Aritzia Inc

TSX:ATZ

Earnings Call Transcript 2019-Q3

[Operator]

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

[Catherine Tang, VP of Project Management Office]

Thank you, operator, and thank you all for joining us for Aritzia's Third 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 risk and factors that could affect our future performance and our ability to deliver on these forward-looking statements.The third 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]

Thank you, Catherine, and thank you, everyone, for joining us today. I would like to start by wishing you a happy new year and thank our team for their hard work over the holiday and their contributions to an extraordinary season.We delivered another exceptional quarter in Q3 with revenue growth continuing to reflect strength across all geographies and all channels. The growing affinity for our brand, the particular excitement in the United States, coupled with the fall/winter season of beautiful high-quality products and an aspirational omnichannel shopping experience fueled the 12.9% increase in comparable sales, marking our 17th consecutive quarter of comparable growth. This results in a 3-year stacked comparable sales growth of 34.3% for the third quarter. Taking a deeper look. We delivered 18.8% top line revenue growth. We're really pleased that this top line revenue growth continues to flow through to the bottom line, resulting in 17.4% adjusted net income growth. In the U.S., our brand affinity continues to grow. Our United States business saw incredible performance with the sustained revenue increase of 40%. This was driven by accelerated comparable growth in both our boutiques and online as well as our new and expanded boutiques and marketing efforts designed to drive brand awareness.In Canada, in addition to strong same-store sales growth, we expanded our premier real estate portfolio, opening boutiques in Quebec City and Toronto Premium Outlets, our first ever true Aritzia outlet boutique. TPO has been incredibly profitable. Since its opening only 2 months ago, TPO has paid back the original capital invested. To be clear, this is not the start of an outlet rollout. That being said, selectively leveraging outlets to move discontinued merchandise is something we'll continue to explore going forward.Our eCommerce business continues to grow in line with our expectations both in the U.S. and Canada. We have made many exciting investments to our online experience as Jennifer will discuss these initiatives shortly. Our brand also continues to strengthen both in Canada and United States. French Vogue recently stated, "Aritzia has become the label of the moment this season." I'm excited by the level of support we have from key fashion influencers in the industry. Over the last quarter, we have seen celebrity influencers like Hailey Bieber, Gigi and Bella Hadid, Kaia Gerber and a number of others voluntarily representing our product. Meghan Markle, who is an ongoing fan, recently wore our Wilfred Cocoon coat in an extremely important public appearance. In addition, Kendall Jenner, who has 100 million Instagram followers, launched our extraordinarily successful Super Puff campaign. Our influencers will continue to be part of our marketing strategy as we move forward. We attribute our 34 years of success to a first-rate business model, well-defined growth strategies and ongoing investments in infrastructure. We will continue to focus on what has worked for us. I will now turn the call over to Jennifer to further discuss these investments. 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. I will start by providing an update on the exceptional performance of our new Vancouver distribution center since it commenced operation. I will then discuss some of the infrastructure investments that, in addition to maximizing our current business, also enable our long-term growth. We have now successfully managed our first season in the new 225,000 square foot distribution center, following the seamless transition last September. We are extremely pleased with the functionality of the new facility and the performance of our team who delivered superior results through this peak selling period. During Black Friday, the new DC meaningfully increased throughput compared to the previous year in the previous facility. The new DC was designed to scale both in terms of form and function. So in addition to this immediate benefit, this new distribution center should accommodate our West Coast growth over the next 8 to 10 years. Turning to digital. We continued our investment in search engine and core site optimization, which contributed to the eCommerce growth during the quarter. In the Q1 update, I spoke about the 5 key strategies that would support our eCommerce growth and will now update on each.The first strategy is to increase digital marketing to drive customer acquisition and retention. Our digital marketing program includes search engine optimization enhancement, refinement of our e-mail marketing and further leveraging our social media. We made numerous technical enhancements to improve our search engine optimization results, including navigation breadcrumbs, improved product description and data-driven category naming. We are pleased with the positive impact this has had on new client visits.Second, we are focused on core sites optimization, which is about improving the digital experience to ensure that aritzia.com continues to elevate our aspirational client experience. In late October, the team delivered user reviews which allow our clients to better understand fit and quality while she shops digitally. We are excited about the client feedback, and in fact, the product teams are using the data to further improve the fit and quality of our product. This feature is boosting our conversion rate, especially in the U.S., where there are currently fewer boutiques to try on items in person.Third, with regards to growing our Clientele program, we are in the early phases of leveraging data and analytics to advance our understanding of our clients and their behavior. This will enable us to predict their needs and further exceed their expectations. We have selected the software and service providers for our analytics foundation. The implementation is now underway, scheduled to be completed in the second half of fiscal 2020. This work will allow us to leverage the customer data collected by our new point-of-sale systems.Fourth, we continue to develop our omnichannel fulfillment capability. Again, our new point-of-sale system is the foundation for a multiyear strategy that is intended to align our people, processes and systems so our clients can shop and receive our products through any of our channels. We are working through options to launch store inventory visibility followed by additional fulfillment options, including buy online, pick up in store, and store inventory fulfillment. Finally, our fifth strategy is to enhance our international website and explore opportunities to expand our international online business. We continue to evaluate our international websites and our ability to ship international -- to international markets to establish the foundation for future expansion by increasing brand awareness, gathering intelligence and identifying international markets to expand our boutique network.Going forward, we have additional developments for improving our digital experience, such as a cleaner interface, enhanced graphics, a mobile-focused checkout. And all of these combined with omnichannel enhancements will contribute to an improved client experience online. And with our recent investments in a best-in-class analytics platform, we will be in a strong position to enhance sales through business intelligence and analytics.Following the successful distribution center and point-of-sale project, the next business transforming and foundational technology we are implementing is the product life-cycle management system or PLM. The PLM system will manage all of the data and support the processes to bring a product to market. This will enable us to focus on innovations, drive quality, reduce speed to market where appropriate and, ultimately, optimize cost in manufacturing. We are near the end of the selection process and will begin design and implementation soon.I will turn it back to Brian to speak to our future growth strategies.

