Aritzia Inc

TSX:ATZ

Earnings Call Transcript 2023-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to Aritzia's Second Quarter 2023 Earnings Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.

[Beth Reed, executive]

Thank you, Ariel, and thanks for joining Aritzia's Second Quarter Fiscal 2023 Earnings Call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer; Todd Ingledew, our Chief Financial Officer; and Brian Hill, our Founder and Executive Chair.

Following prepared remarks from Jennifer and Todd, there will be an opportunity to ask questions. Please note that remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking statements.

Such outlook is based on estimates and assumptions made by management regarding, among other things, general and economic and geopolitical conditions and the competitive environment as well as further COVID-19 resurgences. Actual results may vary.

We would refer you to our most recently filed management's discussion and analysis and our annual information form, which include a summary of the material assumptions as well as risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.

Our earnings release, the related financial statements and the MD&A are available on SEDAR as well as the Investor Relations section of our website at aritzia.com.

I'll now turn the call over to Jennifer.

[Jennifer Wong, executive]

Thanks, Beth. Good afternoon, everyone, and thank you for joining us today. Our performance in the second quarter of fiscal 2023 highlights the ongoing sales momentum that we are seeing across our business.

Demand from new and existing clients continue to exceed our expectations as our much-loved Everyday Luxury experience resonates across all geographies and all channels. Our better-than-anticipated sales results in Q2 were led by exceptional strength in the U.S., where both new and mature markets outperformed.

E-commerce growth also meaningfully exceeded our expectations, underscoring the success of our multichannel business.

In Q2, we delivered net revenue of $526 million, an increase of 50% from last year. Fuel bar business in the U.S., which continues to grow at a phenomenal pace, increasing 80% from last year.

In Canada, we grew by 29%, with strong double-digit comparable sales growth and the benefit of reopened boutiques in Eastern Canada. And in e-commerce, we saw impressive growth of 33% on top of 49% last year. Our outstanding sales growth continues to be driven by new client acquisition as more people discover and become loyal to the Aritzia brand.

Our unprecedented growth in the U.S. was fueled by exceptional comp store sales as well as the progress we made on our geographic expansion strategy. In Q2, our retail business surpassed our expectations, increasing 60% from last year.

We opened 3 new boutiques in the quarter to a tremendous client response, 2 of which were in new markets, Orlando, Florida and Atlanta, Georgia. We also opened in Palo Alto, expanding our presence in Northern California, where we now operate 4 boutiques.

We remain extremely pleased with the early results we're seeing in our new boutiques and in our new markets. The ongoing success of our real estate strategy enhances our already premier boutique portfolio and positions Aritzia for continued growth into the future.

Our e-commerce business continues to be driven almost entirely by traffic growth, led by the U.S. where traffic increased more than 50% from last year. To maintain our momentum, we're continuing to add new and improved features and functionalities to aritzia.com, including user-generated content. We also signed a multiyear contract with a personalization platform. This will allow us to drive deeper loyalty and deliver an enhanced client experience, including tailored product discovery.

In Q2, we continue to see key programs and clients favorites drive our strong demand, selling in our professional, fashion and tailored assortment continue to increase as we maintained our momentum in lifestyle apparel.

We also continue to invest in the Super Puff brand, expanding the assortment across styles and colors, and we're installing a dedicated Super World experience in select stores, which will bring the brand to life in a new and immersive way for our clients, our multi-brand business model continues to enable us to provide our clients with beautiful products for all aspects of their life.

The combination of our boutique expansion and beautiful product collections continued to propel our brand awareness. The Aritzia brand is resonating incredibly well with our clients, who have been actively posting about us on TikTok, generating 2 billion views to date.

Our clients are doing the talking for us. And through our own social and influencer strategies, we are amplifying what they are already saying.

In Q2, we made further progress on our path to getting famous in the U.S., where client growth has increased more than 300% in the past 2 years. We finished the quarter with more clients than ever before.

Like all global businesses, we continue to navigate supply chain challenges. Last year, we were unable to procure all of the inventory we required due to supply chain disruptions, which did affect sales.

In Q2, we strategically pulled forward winter buys into fall and selective spring buys into winter in order to mitigate supply chain risk and ensure our ability to meet the robust demand for our product.

