inventory levels are near perfect this season. We successfully launched our new fall collection in August. Our launch strategy of weekly new product drops, designed to create excitement for our clients, has been well received. These early positive sales reads set up -- set us up to place reorders ahead of the important holiday season.Shifting to our channels, eCommerce continues to drive the growth of the company. Revenue in this channel grew at a higher pace in the second quarter and year-to-date compared to last year. Our growth is fueled by significant increase in both traffic and the number of transactions online. Key to driving increased revenues and profit, brand awareness and customer acquisition, boutique expansion remains an important component of our growth strategy. We opened a boutique in Mall of America in Minneapolis at the end of the second quarter and another in Cherry Creek, Denver, at the start of the third quarter. Not only are these boutiques performing meaningfully ahead of expectations and are trending to pay back in under 18 months, we have also seen a near doubling in our eCommerce sales in these new markets.On the back of last year's success, we have once again collaborated with Kendall Jenner on our fall campaign and expanded the program to include Hailey Bieber, Sofia Richie and other mega influencers. The campaign continues to create excitement and we're delighted with the increased levels of engagement with our clients through social media. Similarly, we are pleased with the continued success of our VIP program. The increased visibility has successful -- has been successful in more than doubling our celebrity placements since last year and contributed to a fourfold increase in media placements in major publications over the same period.Underlying the exciting progress of our client-facing side of the business is our continued commitment to invest in infrastructure to support our recent and future growth. Last quarter, we announced a new strategic partnership with SAP to develop a comprehensive client program that is now well underway. We expect these new initiatives will elevate our client experience to a world-class level across all channels, with a potential to drive significant revenue growth. Jennifer will provide an update on these initiatives for you shortly.In summary, we are thrilled with our performance to date in fiscal 2020. We are particularly encouraged by the continued strength in both our accelerating eCommerce business overall and our success in the United States. Together they are fueling the growth of the company. Before I discuss our business outlook, I will turn the call over to Jennifer, who will give you an update on our operational investments in greater detail. Following her remarks, Todd will provide some key highlights of our second quarter financial results.I will turn the call over to you now, Jennifer.

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

Thanks, Brian. Good afternoon, everyone. As Brian mentioned, we continue to make strategic investments in our infrastructure and processes to support our recent and long-term growth. This includes the Twitter projects we are currently working on with SAP to elevate the customer experience, the Product Lifecycle Management system to improve the manner in which we bring a new product to market, expansions to our distribution centers to support our upcoming holiday sales and set us up for growth during the next 3 to 5 years. And finally, to further augment our eCommerce growth, we are implementing new initiatives involving new social commerce channels and digital marketplaces to better engage our clients throughout their journey from inspirations to purchase.I will discuss each of these in turn. Last quarter, we announced a strategic partnership with SAP to develop a comprehensive customer program. We are excited that this project is now well underway. To provide a brief recap, the customer program is a multiyear initiative that comprises of 4 projects that will be implemented in phases. Customer 360, the Marketing Communications Platform, Concierge and the Digital Selling Tool.We are excited to announce the first 2 of these projects will be completed in time for holiday this year. The first, Customer 360, enables us to store, view and edit client information from all of our front-end systems. This will give us an enhanced view of our clients, including their attributes, past purchases and preferences in real-time. The second is the Marketing Communications Platform. Through advanced analytics, it builds on Customer 360's data repository, allowing us to personalize our communications by creating campaigns that cater to our clients' attributes and preferences. We expect that a more targeted approach to marketing communications will enhance our top line growth.We have kicked off the work streams for the remaining 2 projects and expect these to launch later in fiscal 2021. We are targeting to have Concierge up and running to replace the old case management system in our client care center by the first quarter. This new integrated solution will not only allow us to enhance our client experience through the life cycle of their purchase, it also represents a significant revenue-generating opportunity as we personalize each of our 1.3 million client interactions per year through Concierge.Last, and perhaps the most exciting out of the suite is the Digital Selling Tool. The project will be completed across multiple phases commencing next year. In the form of a mobile app, the Digital Selling Tool will provide enriched client information and product data to improve the productivity of our approximately 3,000 style advisers, who are already exceptional at how they sell and how they service our clients. This powerful tool is expected to accelerate sales across all of our channels and elevate the overall shopping experience.The Product Lifecycle Management system, or PLM for short, is another foundational technology we are implementing. The PLM system manages the data to support all of the processes necessary to bring a product to market. The application will provide visibility to our raw materials and enable us to focus on innovation, drive quality, reduce speed to market and optimize costs in our manufacturing processes.Two out of 5 work streams are currently underway, and we are on track to rollout our first release for the spring season with others to follow.During the quarter, we also completed the expansion of both our third-party distribution centers. In total, we added 180,000 square feet of space between the Toronto area and Columbus, Ohio DCs, representing an 80% increase for these facilities. These expansions support both our growing eCommerce and retail business with added capacity to handle higher levels of throughput.Finally, we are implementing new ways to connect with our clients through social commerce platforms and digital marketplaces. We are excited about the opportunity to offer our clients unique shopping experiences by providing additional ways to engage with and discover our brand, both online and through social media.We are in the implementation phase for these initiatives, and we expect they will increase brand awareness, drive incremental revenue and further augment the growth of our eCommerce business. We hope to be in a position to give you an update in the coming months.And as we look at the pipeline of opportunities ahead of us, it is crucial that we have the right infrastructure in place to support our future growth. We are pleased with the progress on each of these initiatives we have in place. We are confident these strategic investments will keep us on the forefront of providing the exceptional client service and aspirational shopping experience for which we are well known.I will now turn the call over to Todd to discuss our financial results.