[Brian James-Beaumont Hill]

Thank you, Jennifer. As a reminder of growth strategies, we're invested in growing our eCommerce business, expanding our boutique network, driving exclusive brand and product innovation, building brand awareness, and enhancing long-term profitability. Specifically, our eCommerce business is strong both in Canada and the United States, and we continue to reap the benefits of the initiatives that Jennifer just shared. As mentioned on our last call, our growing brand awareness among clients and landlords continues to fuel new boutique opportunities for fiscal 2020, resulting in our most robust U.S. boutique pipeline to-date. We are seeing and benefiting from great leasing opportunities due to our exceptional performance, excitement around our brand and the favorable real estate environment. Current negotiations would have us opening approximately 6 boutiques in the United States, 4 of which are in new markets. In Canada, our Bloor St. flagship will reopen in February, double its previous size at almost 11,000 square feet, providing an aspirational shopping experience anchoring our largest market. Looking forward to 2020, we plan to expand or reposition 3 to 4 additional boutiques in Canada. Our primary marketing objective to build brand awareness remains a key component of our overall strategy. As we see acceleration in our influencer program, we will continue to use both paid and organic influences in securing celebrity and digital influencer coverage, which will accelerate word of mouth and drive new client acquisition. Core to our fundamental marketing strategy, we will also continue to focus on elevating the client experience through optimized content and creative initiatives that surprise and delight our clients. In addition, connected closely to the client work identified earlier in the call, we will continue to drive retention through Clientele activations. Finally, long-term profitability continues to be a focus. We believe in driving top line revenue with growth that is mirrored on our bottom line. Todd will speak to the financial highlights in more details shortly. In conclusion, we're excited by our growth in financial performance across boutiques and online both in Canada and the U.S. in Q3. We continue to drive strategic investments both in our eCommerce business and the expansion of our premier boutique network with a strong pipeline for fiscal 2020 including new markets that will grow our geographical base in the U.S. In addition, we will continue to incorporate influencers into our broader marketing strategy, which will bring further affinity to our brand. As Jennifer mentioned, we're investing in best-in-class infrastructure and technology solutions that will enable advanced insights into our clienteling program and enhance our omnichannel capabilities. Investments such as these will see Aritzia continue to evaluate our client experience. We're looking forward to a successful fiscal 2020 starting with an exciting new spring season. With that, I will 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're extremely pleased to have delivered an exceptional third quarter following our strong first half of the year. Net revenue for the third quarter grew 18.8% to $243 million from $204 million last year. The revenue increase was led by growth in our eCommerce business as well as strong performance in our boutiques across both Canada and the U.S. We were particularly pleased with our U.S. business, which once again generated 40% revenue growth this quarter, driven by the strength of our new and existing boutiques, our focus on e-commerce investments and our marketing. Comparable sales increased 12.9%, accelerating from the 11.5% growth that we achieved in the second quarter. The comp growth was driven by the strong reception to our fall/winter product. In addition, we had a successful Black Friday event as the prominence of this period continues to grow in Canada. Net revenue also benefited from the addition of 8 new boutiques and 5 expanded or repositioned boutiques since the end of the third quarter last year. Gross profit margin for the quarter was 43.1% as compared to 44.8% in the third quarter last year. The 170 basis point decrease in gross profit margin was due to 110 basis point impact related to the weakening of the Canadian dollar, and the remainder of the margin decrease was primarily driven by higher raw material costs, partially offset by ongoing sourcing initiatives.Our SG&A expenses as a percent of net revenue were flat to last year at 23.3%. Leverage on fixed cost was offset by our continued investments in people, technology and infrastructure. Adjusted EBITDA increased by 14.3% to $57.1 million or 23.5% of net revenue compared to $50 million or 24.4% of net revenue in the third quarter last year.Adjusted net income increased by 17.4% to $35.9 million or $0.31 per diluted share compared to adjusted net income of $30.6 million or $0.26 per diluted share in the third quarter last year. Our cash balance at the end of the quarter was $123 million, up from $105.2 million at the end of the third quarter last year. The $18 million cash balance increase was after a $59.1 million payment to reduce our credit facility as well as $9.4 million in share repurchases over the last 12 months. Long-term debt at the end of the quarter was $75 million compared to $134.1 million at the end of the third quarter last year. Inventory at the end of the third quarter was $106.4 million, reflecting a 15.4% increase from the end of the third quarter last year.During the quarter, we repurchased 304,000 shares through our NCIB. This brings our total repurchases to 550,000 shares since we implemented the NCIB in May for total cash consideration of $9.4 million. Subject to market conditions, we will continue repurchasing shares opportunistically. Turning to our outlook. As previously stated, we have had an exceptional fall/winter season, including the increasing prominence of Black Friday in Canada, which continues to pull revenue from the fourth quarter to the third quarter. We're expecting a healthy yet uneventful end of season sales period and comparable sales of mid-single digits for the fourth quarter. Due to the further weakening of the Canadian dollar and continued pressure from higher raw material costs, we now expect gross profit margin to be moderately down for the fiscal year. We continue to expect adjusted EBITDA margin for the year to be consistent with fiscal 2018. In conclusion, we're extremely pleased with our financial performance. 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 with CIBC.