We are confident with the composition of our inventory, which is concentrated in client favorites and we believe that we are appropriately positioned to capitalize on the strong sales momentum we are experiencing.

Looking ahead, we are encouraged by moderating air and sea rates as well as improved transit time. E-freight timing is now approximately 7 to 8 weeks, down from 11 to 12 weeks at the peak, though still roughly double our pre-pandemic range.

We expect freight times will hold steady through the holiday season and likely decline going into next year. Our outstanding performance has helped us to continue attracting a team of world-class talent. We filled a multitude of key positions across all areas of the business, and we are continuing to invest in talent, particularly across creative, e-commerce, marketing and technology as we build the infrastructure that will allow us to capitalize on our growth strategies.

While competition for talent remains challenging, we are extremely competitive due to our incredible employment brand, industry-leading wages and benefits and inspirational workplace environments.

This quarter, I visited many of our boutiques across Canada and the U.S. As always, I was impressed with our leadership and the proven ability of our style advisers to progress their careers, much like I did myself. We are growing from within, hiring and developing amazing talent. Their passion for Aritzia and enthusiastic representation of our brand is truly incredible. I am thrilled with the great momentum that I saw not only among our people, but in our busy and energetic boutiques as well.

Our beautiful product, aspirational shopping environment and exceptional service are clearly resonating with clients. Our commitment to our people and the planet remains a top priority.

We published our inaugural ESG report in Q2 at our first United Nations Global Compact communication on progress against our ESG initiatives. We also joined as a member of the Good Casimir standard and continue to prioritize incorporating certified sustainable raw materials in our product collections.

Over 60% of our fall and winter styles will contain a sustainable attribute. We also continue to focus on supporting the people we serve across our communities. This year, we observed and commemorated Orange Shirt Day through Aritzia's first-ever collaboration with [indiscernible]. We were proud to amplify indigenous voices through the gifting and sale of Orange Shirts featuring artwork [indiscernible] with all proceeds going to Orange Shirt Society.

Demand for our brand remains exceptional, and we continue to successfully navigate a dynamic macro backdrop. While we are closely monitoring our business and the external environment, we are, as always, focused on the long term, and we are investing in our strategic initiatives and the infrastructure required to scale our business for years to come.

Now I'll pass the call over to Todd.

[Todd Ingledew, executive]

Thanks, Jennifer, and good afternoon, everyone. We delivered another strong quarter of financial results, again, exceeding our own expectations.

Driven by robust demand for our product across all geographies and channels, particularly in the United States, where the Aritzia brand continues to grow at an unprecedented pace.

For the second quarter, we generated net revenue of $526 million, an increase of 50% from last year and achieved comparable sales growth of 28.3%. This outstanding growth was the result of several factors. First, we continue to see exceptional growth in the United States with net revenue of $263 million in the quarter, an increase of 80% from last year.

Our business in the United States accounted for 50% of net revenue in the second quarter compared to 42% last year and 29% 2 years ago. This sustained momentum reflects the significant acceleration in our U.S. client base as more clients discover and become loyal to the Aritzia brand.

Second, our retail revenue in the second quarter was $352 million, an increase of 60%. This was led by growth in the United States where we saw exceptional comparable sales as well as outstanding performance in our new boutiques, which continue to exceed our sales and payback expectations.

In Canada, we saw strong double-digit sales growth in our comparable boutiques and retail revenue also benefited from 34 reopened boutiques in Eastern Canada that were closed for 1/3 of the second quarter last year.

Third, our e-commerce business delivered another impressive quarter with net revenue of $174 million, an increase of 33% on top of a robust 49% increase in the second quarter last year and 82% in the second quarter 2 years ago during the pandemic. This represents a 53% 3-year CAGR. On top of our accelerating retail business, we saw strong e-commerce trends across all regions with growth predominantly driven by higher traffic.

We delivered gross profit of $220 million, up 41% from the second quarter last year. Gross profit margin was 41.9% in the quarter, declining 270 basis points from 44.6% last year. The decline was driven by discontinued COVID release subsidies and higher freight and distribution center costs as well as normalized markdowns compared to last year when inventory levels were abnormally low.

The above pressures were partially offset by leverage on occupancy and depreciation costs. SG&A expenses in the quarter were $147 million or 28% of net revenue compared to 26.3% last year. The 170 basis point increase reflects additional investments in retail talent to ensure we continue to deliver exceptional client service and ongoing investments in people, technology and marketing initiatives to fuel our accelerated momentum and to ensure our future growth.