[Todd Ingledew, Chief Financial Officer]

Thank you, Jennifer, and good afternoon, everyone. We are extremely pleased with our performance and the advancement we made on our current and long-term growth strategies in the second quarter.As a reminder, we began reporting under IFRS 16, the new leasing standard, in the first quarter. The net impact of IFRS 16 in the second quarter was a reduction of $128,000 to net income. We do not expect this standard to have a material impact on net income for the remainder of the year. In my review of our financial results, I will focus my commentary on the comparative figures, which exclude the impact of IFRS 16.Turning to our results. Net revenue grew 17.4% to $241.2 million in the quarter. This was driven by meaningful growth in our eCommerce business, 4 new and 2 expanded boutiques and positive comparable boutique sales. Also included in that revenue were revenues from our annual warehouse sale, which always occurs in the week before Labor Day. However, the quarter end timing was such that it was included in the second quarter this year compared to the third quarter last year. This shift in timing contributed low single-digit percentage growth to net revenue in the second quarter.Comparable sales increased 8.4%, compounded on the 11.5% increase in the second quarter last year. These strong results reflect momentum across both channels and geographies. Comp growth was led by a meaningful increase in our eCommerce business as we continued to gain traction on our digital initiatives.In addition, we saw positive comparable sales in our existing boutiques. Gross profit margin, excluding the impact of IFRS 16, was 37.2%, down 20 basis points. The 20 basis point decline was better than our expectations. We are extremely pleased with how we cleared through the higher-than-normal levels of our Spring/Summer inventory, which resulted in markdowns coming in lower than expected. Gross profit margin was also negatively impacted by the weakening of the Canadian dollar and the shift in timing of our warehouse sale.These pressures were almost entirely offset by leverage from our occupancy costs, a higher mix of exclusive brand product and improvements from our ongoing sourcing initiatives.SG&A expenses, excluding the impact of IFRS 16, increased by 14.8% to $60.7 million. SG&A expenses were 25.2% of net revenue compared to 25.7% last year. This 50 basis point improvement year-over-year was primarily due to leverage on SG&A expenses and timing of marketing spend partially offset by investments made in our customer projects.Adjusted EBITDA, excluding the impact of IFRS 16, increased by 10.1% to $36.4 million or 15.1% of net revenue compared to 16.1% last year. Adjusted EBITDA was impacted by a year-over-year swing of $2.6 million from other expenses. We had other expenses of $700,000 this year, primarily from FX losses compared to other income of $1.9 million last year, primarily from FX gains. Excluding these impacts, adjusted EBITDA would have increased 18.3%. Adjusted net income grew 8% to $19.8 million. Adjusted net income per diluted share increased by 12.5% to $0.18 from $0.16 in the second quarter last year.Our cash balance totaled $30 million, and we were $20 million drawn on our revolving credit facility at the end of the quarter as compared to a cash balance of $55 million with $0 drawn at the end of the second quarter last year. The primary use of our cash flow from operations since the second quarter last year was the repurchase of $107 million of shares concurrent with the March 2019 secondary offering as well as $37.1 million of capital investment in our business.During the second quarter, we worked through our Spring/Summer merchandise, leaving us with a clean inventory position heading into the fall. Inventory at the end of the second quarter was 22% higher year-over-year. The increase reflects the anticipated growth in our business and a strategic inventory investment in our outerwear.Turning to our outlook. We expect positive comparable sales growth in the low to mid-single digits in the third quarter. This follows exceptionally strong comp growth of 12.9% in the third quarter last year. For the full year fiscal 2020, we continue to expect to deliver low double-digit revenue growth. Removing revenue from the additional week in fiscal 2019, net revenue of fiscal 2020 is expected to grow in the low to mid-teens.Gross profit margin expectations for the second half of the year have not changed. We continue to expect gross margin in the back half to be lower than the same period last year due to ongoing higher raw material costs and the effect of new tariffs from the trade dispute between the United States and China. These impacts will be partially offset by leverage on occupancy costs and our ongoing sourcing initiatives. Based on these factors and the better-than-expected gross margin from the second quarter, we now expect gross margin to be flat to slightly down for the full year fiscal 2020 compared to fiscal 2019.We continue to expect SG&A to grow faster than revenue in fiscal 2020 as we make strategic investments in technology and infrastructure. These investments will predominantly be cloud-based and are now expensed. Incremental SG&A expenses related to these initiatives for the back half of fiscal 2020 are expected to be approximately $5 million to $6 million, with total project spend for the year maintained at $7 million to $8 million. We continue to plan net capital expenditures of $45 million to $50 million, which include costs related to new, expanded and repositioned boutiques in addition to infrastructure investments.We are pleased with the momentum across our business as we continue to make advancements on our long-term strategic initiatives that are driving profitable growth. We remain on track to meet or exceed our stated 2021 financial targets.With that, I will now turn it back to Brian to discuss our growth initiatives.