[Mark Robert Petrie]

U.S. obviously remains a clear point of strength. You've been very methodical in your growth there, and I assume you're not going to deviate from that approach. But even considering that, can you just walk us through your thinking in terms of opening 6 stores next year? And is there something you could see to push that number higher?

[Brian James-Beaumont Hill]

Yes, thanks for that call -- or question. We -- once again, we put a lot of irons in the fire, and we wait till the opportunity is right and the negotiations are such and market conditions are such and vacancies are such in the shopping center, and then sometimes things take time. Sometimes there's expansions and things like that. This is by far and away the most we've opened in the United States at any point in time. So we're quite pleased with that. But we are still negotiating on some other deals and where we can confirm that's approximately how many we foresee opening at this point in time, that number could increase slightly as well. And the following year appears to be a healthy opening schedule as well. So I mean, we don't ever get ahead of ourselves here, and we think 6 in the U.S. as we did digest those and continue to drive our eCommerce channel in the U.S. as well and growing that, that we think our growth in the U.S. right now at 40% in the last quarter, and previous to that, I believe we were closer up to 50%. We think that's pretty healthy growth rate in the U.S. for now.

[Mark Robert Petrie]

Yes, and does the 6 include pop-ups, which I think you've been using a little bit more?

[Brian James-Beaumont Hill]

No. We are looking at other pop-ups as well. That's 6 full-line Aritzia stores, all in extremely high AAA centers with extremely good locations and large footprints. So these are all meaningful store openings in key markets, 4 of them, which we mentioned, are in new markets, and they will be our flagship stores in those markets for many years to come. So we're pretty excited about those.

[Mark Robert Petrie]

Yes, okay. And then just again on the U.S. -- I mean, obviously, you highlighted the top line revenue growth and you highlighted the impact of sort of leveraging social media, and obviously, that's paying off in terms of building brand awareness. How do you think about that for the next year? I mean, is there still just lots of runway in terms of leveraging which you're already doing? Or can you push into an additional initiative like collaborations and that sort of thing?

[Brian James-Beaumont Hill]

We're looking at everything right now. We've had -- the promotions and marketing we've done of late in the United States this year have been extremely successful. So we're not going to get away from those, and we're going to continue to look at opportunities to increase our marketing and increase our brand awareness in the United States. I think there's lots of opportunities, potential opportunities in front of us, and there's a lot of brand awareness that we can continue to increase. I think we've really just got the tip of the iceberg. We're getting a lot of recognition from important people influencers and celebrities alike. But we have a long way to go yet and before the general public, we become the same brand in the United States as we are in Canada here. So there's a lot of opportunity ahead of us, and we're going to be exploring all of them, and no doubt, pursuing some of those.