Overall, adjusted EBITDA in the second quarter was $83 million, an increase of 13% from last year. Adjusted EBITDA was 15.7% of net revenue compared to 20.8% of net revenue last year.

We are extremely pleased with the sales momentum in our business, allowing us to invest in our long-term growth despite transitory cost pressures in the second quarter. Inventory at the end of the second quarter was $455 million compared to $182 million at the end of the second quarter last year.

We had extremely low inventory levels in the back half of last year, which affected sales. This season's inventory was planned at an 83% increase to last year in order to meet or exceed our sales targets. To mitigate supply chain risk, inventory was booked earlier for our fall winter buy and on top of that, as an extra precautionary measure, we pulled forward selective spring and summer product.

Overall, we are comfortable with our inventory position. And for the season, we expect normalized markdowns, no greater than pre-pandemic levels. Since the implementation of our NCIB on January 12 and through October 11, we repurchased 1.7 million shares, returning $69.2 million to shareholders. We will continue purchasing shares opportunistically throughout fiscal 2023. Our liquidity position remained strong at the end of the second quarter, with $65 million in cash and 0 drawn on our $175 million revolving credit facility.

Turning to our outlook. The positive momentum in our business has continued into the third quarter. As such, we now expect net revenue for the third quarter to be in the range of $565 million to $590 million, representing an increase of approximately 25% to 30% compared to last year.

This reflects continued strength in the United States across both our retail and e-commerce channels as well as a strong recovery of our business in Canada. For the full year, we have increased our net revenue expectation to a range of $2.0 billion to $2.05 billion from our previous outlook of $1.875 billion to $1.9 billion. The new outlook now represents growth of approximately 34% to 37% from fiscal 2022.

In addition to the 6 new boutiques and 1 boutique reposition through the end of the second quarter, we plan to reposition additional 4 boutiques in the third quarter, 3 in Canada and 1 in the United States and open 2 new boutiques late in the fourth quarter, both in the United States. Our gross profit margin outlook is unchanged, and we continue to expect it to decline approximately 100 to 150 basis points compared to last year, reflecting ongoing impacts from global supply chain disruptions and discontinued COVID release subsidies.

We continue to expect SG&A as a percent of net revenue to increase approximately 50 to 100 basis points compared to last year. As sales momentum continues, we are making ongoing investments in our infrastructure to fuel our accelerated momentum and to enable our future growth. Over the long term, as our mix shifts towards the United States, and e-commerce -- and e-commerce, our leverage is expected to expand.

In summary, we are extremely pleased with the strength of our business, particularly with our momentum in the United States and remain optimistic about the balance of the year. We are focused on the long runway ahead of us, and we are investing in the future. Our investments in infrastructure will allow us to capitalize on our strategic initiatives and drive sustained profitable growth well into the future while delivering meaningful shareholder value.

With that, I'll now turn the call back to Jennifer.

[Jennifer Wong, executive]

Thanks, Todd. We are extremely pleased with the strength of our business in Q2 and excited for the future. Our strong sales momentum has carried into Q3, and we continue to lay the foundation for long-term profitable growth.

We are encouraged to see that client demand is showing no signs of letting up across all geographies and all channels. We are executing well across our growth pillars and expanding our geographic footprint, which is enabling us to propel our brand and acquire clients for both our retail and our e-commerce businesses.

In the second half of the year, we're opening in a new market, San Antonio, Texas. We're also making progress on our boutique expansion strategy, including the newly expanded Polo Park location in Winnipeg, which opened September 3 and had the highest volume opening day in all of Aritzia's history.

On October 6, we opened our newly expanded Markville, Ontario boutique. And next month, we will open our brand-new flagship Yorkdale location in Toronto, which we're expanding to 19,000 square feet from 10,000 square feet. This new corner location will feature an elevated environment, including a dedicated Super World experience and an A-OK Cafe.

In addition to growing our boutique portfolio, we're investing in infrastructure, adding to our team of world-class talent and expanding our DCs. I'm pleased with the progress we've made on our new Toronto area DC, which while slightly delayed, is on track for completion in August of 2023.