[Brian James-Beaumont Hill]

Thank you, Todd. Looking forward, I feel we are incredibly well positioned to grow our business with continued product innovation, significant revenue growth through eCommerce in U.S. market channels and marketing initiatives aimed at driving brand awareness, all of which supports our commitment to our brand positioning of everyday luxury. Our beautiful high-quality product continued to resonate with our clients. We had a successful fall launch, and our winter merchandise is launching this week with -- and continues over the next few weeks.Turning to our brand portfolio. We launched Ten by Babaton in mid-September. This is an exclusive new collection of sleek evening wear essentials that includes formfitting silhouettes and satins, knits and mesh. We are excited about the addition of this new brand and how it is serving to round out our Babaton collection.It illustrates how our multibrand strategy enables us to meet customer needs and stay relevant in the ever-changing fashion landscape. In short, we are happy with the balanced assortment in our product offering. We are seeing success in both product category and brand expansions as a result of our ongoing commitment to innovative, creative development. Our talented team of designers and merchants continue to deliver a balanced mix of high-quality products at attainable price points for which we are well known and well loved.Another key element of everyday luxury is the aspirational shopping experience we provide to our customers, both online and in our boutiques. As part of enhancing the aritzia.com experience, we recently expanded our photo studio and added key personnel to elevate our on-model styling and photography. We continue to grow our clienteling program and build out seamless omnichannel capabilities as we complete some of our key infrastructure investments as Jennifer mentioned earlier. As I've noted in the past, I expect our growing brand awareness and boutique expansion will play a meaningful role in contributing to eCommerce growth in the United States.Turning to our boutiques. Since the end of the second quarter, we opened up in Cherry Creek, Denver, and 2 additional pop-up locations, one in Greenwich, Connecticut and the other in Kelowna, Canada. We plan to open 2 more boutiques in the fourth quarter this year, The Houston Galleria and The Domain in Austin, both in Texas. Both are located in new markets for Aritzia.American Dream in East Rutherford was originally scheduled to open this year also, but a recent push back by the landlord in the center's retail opening day will delay it to early 2020. All of our new boutiques are in premier locations with top-tier shopping -- within top-tier shopping destinations, and we expect each to drive brand awareness and meaningful revenues and profits.We are currently finalizing our new boutiques for fiscal 2021, and we anticipate slightly increasing the cadence of new boutique openings going forward. As mentioned previously, our growing brand awareness and strong sales performance have increasingly allowed us to obtain premier locations and negotiate terms that deliver highly attractive returns.Looking ahead, we plan to expand our presence in California and have targeted other major regions in the United States, including some in hot weather markets that we are currently building a strategy to support. With 27 boutiques in the United States at present, we have ample runway for growth.In conclusion, we are delighted with another strong quarter and the sustained momentum of our business through eCommerce, boutique expansion and the growth of the U.S. market. This Friday, October 18, is Aritzia's 35th birthday. As I look back on this journey, I'm proud of what we have embraced, I'm proud of the way we have embraced the changes in our environment while staying true to our powerful business model that has been a foundation for our success. We believe that our unique offering of everyday luxury, combined with our first-rate execution as a fashion business, will enable us to continue to deliver consistent revenue and profitable growth as we go forward.With that, we will now welcome questions. I turn the call back to the operator.

[Operator]

[Operator Instructions] The first question comes from Mark Altschwager of Baird.

[Mark R. Altschwager, Senior Research Analyst]

Happy 35th birthday. I wanted to start out, with regards to the Q2 comp, really nice to see the solid performance there. Do you have an estimate for how much the clearance of the excess spring inventory may have boosted the comp in the quarter? Just trying to get a sense of maybe the more normalized growth rate now that you've got inventory back in good shape heading into fall?

[Brian James-Beaumont Hill]

Yes. I think what we would say is that the comp was marginally aided by the additional inventory but not in a meaningful manner.

[Mark R. Altschwager, Senior Research Analyst]

Okay. And then looking ahead, can you talk a little bit about your outlook for the holiday period this year? Wondering if there's any change to your approach from a marketing and promotional perspective to be aware of, just given some of more compressed calendar. How you're thinking about gifting, just any changes to your approach there to note versus prior years?