[Mark Robert Petrie]

And then just the last one. I'm wondering, I guess, Todd, if you can just sort of elaborate on the comment about flat EBITDA margins for the year. They're up pretty significantly year-to-date. And just if you could elaborate on the drivers behind that in Q4?

[Todd Ingledew, Chief Financial Officer]

Absolutely. So that will be driven by the expected pressure on our gross profit in Q4 and flat SG&A margin with pickup from other income and really related to our hedging program where we've seen benefits from realized gains on our forward contracts.

[Mark Robert Petrie]

Okay. And then so the pressure on gross margin, that's just continuation of FX and then maybe more on the raw materials?

[Todd Ingledew, Chief Financial Officer]

It's really from the further weakening of the Canadian dollar, we're going to see additional pressure there and then continued pressure from the raw material costs.

[Brian James-Beaumont Hill]

And if I could add, those raw material costs really hit us in the second half of the year here, Q3 and Q4, and that's when it's hitting us. They didn't really hit us in 1 and 2 as much as expected. And our inventory is very clean right now. And so our markdowns are actually in really great shape. It's just that those other 2 factors are meaningful for us, FX and raw material costs.

[Operator]

The next question comes from Mark Altschwager with Baird.

[Mark R. Altschwager, Senior Research Analyst]

Just dovetailing, I guess, on that -- end of that -- the discussion on gross margin. Looking into Q4 in 2019, can you discuss some of the actions you're taking to mitigate some of the raw material pressures? And just given that some of the pressure seemed to be intensifying, especially on the FX front, curious if that changes your calculus at all regarding taking price increases.

[Todd Ingledew, Chief Financial Officer]

Yes, so these initiatives that we're looking at as far as gross profit pressure goes in mitigating it would really be more applicable to FY '20, where as you're stating, we continually review our pricing and opportunities within that. And then we have our ongoing sourcing initiatives as well that will be offsetting some of the pressures we're seeing from the increases in raw materials.

[Brian James-Beaumont Hill]

And we've made some great headway on sourcing and sourcing opportunities, but price of down, price of wool, some of these other commodities are increasing meaningfully. That said, one of the things going forward in a bit more of a mid- to longer-term view is, as we continue to grow our United States business more and more and more, the FX becomes less and less of a factor for us as well. So we're looking forward to the days when FX affects us to a much lesser degree.

[Mark R. Altschwager, Senior Research Analyst]

Thank you. And then on the product side, the press release mentioned that the elevated product offering driving growth. I know in recent quarters, really transactions have been the primary driver to comp. And I'm curious if that's signaling that maybe you're seeing a bit of a lift from an AUR perspective as well. Just any color there?

[Brian James-Beaumont Hill]

So the strong reception to our product continues to be the driver of our comp. We're seeing strength, as we said, across all channels and all geographies. But we are seeing, especially in this quarter, the driving of higher average selling price, given the success of our outerwear program. We still saw traffic, though, and transactions as the primary driver, but we did see, again, increases in average selling price due to the success of our outerwear program.

[Operator]

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

[Lorraine Corrine Maikis Hutchinson]

I wanted to just get a little bit more clarity on the dynamics interquarter. It sounds like you pulled some sales into November out of December with a strong Black Friday. But your promotional cadence and merchandise margin seemed aligned with your plans. So can you just talk about how you did that and then how that's affected the outlook for the fourth quarter same-store sales?

[Brian James-Beaumont Hill]

So I'll take that. So what's happened here in Canada is that we've started to mirror the United States selling period. And we adopted Black Friday, and the corresponding sales around Black Friday sort of 2, 3 years ago, and it's just been gaining more and more momentum in the Canadian marketplace. So it's not necessarily something that we're initiating and we're doing. It's just something that's been happening in the marketplace. What we've done an excellent job of, though, is capitalizing on that. And as the traffic in the purchasing is shifting to that period in late November, we've -- and our teams have just made an -- are being very opportunistic in capitalizing on that. That affects early certainly December sales, for sure. I mean, we look at the week that we used to have, which used to be a normal week, and now it's anything but a normal week. It's one of the best shopping weeks of the year and revenue weeks of the year for Aritzia. So that money comes from someplace, and we call it jokingly now the last 2, 3 years, the early December hangover, because as more and more money gets spent in the last week of November, we're seeing sort of the -- our sales get checked, so to speak, in the first 2 weeks of December. We don't see that in the United States because it's always been that way and things haven't changed there. But we're seeing the shift from early December into November. And so that affects the first few weeks of December. And then we start playing catch-up again as those things happen. But this is here to stay. It's not going to change at this point in time. And so we have to be prepared for it and just try and capitalize as best we can, and it's just the new reality. So we're not really looking at December today and early December sales as compared to 4 years ago, but we're looking at it as what we think the whole balance is and overall. And we're extremely pleased overall with the holiday season, which used to run in Canada for about a 4-week period from December 10 to January 10 that now runs for a 6- or 7-week period and depending on when Thanksgiving falls. And so now we're looking at it as a 6- or 7-week period. And based on looking at that, we're extremely excited with the performance of our sales and stores and our people within that period.