Coming through and out of the COVID pandemic, we have been focused almost exclusively on driving revenue, brand, infrastructure, our people and our community. We have also been doing some catch-up on things like travel and corporate events that we bypassed during the pandemic.

While we continue monitoring the challenges of the macro environment very closely, we are optimistic about our outlook for the remainder of fiscal 2023 and our sights remain set on the future. As always, maximizing our position to deliver everyday luxury for our clients today and tomorrow is our top priority. Our disciplined long-term business [indiscernible], and it is why we are continuing to invest in our future. We see extraordinary growth opportunities ahead and we look forward to sharing our multiyear strategic and financial plan at Aritzia's First Investor Day on October 27.

Last, but not least, I would like to thank our team for their tireless hard work and dedication that allowed us to deliver another exceptional quarter. And of course, I thank you to our clients for their enduring loyalty as we continue to grow everyday luxury.

And with that, Ariel, can we please open up the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Alice Xiao of Bank of America.

[Jingyuan Xiao, analyst]

This is Alice Xiao from Bank of America. On your continued U.S. expansion, how are you considering your boutique opening cadence? Is the plan to continue at an 8 to 10 stores per year pace or maybe a 9% growth in square footage per year basis? Or is it going to vary more by year depending on real estate availability?

[Jennifer Wong, executive]

Hi Alice, it's Jennifer. I think we've -- we were announcing 8 to 10 stores per year, new stores. The thing that's changed about our new store format is when previously, I think we said that they were on average about 6,000 square feet. They're now over 8,000 square feet.

And as you know, we are opening a couple of really super mega flagship stores, 1 on the corner of -- in New York, in Manhattan area and 1 on Michigan Avenue. So we're super pleased about the big flagship format and on average, it will be about 8,300 square feet and 8 to 10 stores a year.

[Operator]

Our next question comes from Martin Landry of Stifel GMP.

[Martin Landry, analyst]

Congrats on your results. My first question, I was wondering if you can talk a little bit about the consumer.

There's an economic slowdown going on right now in Canada and the U.S., but it looks like it's not having any impact on your sales. I was wondering if you can talk about what you're seeing, if you're seeing any changes in the patterns of consumption for your consumers?

[Jennifer Wong, executive]

Hi Martin, it's nice to meet you. As we reported, what's driving our business right now are new clients. And essentially, it's new clients that love Everyday Luxury.

So we are not seeing anything changing right now in terms of average order values, basket size, conversion rates, all of our business right now is being by traffic and the high demand that we mentioned in our prepared remarks.

So unlike maybe other businesses that are seeing signals in their transactions, we are not. But that said, we are closely monitoring it, but we believe that based on the sales momentum that we're experiencing that we actually have a very strong robust future ahead of us.

[Martin Landry, analyst]

Okay. And I'd like to touch on your inventory levels. They've increased significantly. Do I understand correctly that -- you mentioned that 83% of the increase was related to just a recouping of previously to low levels.

So according to my math, or can we assume that the rest is just pull forward of spring collections and winter collections?

[Jennifer Wong, executive]

Yes. We pretty much bought the majority of our fall/winter upfront in the season as well as, as I mentioned, select items and select pieces from spring, we pulled that up as well.

And a lot of that was to mitigate what we were foreseeing as the continued supply chain disruptions that are still happening and making sure we were well positioned to capitalize on the demand that we're seeing. And clearly, as you can see it, it's totally fueled our sales.

[Martin Landry, analyst]

Okay. And my last question is for Todd. Todd, I was wondering, I didn't hear in your prepared remarks, the cadence of the gross margin fluctuation. Are you still expecting gross margin in Q4 to increase on a year-over-year basis?

[Todd Ingledew, executive]

The cadence we're expecting is that in Q3, we will have pressure similar to what we saw in the second quarter with similar headwinds.

And then in the fourth quarter, as we lap a significant spend on expedited freight, we will see moderating gross profit margin approaching where we were in the prior year.

[Martin Landry, analyst]

Okay. Stable year-over-year for Q4?

[Todd Ingledew, executive]

Exactly.

[Operator]

Our next question comes from Mark Petrie of CIBC.

[Mark Petrie, analyst]

I guess, lots of moving parts and cost of goods, obviously, but it would be helpful to hear a little more commentary just about the different puts and takes.