[Brian James-Beaumont Hill]

I think there's a few different ways to look at the compressed calendar. We actually think it's the opposite. It's a positive effect because Thanksgiving is -- American Thanksgiving is later, and so we actually get an extra week of full price sales versus the other way around. So we're actually thinking it will have a slight positive effect on our margins.We're finding that the comping on our peak periods is -- it's a little bit tougher than comping on our periods in -- our in-between periods. So it's hard to say, I know we had, particularly in Canada, we were really getting ahead of the rest of the market on these sales. And I think we did a really good job getting on sort of the effect of American Thanksgiving in Canada. But I think that's probably caught up by now. So we just see us -- from my perspective, I just see us continuing to go out and execute and continue to deliver, and I don't really have a perspective yet. I do know it's been slightly warmer once again in the East as well and we think that bringing on some cold weather will help us as well through holiday. So -- and we're well positioned for some cold weather.So I think there's too many variables out there to be able to estimate where we're going to net out here, but we're feeling pretty positive about our business, not just in this quarter and holiday but -- and then some past there.

[Mark R. Altschwager, Senior Research Analyst]

And then maybe one last quick one for me on the marketing front. It sounds like you're doing some innovative things with respect to your influencer strategy in this VIP program. Could you elaborate a bit on how that's evolving, maybe how you're thinking about the role of paid influencers in your overall marketing program? And how you're leaning into that moving forward?

[Brian James-Beaumont Hill]

Yes. I mean I think the landscape is changing on a daily basis, about, I think 2, 3 years ago, there wasn't a huge market out there for these paid influencers and now some of them are running really, really great businesses for themselves. I think there is certainly a lot of talk out in the markets as far as some of the businesses and industries, capitalizing on this influencer market. Obviously, Instagram and people like that are trying to monetize this for themselves and to some degree have a win-win for the influencers. I think we've done a great job with the mega influencers, I think we've done a great job with the VIP. I think we still have lots of runway to go on the so-called micro influencers and so we're working on a strategy around that right now.So I think we've done a good job. I don't think we were particularly early, but I think we've done a good job. And -- but I think we have lots of opportunity ahead with influencers as well. But once again, the landscape is changing, and so we have to be flexible on how those changes and what comes with those changes.

[Operator]

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

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

Just listening to your tone and the commentary, it seems that yet again everything is just -- is getting just even that little bit better. The eCommerce pace of growth is accelerating, the new store paybacks are accelerating. Now you're going to be rolling out new tools. Can you talk a little bit about what you think is behind it? And how you think it plays out over the next 2 to 3 years as we move past sort of the current 5-year growth period?

[Brian James-Beaumont Hill]

I -- after 34 years, we've kind of started to figure out on the 35th year here. But more serious, I think as we run a bigger business, there's benefits and challenges running a bigger business, Irene. And I think that we certainly as we're running bigger business, as we have more experience -- and I joke about the 35 years but more experience in implementing these projects and initiatives, I think is super important and we seem to get better with it every time or better at managing inventory and managing sort of corrections in our inventory. I think as I mentioned in my -- I mentioned earlier, I think we did a -- the team did a magnificent job in executing our inventory overbuy. And our store openings and -- are smooth and getting smoother and our eCommerce, we're really starting to capitalize on that.That said, we're running a big business now, and the leadership team can't be everywhere all the time, and so we do have some challenges and opportunities here and there. And so it's that balance. And that's one of the reasons why we like the pace of growth we've always had, and we continue to grow at that sustained rate and hopefully, we'll continue to get -- we'll continue to see some leverage from that, too. But it's that combination of driving our revenues, building infrastructure and making sure, from a fashion perspective, we're staying on trend and giving the customers what they want.

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

That's great. And on the eCommerce, is it safe to assume that you continue to be at or slightly ahead of plan?

[Brian James-Beaumont Hill]

Yes, that's correct.

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

That's great. And then one more, if I might. Some of the things that you alluded to, some of the key initiatives as part of the SAP partnership, but also the social media. I'm very impressed, by the way, that you keep rolling them out this quickly, so how should we see this manifest for the customers? So if I am a customer, how am I going to experience this differently around the key holiday season? And what -- how should that play out in terms of sales and margin?

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

Well, the 2 -- Irene, the 2 projects from the SAP suite that have gone live are more on the back end. So the Digital Selling Tool, which will be most customer-facing, will not be launched until 2021. But in terms of Customer 360 and the Marketing Communications Platform, those will manifest itself in terms of more personalization in terms of our communications and such. So if MCP goes live as scheduled before holiday, we will tailor-make our communications to the customer in a more personalized manner. So that hopefully, there will be more precision with whom we're targeting and that ultimately, for us, should lead to improved conversion.

[Operator]

The next question comes from Derek Dley of Canaccord Genuity.