[Operator]

The next question comes from Patricia Baker with Scotiabank.

[Patricia A. Baker, Analyst]

Just want to follow up a little bit on Lorraine's question. So certainly understand the pulling the early holiday sales from Q4 into Q3 with adopting Black Friday in Canada. But I'm just curious, you don't -- it did not have any impact at all on your margins. Pulling those sales forward, they would have been marginally more promotional?

[Brian James-Beaumont Hill]

I mean, I -- Todd, do you want to take this or...?

[Todd Ingledew, Chief Financial Officer]

Yes. We -- I think as we stated in the press release, we had consistent markdowns quarter-over-quarter, so we didn't have additional pressure.

[Patricia A. Baker, Analyst]

Okay, that's interesting. And then just going back to the overall in Q3, can you talk about the categories that did extremely well for you and whether there was a difference in where the strength was in the U.S. versus Canada from a product perspective?

[Brian James-Beaumont Hill]

So -- yes, I mean, one of the things we've always prided ourselves has been having a balanced assortment of clothing and whether it be T-shirts, blouses, sweaters, coats, pants, dresses, we've always been extremely focused on being balanced there. We certainly see -- we don't really see a difference in the United States and Canada in our product, so to speak. Where we see the difference is more so east to west. So New York acts a little bit more like Toronto, and Vancouver and Calgary acted a little bit more like Seattle. And then when we get into sort of temperate climates like San Francisco and Los Angeles, we certainly see a difference in the product that sells for us. But we had a great outerwear season, and we've had great sweater season. And warm weather product, we've had a great season with that. And -- but that's not really different than anything else we've had in the past. And so we see -- we just see a balance in how we sell our product, and we think that's important to sustain profitability and growth is just having a balanced approach to all the product we sell. Obviously, we have items that sell better than others, and some of them, they evolve over time, and that's natural. But we haven't seen anything out of the ordinary that we hadn't seen in the past.

[Operator]

The next question comes from Camilo Lyon with Canaccord Genuity.

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

You talked a lot about the success with your influencer campaign driving awareness in the U.S. I'm curious to know -- you said that you're going to continue and accelerate that in 2019. Curious to know if that's going to be a part of an incremental amount of marketing dollars. Or is there a shift of marketing dollars that you're planning to allocate for this particular bucket next year?

[Brian James-Beaumont Hill]

Actually, it's now Brian. Hopefully, you'll get better soon. We actually think there will be some incremental marketing dollars there that'll be spent. Some of it will be shifted over, but some of it will for sure be incremental, and depending on where we're successful in landing here as far as programs go, will be incremental. However, that said, we look at all the incremental dollars being spent on marketing, and we look at it as having paid back in the short term as well. So obviously, there's long-term brand payback, but there's also short-term sales impacts. And we expect to deliver any kind of incremental marketing dollars on short-term sales impact. So we shouldn't see a hit to our profits or anything by doing this. Quite the contrary, I think, that our objective is to see a short-term increase in profits by doing these marketing initiatives, the incremental marketing initiatives plus the beneficial -- additional benefits are exposing our brand to more people and certainly propelling it. So we look at, at the marketing as both short-term sales and long-term brand propelling, and we expect any incremental dollars being spent to be paid back and then some on both those counts.

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

Sounds good. It certainly looks like it's working very well for you. Along those lines, with respect to the new stores that you plan on opening in the U.S., I think you said 4 new markets, can you give us a little bit of insight into the online demand trends that you're seeing in those markets? And I'm assuming that that's led you to go after those markets. You guys are seeing a robust demand of -- customer demand come from those regions. But I wanted to clarify that and just make sure that, that is indeed the case.