And maybe first, if you could elaborate on your comments about markdown levels both what you experienced in Q2 and what's embedded in your outlook. I think previously, there was some commentary about potentially not returning to pre-pandemic levels, and I know some programs weren't run over the last couple of years. But your comments today imply that, that sort of is in place. So maybe you could just elaborate a little bit there, please?

[Todd Ingledew, executive]

No. Absolutely happy to respond to that, Mark. In the second quarter, we saw a more normalized markdown level. It was not back to pre-pandemic levels. And obviously, we were extremely low on inventory in the prior year, and therefore, had lower markdowns just because of the volume of product.

And then in the fourth quarter of this year, obviously, we're going to be in a much better inventory position. And last year had extremely low levels of inventory, again, meaning that our markdown levels were low, abnormally low last year from that. And we expect that we will return to a more normalized markdown level in Q4 this year.

But I think important to point out like we've been talking about those -- the sales that we've typically had mid-season, for example, the [indiscernible] sale, which we would have had this last -- this past weekend in any typical year, pre-pandemic. We did not have that sale this year. And if anything, we continue to reduce the number of days that were on sale and reduce our markdown levels. And that trend is not going to stop.

[Mark Petrie, analyst]

Okay. Perfect. That's helpful. And I guess one other question just with regards to the outlook and sort of the pacing of sales between Q3 and Q4. I mean -- if you go back to sort of pre-pandemic, Q4 was actually larger than Q3, and I realized that there's been some shifts, presumably more U.S. business means Q3 is bigger.

And also I know sales have been getting pulled forward just in general. But are there any other sort of assumptions embedded into that outlook, either with regard to your positioning or how you're sort of expecting consumer behavior to play out or evolve?

[Todd Ingledew, executive]

No. Mark, we're obviously extremely pleased with the strength that we continue to see in our business up to today. But there are a lot of macro headwinds out in the environment. And we still have 7 weeks to go in this quarter, which, as you pointed out, includes Black Friday.

And then the fourth quarter is a long way from now. So again, while we're not seeing any impacts on our clients today, we think it's prudent to be cautiously optimistic about the balance of the year. And the good news is or the great news is that we have the right inventory to support outpaced growth beyond our outlook, but we think it's prudent to have it set where it is.

[Operator]

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

[Stephen MacLeod, analyst]

Just a couple of questions. I just wanted to follow up on inventory quickly. Understanding that you have a good handle on sort of the inventory position relative to what your sales expectations are.

But just in the scenario where you did get through Q4 and Q3, Q4 potentially demand was negatively impacted, you're going to sell through all that inventory. Do you have a mechanism whereby you can just store that if you have a certain percentage of proven sellers in there until the next season?

[Jennifer Wong, executive]

Hi Stephen. Yes, as you know, we're building distribution centers to accommodate for our growing business. And these are items, as we said, our client favorites. They're not necessarily -- I think we were throwing around the word seasonless, quite honestly, we didn't use that word today, but they are seasonless client favorites.

We have the space, as I mentioned, our head of supply chain logistics might [indiscernible] for saying this, but I know that as we've increased these inventories over the quarter, he's had no problem dealing with them.

[Stephen MacLeod, analyst]

Okay. That's great. And then maybe just with respect to inflationary pressures and some of the challenges that continue -- you continue to expect to see into Q3.

At the time of the last quarter, you sort of expected that you might have some better visibility in a few months' time. So I'm just curious on what your visibility looks like as you roll into next year with respect to some of the supply chain and inflation issues that have been present.

[Todd Ingledew, executive]

Yes. Thanks, Stephen. So the inflationary pressures that we're seeing predominantly lie in freight costs and labor costs, which I think we've talked about before.

And as Jennifer mentioned during her prepared remarks, we are seeing the freight costs and the time line decline. They have not returned to pre-pandemic levels yet, but we do plan that we will be using more air freight or more sea freight and less air freight frankly, from this point forward, so including in Q3 and Q4.

But it's still -- to what level that will be for next year, I think, is still to be determined. I don't anticipate it will fully return to 100% to a normalized level from an expedited freight perspective. And then the labor cost inflation, that will likely stick obviously, into next year and will be a new baseline. And I think it's also important to note, while maybe not inflationary, the change in the U.S. dollar obviously, has an impact on our business. It doesn't in the short term from a COGS perspective because we have obviously already purchased a majority of our inventory for the season at the prior FX rates.