[Derek Dley, MD & Consumer Products Analyst]

Just a question related to the excess inventory that you were carrying into the quarter. I mean how long did that last, were you able to sell through it relatively quickly early on in the quarter?

[Brian James-Beaumont Hill]

No. I mean the objective isn't to sell it relatively quickly because then you're taking steeper markdowns. The objective is to feather it out in a nice consistent manner so you end up at 0 at the end and not rush. You don't want to end up with making corrections too hard too soon or it affects your margin. And as you can see, we managed to get through it all with fairly healthy margins and certainly better than we predicted. So the idea is not to knee-jerk. I think I tried to get that across on the last call that although we were overbought and had a lot of inventory that we weren't panicking on our -- in our end and that we were fairly confident we could get through the inventory. And as it turned out, we did and it didn't affect our margin too, too much there. So we're really happy with, not only how the team performed, but how we were certainly -- the effect it had on our financials.

[Derek Dley, MD & Consumer Products Analyst]

Okay. That's great. Again just looking at your margins, I mean, 2 other things that you kind of called out was, one, the inventory and then two was just the impact of the warehouse sale. I think you say in your MD&A that it marginally impacted your gross margin. Can you quantify, like was it 10 basis points the warehouse sale? Or how should we think about that in terms of magnitude?

[Todd Ingledew, Chief Financial Officer]

Yes. We haven't disclosed the specific impacts of the warehouse sale, but it did marginally impact the margins in the quarter and will, therefore, benefit Q3 marginally and as well as be a headwind from a revenue perspective in the third quarter as well.

[Derek Dley, MD & Consumer Products Analyst]

Okay. Yes, understood. And just on the -- you called out the last couple of quarters a raw material impact, I mean, what are the main sort of raw materials where you're seeing that inflation on the cost side? And then on the pricing side, have you seen any inflation in the channel?

[Brian James-Beaumont Hill]

We've seen -- initially, it was wool prices and they've actually stabilized and maybe come down just a little, they haven't come down a lot but they've come down a little. There's certainly raw materials and down prices have been increasing, and then of course there's the trade and duty issues that were a bit of a headwind here. But once again, there's uncertainty around there. Fortunately, for us, we don't do a majority of our business in the United States right now. And because of our eCommerce shipping patterns and sourcing -- global sourcing initiatives, which is less and less relying on China, although it's still meaningful for us, we were able to -- it's not a huge impact on us. Todd, anything you want to add there?

[Todd Ingledew, Chief Financial Officer]

Yes. We are expecting that it could be approximately 30 basis points in the back half, that's our estimate for the tariffs.

[Operator]

The next question comes from Mark Petrie from CIBC.

[Mark Robert Petrie]

I just wanted to ask a bit more about the performance in U.S. And Brian, you called out the strong performance in the new stores and the store economics, but it looks like the absolute growth rate has decelerated modestly from the last few quarters. So you were lapping a really strong result in Q2 last year so I guess that was a factor. But could you just talk about sort of the overall revenue dollar growth and the drivers behind that?

[Todd Ingledew, Chief Financial Officer]

Yes. Mark, it's Todd. The 22% increase in the quarter -- this quarter is really being driven by the comp and by some new stores. But we only had opened one new store since the end of the second quarter last year. And so as we opened the 2 stores, we discussed on the call, plus 2 more in the back half, we expect that growth to reaccelerate. So what you're seeing there is really predominantly made up of comp sales.

[Mark Robert Petrie]

Okay. Okay. That's helpful. And I guess maybe related to that, Brian, you called out the strong performance in the new stores and the boost to the eCommerce traffic that you saw in those markets where you opened the new stores. I'm curious to know broadly how has that ramp up and online response sort of differed in the most recent openings versus other openings over the last couple of years.

[Brian James-Beaumont Hill]

I think as the channels have become stronger and stronger as eCommerce is becoming stronger and stronger, it's affecting. I mean we're getting a higher profile in the U.S. in general, so we're seeing increased revenue and increased growth from our eCommerce channels right -- already. So it's not entirely scientific on how we are able to break those things down. We can just compare those markets of recent to the ones in the past. It kind of varies by store really. If it's a new store in a new market, we find -- we just experienced almost doubling, I think as Todd mentioned, whereas when we're already in a -- when we're in any new market that we're already quite well known, for instance, we just opened in Kelowna the pop-up store, we don't expect to see any increases in eCommerce revenue. So it really depends on a market-by-market basis.The good news is that Minneapolis and Colorado, Cherry Creek, are both new markets, as are Houston and Austin that are coming up. And it's -- so yes. And then as well, what's interesting is when we opened in more tourist-based markets, which I think Minne Mall of America kind of is, what we're not able to calculate is how much all the different people traveling from Chicago and Detroit and various places within the Midwest that go to Mall of America and go to Minneapolis, the effect they have and we can't see that effect. So all we're looking at is Minneapolis in general. We actually think there's also a halo effect as well in some of the other markets, particularly with the tourists.So we're thinking, for instance, like American Dream, we're not going to be able to calculate exactly what happens there because it's New Jersey but vast majority of the people, when that shopping center opens, are not going to be from New Jersey, they're going to be from Manhattan and there'll be tourism. And we already have stores in those markets, so we're not going to be able to sort of quantify exactly what happens. So it's a lot easier for us to quantify what happened in those more recent markets in Colorado and Denver just because we presently had no stores in market. They're -- particularly Colorado at this time of the year isn't a huge tourist destination. It will, I think, in ski season and in summer, but we opened in the fall. And so it's hard to kind of look at each one and compare. All we can do is look at the local market, and in both Denver and Minneapolis, we saw our business more or less double from an eCommerce perspective, which was actually -- I mean I wouldn't say we were totally surprised but it was a really positive endorsement on both our stores and their ability to drive our eCommerce sales and our eCommerce channel and how successful it's become.