[Brian James-Beaumont Hill]

Yes. I mean, we certainly look at that, but that's not the only component we look at. Obviously, we look at shopping centers. And a market could be quite a robust eCommerce market for us, but it might have 5 sort of equal centers or places, locations we could open, whereas, another market might have -- be a robust market but might have one premier shopping destination or even have less of a robust market but only have one premier shopping destination. So that may be targeted prior to the area that we have a larger eCommerce platform. And yet, it's just not obvious as to which would be the store that we'd open. We'd have to open several to capitalize on that. So we look at eCommerce as one of the data points. We look at the shopping center and/or street performance. We look at the weather. We look at operational synergies. And so -- and then there's just timing, timing of opportunities to open up these stores. I mean, our business in the United States is so good right now that we feel that we can open up in any premier shopping destination in the United States right now and do extremely well. And we're getting -- we're seeing lots of deals and opportunities in these markets and in these locations. So certainly, we're taking these data points. But at the end of the day, right now, the way things are going, everything we're opening is profitable right now. So we're continuing just to explore wherever we can and just pick the ones we think are going to be the most profitable.

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

Okay. And then just my final question. You have the benefit of offering a very broad assortment of apparel to your customers. I'm wondering if you're seeing any differences in growth rates between your denim line that you recently launched as well as relative to your athletic line, The Constant, and if that's telling you anything about where fashion trends may be headed.

[Brian James-Beaumont Hill]

Yes. I mean, there's a lot of different fashion trends out there, and there's -- some of them are male dominated and some are female dominated, for sure as well. The interesting thing about the denim, it was so successful that we sold out. And although we received a second fairly large batch just before the holidays, it sold out as well. So we're not really in a position right now to see the denim affect our bottom line. We have some big shipments and then starting to properly stock our denim now -- our new denim initiatives now in the early part of this year, and we'll start hopefully seeing some more meaningful drop-down to our bottom line in the first quarter. However, we still seem to have a customer for our athletic clothing, and that's doing really well. But we sell fashion. We sell athletic. We sell denim. We're selling functional clothing and some outerwear and things like that. And we're still doing extremely well with dresses and younger fashion. So we -- as you mentioned, we have a broad customer, and we just seem to be -- we don't focus on any one particular item and/or particular category. And by doing so, I think that's what allows us to continue to grow consistently quarter-after-quarter.

[Operator]

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

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

You certainly mentioned -- you called out outerwear. You mentioned denim. Wondering about leather and also wondering about -- you categorized the quarter as exceptional. Were there any key learnings or takeaways from that, that you are factoring into your spring/summer?

[Brian James-Beaumont Hill]

I mean, we had exceptional -- not just on the product and sales, but we had an exceptional quarter as far as our infrastructure and improvements and things like that one as well. So I can let Jennifer talk about that, but -- because we're only going to build on those. I mean, as you know, Irene, we have core product in our stores, and we continue to carry that product over from season to season to season. So we're consistently doing well with that product. It's -- and so much as the leather goes, we're continuing to expand that opportunity. We had some meaningful ahas. We had a extremely expensive leather jacket came in, and it was sold out before it even arrived online and sold all through all our units. And granted, we didn't buy a lot, but it was shocking to us the price point. It was 4 digits. We hadn't sold anything at that price point previous, and we sold out of it before it even hit our floor. So we're continuing to explore all sorts of opportunities. And quite frankly, that one actually left us probably a little bit more confused on insight that we did so well with the product at that price point. So we're continuing to build on all our successes as best as we can. And our whole idea is testing things so that we can carry them through and build on them for the following season. So we're not just carrying over and looking at successes from fall/winter into spring, but we look at successes from the previous year into spring/summer and try to build on those as well. So we're looking forward to an exciting spring launch and exciting spring/summer season coming up.

[Operator]

The next question comes from Stephen MacLeod with BMO.

[Stephen MacLeod, Analyst]

I was looking to the U.S. Can you talk a little bit about or give me a little more color around where your new stores are going to be opened, where are the new 4 versus the new -- or versus the 2 existing markets?

[Brian James-Beaumont Hill]

The 2 existing markets are in and around Manhattan, where we continue to excel in our sales, and it's a very, very extremely large market, as you know. And then the other ones were just -- if you actually had to draw the map and figure out where our next stores would be, we're just going down the coast, the Eastern seaboard and slowly working our way down the Eastern seaboard and continuing down the West and the Midwest. We're not opening at this point in time in Ala Moana mall in Hawaii. Unfortunately, for most of our team in Vancouver, who would be delighted to go look -- oversee that store or check in on it on a weekly basis. And at this point in time presently, we don't have anything definitive in Los Angeles and expansions. And there we're working on some deals there. But we'll probably see those coming in the following year. So we're still not going headlong into too much warm weather, but we're continuing to expand some in more -- some more warmer weather markets. So it's a mix of essentially what we're doing in continuing to grow within the markets and new markets that are close by from there. And sorry, I would elaborate more, but I just don't know if every single one of our leases is finalized at this point in time. So I don't want to share the specifics with you at this point in time. I'm not trying to be coy here. I just want to make sure that I don't have the real estate department coming in after this call and marching into my office and getting in trouble here.