However, looking forward, we will benefit on the top line, and there will be some pressure potentially on COGS next year if the USD doesn't normalize back to where it was, say, 2 to 3 months ago.

[Stephen MacLeod, analyst]

Okay. Yes. That's good color, Todd. I appreciate it. And then maybe just finally, you've talked a lot about just the favorable mix shift that provides a margin tailwind.

I'm just curious, are you in a position to potentially talk about what the potential margins could look like? Or maybe is that something we can anticipate from the Investor Day coming up in 2 weeks.

[Todd Ingledew, executive]

Yes, 100%. We'll be providing long-term EBITDA margin targets on October 27.

[Operator]

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

[Irene Nattel, analyst]

Obviously, great numbers today. Really intrigued by some of your commentary around some of the growth being driven by new customers. Can you talk about sort of the geographic footprint of some of the new customers, the way that whatever impact it may be having on e-commerce and sort of the -- if you can sort of the spend for new customers versus existing and the trends in both?

[Jennifer Wong, executive]

Hi Irene, yes, we can give you a little bit of color. I can tell you that our customers are growing in both channels, retail and e-commerce and they're growing actually in both countries, Canada and the U.S.

Obviously, the growth is higher in the U.S. as we've reported just through our sales. But what is really encouraging to see is that we continue to acquire new customers in all geographies and across all channels.

We're also seeing consistency and historical consistency in terms of their average spend. So -- and average spend, average basket size, these types of things. So when I say that our growth is driven by traffic and driven by increased customers, it truly is pretty much all that, almost entirely that.

[Irene Nattel, analyst]

That's great. Thanks, Jennifer. And if you think about some of the category or the category extensions, line extensions, what kind of reaction and purchasing patterns are you seeing from your existing and new customers?

[Jennifer Wong, executive]

Again, there's one thing about us, it's consistency and balance. I think those are themes that we've talked about before, and that continues to show up in our business even today with all of these new customers.

We're seeing a balance of what they're buying across all departments. Certainly, as we get into winter, the outerwear category becomes more prominent, and we -- we are really, really excited about the Super Puff brand.

But right now, while the weather is in transition in many parts of the [indiscernible] still kind of warm sweaters are selling. We have jackets, we have coats, we have the puffers [indiscernible] but we're also seeing healthy business in bottoms and pants.

And so really, the theme is the same, Irene, across all departments we're seeing nice demand across pretty much everything, all brands. I guess I would say that -- yes, it's consistent and balanced.

[Operator]

Our next question comes from Meaghen Annett of TD Securities.

[Meaghen Annett, analyst]

Just had a couple of follow-up questions around the guidance. So first, going back to markdowns ahead of the holiday selling period, are you able to quantify what you're expecting there relative to last year? And what's factored into the annual guidance on that front?

So are you effectively changing your expectation there for Q4 specifically? Or is that stable to the prior outlook?

[Todd Ingledew, executive]

No, it's stable to the prior outlook. We are remaining consistent with our guide of 100 -- down 100 to 150 basis points for the year for gross profit.

The normalized markdowns that we're expecting in the fourth quarter will be offset primarily by the lower use of expedited freight in the quarter.

[Operator]

Our next question comes from Derek Dley of Canaccord Genuity.

[Unknown Analyst]

This is [indiscernible] in for Derek. Most of my questions have been answered as well. Just a quick clarification. For the expedited freight, would it be safe to assume that this quarter was the peak regarding the cost of that?

[Todd Ingledew, executive]

The peak quarter was probably Q4 of last year and then Q1 would have been second.

[Operator]

Our next question comes from Dylan Carden of William Blair.

[Dylan Carden, analyst]

Yes, I was just curious the openings that you had in the U.S. and Orlando and Atlanta and new markets and the ones you've had in Northern California, if there's any distinction to be made kind of how those stores open? You've talked over the past couple of years about kind of seeing 2x the volume in some of these newer stores as your awareness grows in the United States, are those levels relatively consistent?

Does it matter if that's new versus sort of an existing market? Any color there would be helpful. And then I have a follow-up.

[Jennifer Wong, executive]

We're going to let Brian answer a question. He's been sitting here and [indiscernible] so we're going to have him answer the real estate question.