[Mark Robert Petrie]

Yes. Okay. That's helpful. And then just last, I guess this is now sort of the second season for Denim and the second Fall/Winter for leather. Could you just give us a sense of how you've adjusted the offer from last year? And how you expect that to impact sales productivity and profitability at a high level?

[Brian James-Beaumont Hill]

Yes. I think they're both quite different. I think the leather market has become fairly saturated, and from a fashion perspective, we've seen sort of the faux leather and pleather become more of a factor with the sustainability and all that on the planet.That said, I'm not sure if some of the material's going into pleather and things if it's even any more sustainable. So we're doing research into that actually on which is actually better for the environment right now. But we've certainly seen a pullback on just at the top level just because of that.Denim is a different matter. We wanted to establish key fits and it's not about newness necessarily, it's about establishing key fits and repeat customers and fits that people become comfortable with. So right now, what we're doing is we're embarking on rounding out our team and hiring and putting more resources behind Denim as we continue to grow it. We still think we have a big opportunity to increase this market share with Denim. So we're doing so by hiring key personnel into the department.

[Operator]

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

[Stephen MacLeod, Analyst]

I just wanted to turn back to the U.S. Brian, you talked a little bit in your prepared remarks about accelerating the boutique growth pace and also I guess expanding the -- I guess, that in a way gets you into more locations as well. Can you just talk a little bit about how you see that pace accelerating and sort of some of the other new markets you expect to enter into at that accelerated pace?

[Brian James-Beaumont Hill]

Yes. I think I used the adjective slightly accelerated, so I don't want anybody to get too excited here. And as we continue to grow this for us to continue to open up stores, particularly as we are focusing on new markets because we feel that's what part of the real estate strategy is, is not necessarily filling in existing markets but opening in new markets. We're going to have a mix of markets that are -- the climate is more approachable for our existing product mix and then we're going to have other markets that we're going to have to make some adjustments to our product mix. And as we open up more and more stores, and this great shopping center in Hawaii, there is more shopping centers in Southern California, there's a lot in Florida and places like that. We have to be cognizant of our merchandise mix and we're working on that right now, continue to work on that, but we're always going to be a little bit more challenged with that merchandise mix. We can't take a warm parka and all of a sudden figure out how we're going to engineer this for Florida because they just don't need parkas there. So that said, we think there is a tourist market there from South America and various places like that, where they do need the outerwear.So as we go into these markets, we have to be cognizant of the climate and things. But we still think we have some opportunities, and we think with sort of some of the timing and things, some things are looking quite positive. So we think we're going to see a slight increase in the store openings.That said, our eCommerce channel is continuing to drive our growth, and so that doesn't change. And so we have to be cognizant of the fact that the majority of this growth will come from our eCommerce channels.

[Stephen MacLeod, Analyst]

Okay. Okay. That's helpful. And then just turning to the inventory, I mean, is it fair to say that the elevated inventory, sort of none of that is kind of excess related at this point?

[Todd Ingledew, Chief Financial Officer]

Yes. At the end of the second quarter, the inventory is reflective of the investment we made in outerwear. Frankly, if you -- we just closed P7, and we're now directly in line with revenue growth. Our inventory growth is directly in line, so Q2 is just reflecting the additional outerwear.

[Stephen MacLeod, Analyst]

Okay. Okay. And some of the ongoing discounting that I've seen in the marketplace, is that sort of the normal seasonal discounting that you would expect on a year-to-year basis?

[Todd Ingledew, Chief Financial Officer]

Yes. We just had our Layer It On Sale over the weekend and that is -- we do that every Canadian Thanksgiving, there's nothing new with it.

[Brian James-Beaumont Hill]

And it's an online-only sale, and what it does it allows us to some of the slower sellers from fall, we get rid of them so we don't have to figure out how to deal with them at retail. And so we just like with really -- it's Layer It On but we kind of internally -- we're lightening the load internally. So -- but that's something we've been running for quite some time as Todd mentioned.

[Operator]

The next question comes from Patricia Baker of Scotiabank.