[Stephen MacLeod, Analyst]

Yes, of course. And then, I guess, maybe without giving away too much detail, like is the -- are you able to give a little color on the timing of store openings through 2020?

[Brian James-Beaumont Hill]

I'm not sure specifically when they are. Todd's flipping around. He knows a little bit more when they are. Typically, we try to open them in spring, and then we try to open them in for fall. And we try not to open a lot in between. But -- and then we have a schedule, and we have certain capabilities. So when we look at opening a new store, we're looking at repositionings. Repositionings are just as much incremental initiative as a new store is because, essentially, we're building a brand-new store in that case and doing new leases and everything else, too. So we kind of internally -- although externally, we look at them as differently because one's incremental sales -- much more incremental sales, and then a repositioning. They still are the same amount of logistics on our part. So we kind of fill up our dance card accordingly. But Todd, do you have anything you want to share there?

[Todd Ingledew, Chief Financial Officer]

Well, I think that along with the outlook for next year will provide the cadence of the stores on the next call.

[Stephen MacLeod, Analyst]

All right. Okay, that's helpful. And then I just wanted to follow up on one of the other questions from before just regarding -- you had some pretty positive commentary around the spring, once you get through the weaker -- or not weaker but relatively slower Q4, given the strength in Q3. Is there anything in particular that you're launching in the spring that you expect to be a particularly material comp driver? Or is it just the overall collection and a broader mix of what you have coming to market?

[Brian James-Beaumont Hill]

I think it's the overall collection and a broader mix. It's a bit of a double-edged sword, though, because we had such a fantastic spring/summer last year that we should be able to build upon that. On the other hand, comping on a fabulous spring/summer last year becomes more challenging too. So it's a bit of a double-edged sword, but we're just excited. Our product just seems fabulous right now. Our customers are responding extremely well to it. And every time a new season comes in and a fresh looking merchandise, everybody seems to get excited both internally and externally. So we're just always excited at this time of year to start looking and introducing new product to our customers.

[Stephen MacLeod, Analyst]

Okay, that's great. And then just finally, Jennifer, you mentioned the PLM system being your sort of next major infrastructure milestone. Can you just give a little bit of color around how that new system is different than how you currently manage your product life cycles?

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

Yes. Right now, our systems are -- we use SAP and a lot of things are spreadsheet based. And our teams follow a very rigorous development process that has been refined over the years and honed over the years. And the systems won't replace anything other than it will automate a lot of activities that are currently manual. And then this will allow our teams and the people to do less busywork and more actual innovative work and more value-added work. And so just in terms of our scalability, it's a system that we believe is necessary to enable our growth and to scale further and allow us to keep our product cost in line as well as our time lines in line.

[Operator]

The next question comes from Meaghen Annett with TD Securities.

[Meaghen Annett, Analyst]

Given the strong position of the balance sheet, can you just talk to your priorities for uses of cash, looking at opportunities for organic growth in particular? I know you touched on this a bit. But does there come a point where you decide it's time to really put your foot on the gas and make a stronger push into the U.S. market? Like what would you need to see happening there to really decide to go ahead and accelerate your growth plans?

[Brian James-Beaumont Hill]

Yes, I don't think that having the cash is really inspiration for us to continue to speed up the entry into the United States more so than we are into new markets in the United States. I think we have a plan. We're going to stick to the plan. We are extremely profitable. I will say that we are looking at the cash -- I don't think we've ever had this much cash in the balance sheet. So it's somewhat new to us, and we're certainly going to be looking at certain opportunities. But there are all sorts of other opportunities where we're going to -- we analyze as well annually in our strategic planning. So we're going to continue to look at those and -- but at some point in time, yes, we are going to start finding reasons to invest this cash. And how we invest that at this point in time, it's unclear. But right now, we're not making expansion decisions as of right now based on having excess cash on the balance sheet.

[Meaghen Annett, Analyst]

Can you just give any thoughts around completing the current NCIB?

[Todd Ingledew, Chief Financial Officer]

We'll -- as we have been for the last 3 quarters, we'll continue to purchase opportunistically as market conditions dictate. And I think -- as Brian has said, we are looking out into next year at our strategic use of cash and would provide a further update once we make those decisions.