[Brian Hill, executive]

I think they're all feeling sorry for me. Yes, we're so pleased. If we roll back the clock 5 years ago, we are avoiding the Southeast because we just didn't know if we had a customer down there. The weather -- it's not -- we learned it and realized that it's not just cold and colder from the West Coast to the East Coast and that California was sort of a warmer climate, the Southeast is hot, and it's not like Southern California. And so both in Texas and in the Southeast, we have 2 of our better stores in each one of those regions now. So we're just thrilled.

And so we are -- we have -- Atlanta's is open now, [indiscernible] Miami Mall Millenia is open, Orlando [indiscernible] has had a little bit of a tougher shake. I think it's probably hurricane related.

And then our Nashville store continues to impress and surprise on a regular basis. So we are shocked in every one of the performance in every one of these stores. And so we are doubling down in the Southeast for sure, and we're really excited about our business there. And as we've always said, along with our stores and the success of our stores, our e-commerce is moving because of the omni and the awareness.

So we're thrilled with the Southeast, which has gone from really a very small, small market for us 18 months ago to a meaningful market for us and will continue to drive a lot of our business. So we're super excited about there. Our Southern California stores continue to perform and what's really been impressive is our Texas stores. And so we're looking at real estate and trying to do deals there, too. So we seem to have cracked the code in the Southern United States and the climates [indiscernible] business.

[Dylan Carden, analyst]

Is that -- I guess, a follow-up just to that one specifically, is that in part why you're kind of incrementally speaking to more stores in the United States that you've unlocked this sort of geography that you thought maybe wasn't previously available to you? And I'm perfectly capable to hold until later this month or next month, if you prefer.

[Brian Hill, executive]

I mean we can discuss that at the Investor Day. Yes, I mean we're just being surprised because of that, it's opening up sort of accelerated some of those sort of second phase and third phase stores in those regions that we're now looking at opening it in the process of doing deals in some of these places that we didn't think we'd be doing deals with sort of until 2, 3 years from now.

[Dylan Carden, analyst]

I think I'm [indiscernible].

[Operator]

Our next question is a follow-up from Mark Petrie of CIBC.

[Mark Petrie, analyst]

I guess first one, just as store traffic returns, I imagine you're probably getting a better sense of the return on some of the investments that you've made regarding sort of elevating the store experience.

And just hoping you could talk about some of those, I guess, specifically the selling tools and then the enhanced omnichannel capabilities that you guys have rolled out over the last couple of years?

[Jennifer Wong, executive]

Yes. Well, given just the actual traffic we are getting, the foot traffic that we are getting with real live customers coming in physically. What we've done is, we've decided that clientele app that we start -- like we really rolled it out of any significance during COVID when the stores were closed, and it allowed us to digitally sell using the app that allowed our style advisers to sell using the app.

What we have found, which obviously we didn't anticipate was this tremendous demand that we are seeing and this momentum that we're seeing, particularly in the U.S., where we could sell to them on the app or we could just sell to them live, real live in person and have them really experience the everyday luxury, personalized touch, high-touch service that our solid advisers have become to be known for.

So while we still use the app, it's used mainly to support these in-person sales because it allows us to look up inventory that might not be in that store at that time and allows us to look up information on the customer. But in terms of an app, a selling tool, we are -- the momentum we're experiencing right now, we just want to focus on delivering the everyday luxury value proposition that you can experience in store.

And we actually think that, that is where we should probably be prioritizing. As far as omni, omni, I will say that -- we are going to push that out until next year. There is a project that is in play right now that must be done at sort of a critical dependency.

It's the upgrade to our point of sale. So to make sure that we can leverage the point of sale, basically what it is it's the order broker that I've spoken about before. We need to put in the point-of-sale upgrade, make sure we're using all of the latest technology that's integrated to our back end with SAP, and then we'll turn on omni. And we think just given the business we're managing right now [indiscernible] prudent for us to turn on the full omni capability in the new year.

[Operator]

This concludes the question-and-answer session. I will now turn the call back to Beth Reed for closing remarks.

[Beth Reed, executive]

Thanks again to everyone for joining us today. We're available to answer your questions, and we look forward to sharing more with you on October 27. Have a great afternoon.

[Todd Ingledew, executive]

Thank you.

[Jennifer Wong, executive]

Thank you.

[Operator]

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