[Patricia A. Baker, Analyst]

Most of my questions have been asked and well answered. But just wondering if you could talk a little bit more about your pop-up strategy and what the thinking is there. Is that a way to go into a market and see whether you want to permanently go into the market? Is it a real estate availability? Just your thinking behind doing the pop-ups.

[Brian James-Beaumont Hill]

Yes. That's great question. There's multiple reasons we do these pop-ups. In a lot of cases, they weren't available 5 years and 10 years ago for us because there wasn't the real estate opportunities in the centers and on the streets that there is now. So it's something that we're reacting to based on the availability of real estate and the kind of deals, the short-term deals we're able to write. In some cases, extend the long-term deals. So there's various reasons. One time -- sometimes, we're testing the market. Sometimes, we're waiting for a AAA location to come available, which might be 2 or 3 years, and we want to kind of just start getting a presence there. Other times, we're keeping landlords on their toes as far as that we do have options in other centers that are close by.So there's a multitude of reasons why we're opening them. All I can really say is they seem to be working for us right now. They are cost-effective and their net revenue and profitability is positive, and we're also gaining valuable market presence and market intelligence when we're opening them. So it's something that we're probably going to see us doing for some time here. And -- but there's not going to be a ton of them but we're going to continue to explore these because they make sense with our strategy right now.

[Operator]

The next question comes from Dylan Carden of William Blair.

[Dylan Douglas Carden, Analyst]

Just curious returning to the comment that, Brian, you had on sort of being ahead of the market in Canada vis-a-vis sort of the U.S. holidays. I'm curious if that's something now that the market's caught up to you that you're starting to see maybe sort of more of a drag on the business that might be embedded in the third quarter outlook here.

[Brian James-Beaumont Hill]

Yes. Sorry, I'm not entirely clear and Todd's trying to explain to me what the question is. I'm not entirely clear. I mean we're not starting our Thanksgiving sales earlier than we ever have. And just Thanksgiving lands a week later than -- or 6 days later than it did last year. So we actually have an extra week or 6 days of -- an extra week of full price sales this year versus last year.What I also made a comment around was 3, 4 years ago, we really embraced the introduction of Black Friday and the equivalent in Canada and a lot of other...

[Dylan Douglas Carden, Analyst]

That's my other question.

[Brian James-Beaumont Hill]

Yes. And a lot of other retailers hadn't caught on and now we're finding that they have. And so -- and I think we've maximized or started to maximize the opportunities there. I think we've executed extremely well over the last 2 or 3 years, so we're not going to expect to see huge increases.One of the things that we've found is that in between these big events, our sales have been increasing meaningful at these big events, so we do have limitations. And we only have so many fitting rooms in our stores and so much -- so many style advisers we can employ -- deploy for our stores. So we're finding that during peak periods, it's a little harder to comp and sort of values, so to speak, in between the peak periods are a little bit easier to comp.So we'll see what happens this year. As I mentioned in the past calls that this driving of product into November as well and into P3 has affected P4 and a softness initially in P4, particularly in Canada. So there's these effects but they're starting to mature now as this has been embraced for about, I don't know, for 3 years now in Canada or maybe 4, I don't know. But we're seeing these -- this sort of shopping pattern mature now, and there's nothing particularly new and novel about it.

[Dylan Douglas Carden, Analyst]

Okay. And then just curious on the warehouse sale, on more apples-to-apples basis, looking at sort of this year versus last year, any comment as to sort of performance, incremental markdowns and sort of more broadly what you're seeing from a price sensitivity for consumers out there in the market?

[Brian James-Beaumont Hill]

Yes. No. We -- from a warehouse sale that Todd commented on the effect it had on our financials, but we saw our increasing revenues from our warehouse sale in line with the increase in revenues at Aritzia in general, just due to the fact we have more product to sell and that percent was fairly consistent. We're not seeing -- it's a pretty big event that we have and we hold here and a lot of people come to it. So we're not seeing any price resistance at all and shopping resistance at all, we're just seeing the sort of continued shift from retail and bricks and mortar to eCommerce. And as I've mentioned many times in the past, we're fairly comfortable with that, because we think we have some of the best stores out there but we also think we have some of the -- one of the best eCommerce channels out in the market as well. So we're pretty excited about both channels, and we're not seeing meaningful pressure on our retail stores and we just have seen growth in eCommerce. So it's a bit of a win-win for us right now.

[Dylan Douglas Carden, Analyst]

Good. And I guess last one I have. It sounds sort of reading between the lines like there's these -- there's an added complexity now at sort of greater scale and 2 jurisdictions so to speak. I take it probably that the answer to the question as to sort of how you're going to cope with that longer term will be some of the systems, the SAP implementation. But Brian, anything that you can add just sort of how you're thinking about philosophically managing the business at greater scale, whether or not that takes a different managerial approach or new systems? Any comment that you might be able to provide there.