[Operator]

Our next question comes from Dylan Carden with William Blair.

[Dylan Douglas Carden, Analyst]

I was hoping maybe to get an update on specifically the direct channel. If you kind of go back a year or so, that was really expected to sort of start seeing some deceleration as far as the growth rate is concerned right about now. But it seems like there's just a lot going on, particularly from a marketing standpoint. And I don't know if there's any comment you made about what you're seeing in markets where you open a new store, just how that sort of interacts with that channel. So it suggests that maybe we're seeing a more stable or even acceleration in direct and then sort of where that lands you potentially for the 2021 core of the business being in that channel target? Anything -- I know you're not going to give hard numbers, but any sort of comments would be appreciated.

[Brian James-Beaumont Hill]

Yes. Well, as we said, our eCommerce business accelerated this quarter, and we do continue to see accelerated strength in markets where -- in new markets where we open stores. So those markets do see outpaced growth compared to, say, the rest of the United States or even Canada if we're opening in a new market in Canada. So there is a strong correlation there. But those -- again, we're very pleased with the growth in our eCommerce business and expect that dynamic to continue.

[Dylan Douglas Carden, Analyst]

Sorry, the dynamic being sort of accelerated growth into next year, is that a fair takeaway or...

[Brian James-Beaumont Hill]

Just the strength in the business, strength in that channel of our business.

[Dylan Douglas Carden, Analyst]

In line with the target for core of the business by 2021. There's no change to that kind of...

[Todd Ingledew, Chief Financial Officer]

Correct.

[Brian James-Beaumont Hill]

And really the only thing that's changed is our same-store sales in retail have been growing faster than we originally predicted so that the eCommerce team is trying to -- doing their best and doing a great job of having to scramble and -- because the number, the 25% on keeps on changing on them a little bit. So we're still targeted that. We're still confident we're going to get there. And -- but the number has changed, and we are upping the ante as our same-store sales continue to grow.

[Operator]

The next question comes from Mark Petrie with CIBC.

[Mark Robert Petrie]

I just want to follow up on a couple of the comments and actually related back to some previous calls' comments in terms of the performance of Chicago, maybe -- the Chicago flagship maybe sort of opening opportunities of attacking a luxury customer, your comments around the leather jacket launch. And then Todd, I think you touched on that average selling price was up. Maybe that was more just mix. But I guess my question is, do you think there's potentially an opportunity to be shifting the assortment upscale and, as a result, sort of seeing higher price points consistently in the store?

[Brian James-Beaumont Hill]

We get a request for more elevated product, and we also get requests for more inexpensive product. There isn't a month that goes by that I don't -- some customer doesn't reach out to me directly and complain that [ those ] prices are too high. And that's been consistent for the last 34 years. That said, we've had great success in some of our higher-end products, whether they be individual items or they actually be our Le Fou and 1-01 lines, which are consistently sellouts for us and are at a very high price point. So we don't necessarily -- we don't see us continuing -- specifically shifting our whole product mix. We just see us broadening our product mix and consistently broadening our product mix so if we do offer some higher-end elevated fabrics and items, and at the same time, we want to make sure we're approachable and attainable to our younger customer as well. And we don't want to alienate them. So we have a bit of both -- both those. We're opening in Hudson Yards in Manhattan pretty soon, and that will be a higher-end customer, for sure. We're surrounded by a lot of high-end customers within -- or high-end retailers within that new complex, and we'll see what happens with that there. But certainly, our Rush Street store gave us the confidence to open in this shopping center. And so as we continue to look at stores, there are certain locations that we feel that we'll be successful in. And then it's also -- it's within those locations where we are positioning ourselves. Our Rush Street gave us confidence that we can be in amongst some of those luxury players and perform extremely well. So we're looking -- we look at all locations. But typically, at the end of the day, if you're at the 50-yard line, you'll end up being successful, and it will always be a good location. So whether that be in a high-end mall or a more higher-volume mall or what have you, just as long as you got a great location, you'll be successful provided you do your -- you're doing all your work properly.

[Operator]

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

[Brian James-Beaumont Hill]

Thank you for participating in the call and hearing first-hand our exceptional results for Q3 and plans for our future growth. We appreciate your questions and support today. As we continue to leverage our powerful business model that enables us to deliver double-digit revenue growth with strong operating margins, we remain confident in our ability to meet or exceed our long-term objectives and create shareholder value. I am proud of the fashion business we have become and remain as enthusiastic as ever for the future of Aritzia. Thank you again for being on the call, and we look forward to speaking to you soon. Bye-bye.

[Operator]

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