[Brian James-Beaumont Hill]

Sorry, I'd be delighted to. But earlier, you mentioned 2, what was that?

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

Jurisdictions.

[Brian James-Beaumont Hill]

Two jurisdictions. What are you referring to there? Are you talking about U.S. and Canada or...

[Dylan Douglas Carden, Analyst]

Yes, yes, exactly. Sorry, yes, there's just -- it seems to be more of a dual business.

[Brian James-Beaumont Hill]

Yes. We actually think we have some more synergies now. We've been open in the U.S. since 2007, so it's 12 years we've been open in the United States for us. So we're not new down there, and I think a lot of our learnings came in the first sort of 3 -- 2 to 3 years and some in 5 years. So we're actually finding it -- we have a really great team of people in the U.S. now, Americans working for us in the U.S. and some have been with us for 8, 10, 12 years, and they kind of know the drill now.So we actually think that our expansion, particularly from a retail perspective and bricks and mortar perspective is actually smoother than it was 3, 4, 5 years ago. So we're finding that's actually one of the positive synergies of getting bigger. eCommerce really isn't changing at all and at some point in time, we may need a distribution center on the West Coast as well. We have one on the East Coast now and -- but we also ship out of Canada as well. So we're finding mostly it's synergies and -- with our U.S. and Canadian business right now. And so we don't find that challenging whatsoever. We have a lot of Americans working for us up here in Canada as well so -- and Canadians working for us in the U.S. So we're pretty comfortable with how that -- how this opportunity and we don't see any challenges based purely on the jurisdictions at this point in time.

[Dylan Douglas Carden, Analyst]

And as far as sort of scale is concerned, I guess you kind of answered it. But I guess maybe speaking of the merchandising difficulties of sort of being in the warmer climates at this point. I guess you're sort of -- feel you're prepared for that as far as new system implementation and sort of what you've already been able to accomplish in these markets?

[Brian James-Beaumont Hill]

Yes, it's not really more -- so much new systems implementations, it's just having another collection. We think we may have to go from 4 to 6 collections a year. We're going to need a warm-weather collection for fall and a warmer weather collection for winter. And so we're good at executing warmer weather collections as we do right across our whole organization for spring and summer. We're just going to need to have 2 springs and 2 summers a year and one fall and one winter a year. So it's not lost on us that we have some work we need to do on the collections and things to be able to execute on that, but it's all opportunities that we've done in the past and it's just really timing and coordination more than anything else.

[Operator]

The next question comes from Mark Petrie of CIBC.

[Mark Robert Petrie]

Yes. Just at points, you've talked about the success you've had with more luxury stores, sort of as neighbors, I guess, to some of your new stores and also with some small offers you've had at higher price points. And so I'm just curious, could you talk about how you're approaching sort of that upper price point opportunity today for Fall/Winter and into holiday or just more broadly?

[Brian James-Beaumont Hill]

Yes. I think as the real estate opportunities come up, we certainly look at them. And sometimes, these real estate opportunities come up in more luxury-based shopping locations. We're looking at something right now in Beverly Hills, it's certainly, as you know, complete luxury. And then as I just mentioned, we opened up in Kelowna and we're probably the highest price point in the shopping center. So it really depends on the real estate and real estate that's available and where we think we have a market. And what's so great is we feel we -- confident and that was sort of the ah ha, so we can operate in both high-end luxury locations as well as high-traffic sort of -- high-traffic locations that might not be as high priced. So we're pretty confident operating in both. And historically, prior to opening on Rush Street, we felt that we needed to be just in high-traffic locations. And I think the -- what Rush Street showed us in Chicago was we can operate successfully in both these markets. And so we're pretty excited about that. So that just opens up the opportunities in the United States, particularly because there's different types of centers down in the United States, and we can open in both these kind of centers confidently and do well with it.

[Mark Robert Petrie]

And then just in terms of the product offer, are you sort of adjusting the product offer, either one way or another way in terms of just slightly higher price points or just slightly higher -- lower price points? Or are you -- is that sort of just status quo?

[Brian James-Beaumont Hill]

Yes. We, for sure, operate the merchandise mix differently in each store. And as I mentioned in the past, we -- our stores and our merchandise mix could fill stores much larger than we actually have. So we take snapshots from our product mix, depending on the store location and who that customer is. And so our store on Rush Street will have a completely different profile and product profile than other stores we have in the United States in more suburban locations. So one of the beauties of what we have and with all the different brands and different products is we can cater that brand and curate that product mix to that customer that's at that -- shopping at that location. It's a pretty simple process for us to do so...

[Operator]

This concludes the question-and-answer session. I would now like to turn the conference back over to Helen Kelly, Vice President of Investor Relations, for any closing remarks.

[Helen Kelly, Vice President of Investor Relations]

Thank you, Karl. And thanks again to everyone for joining us this afternoon. The team and I will be around later if you have any additional questions. We look forward to speaking to you again soon. Thank you.

[Operator]

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