Aritzia Inc

TSX:ATZ

Earnings Call Transcript 2019-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to Aritzia's Fourth Quarter 2019 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.[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 fourth 2019 earnings conference call. Joining me today for the results are Brian Hill, Founder, CEO and Chairman; Jennifer Wong, President and COO; and Todd Ingledew, CFO. We will begin today's call with management's discussion followed by a question-and-answer period open to analysts and investors.Please note that remarks on this conference call may provide certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements. We would refer you to our most recently filed management's discussion and analysis, which includes a summary of the material assumptions underlying such forward-looking statements and certain material risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.The fourth 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. We're extremely pleased with our results for fiscal 2019. We finished the year with strong revenue growth in the fourth quarter and our performance reflects continued strength across the business. I would like to thank the team for their outstanding contributions this year. We deliver high quality product, provide an exceptional client experiences in our boutiques and on aritzia.com, all propelled by invaluable contributions from our support departments throughout the organization. It's an honor to work alongside what I believe is the most talented team in the industry. So thanks for all of them.Turning to the quarter, we delivered net revenue growth of 17.9% and achieved our 18th consecutive quarter of comparable sales growth. Comparable sales increased 5.5%, resulting in a 3-year stack comp of 23.8%. Our holiday performance went as planned, as we continued to see a shift in holiday sales from December into November. This is a trend we have discussed in the past and we expect it to continue going forward. We have taken and will continue to take full advantage of what we perceive as an incredible opportunity here.We are pleased with our comparable growth in both boutiques and online. Our new and expanded boutiques also contributed meaningfully to our revenue growth. We are particularly pleased with the response to our newly expanded Toronto flagship on Bloor Street, which opened at the end of the fourth quarter. Incredible performance of our U.S. business was sustained in the quarter, as U.S. revenue continued to grow at over 40%. We are excited to see that our marketing efforts, our boutiques and our e-commerce presence continues to accelerate brand awareness in the United States. Our e-commerce business continues to grow in line with our expectations. Our digital marketing efforts drove significant growth in online traffic across both the U.S. and Canada and we continue to advance our e-commerce initiatives. Jennifer will provide further details shortly.We are extremely pleased with the performance of our new boutiques, all of which exceeded our expectations and showed continued momentum in the fourth quarter. Our expanded and repositioned boutiques also met or exceeded our expectations. In the fourth quarter, we unveiled the aforementioned Toronto flagship on Bloor Street. The 11,000 square feet boutique offers a further elevated aspirational shopping experience from the exteriors prominent LED screens to the luxurious fitting room area. Also attached to the boutique is our first A-OK Cafe open to the public, joining our client-only cafes in SoHo and Burlington, Ontario, further enhancing our client shopping experience. These elements that have made Bloor Street flagship a premier destination, driving increased traffic and sales.Our marketing efforts designed to drive brand awareness, particularly in United States are attracting new clients and helping to identify Aritzia as a fashion brand destination for all women. We are seeing continued success in using paid and organic influencer activations as a tool for client acquisition. We have cultivated relationships that have resulted in continued organic placements with mega influencers. At the opening of our Bloor Street flagship. We were delighted to host Hailey Bieber, a longtime fan of Aritzia. Building on our social capabilities, we have also been exploring activations with YouTube and other multimedia influencers. Our clients responded extremely well to an Instagram post by our YouTube personality with 16 million followers featuring our product. Within a day, we acquired 10,000 new Instagram followers and our rate of sale for this item increased by over 700%. Our product continues to be well received by our clients with strong performance across all product categories. Our collections offer fashion essentials complemented by new styles, it takes into -- take into consideration current fashion trends. We believe that our strong client loyalty is attributable to our ability to consistently deliver beautifully designed and high quality product at an attainable price point.Turning to the year, a growing affinity for our brand coupled with our beautiful high quality product assortment and aspirational omni-channel shopping experience fueled net revenue growth of 17.6%. Our consistent comparable sales growth, 9.8% for this fiscal year demonstrates ability -- Aritzia's distinct position as a fashion brand destination and it allows us to both acquire and retain a loyal client base. Our top line revenue growth continues to flow through to the bottom line, resulting in a 21.3% increase in adjusted EBITDA and a 24.5% increase in adjusted net income for the year. Our consistent track record of strong financial performance demonstrates the strength of our business model, our ability to advance our strategies and to deliver profitable growth to our shareholders. In short, we are extremely pleased with our fiscal 2019 results and momentum in our business going into fiscal 2020.I will now pass the call over to Jennifer who will provide updates on our omni-channel initiatives and our infrastructure investments. Following that, I'll discuss our growth initiatives for fiscal 2020.

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

Thank you, Brian, and good afternoon, everyone. I'll begin with a brief update on 4 of our e-commerce initiatives and then discuss some of the infrastructure investments we're making to optimize our current business and strategically enable our long-term growth. First, we continued to increase our digital marketing efforts to drive client acquisition and retention. These initiatives contributed to a traffic increase in our e-commerce business of over 34% in the fourth quarter and 38% for the year. For example, search engine optimization enhancements meaningfully improved our Google rankings in both Canada and the U.S. and drove incremental sales. In both Canada and the U.S., we moved to the first page on Google with the number of keyword searches that previously would show up further down.Second, we remain focused on optimizing the overall core site experience. On aritzia.com, enhanced features and functionality on both desktop and mobile helped to drive our conversion rates. These ongoing enhancements ensure that our website consistently provides the exceptional client experience for which we are well known. After pausing for December to ensure the flawless execution of our holiday sales season, we overhauled our website in January, unveiling a more elevated, aesthetic and unique custom typography. For those who haven't seen it yet, I encourage you to take a look at aritzia.com. We expect the cleaner interface to deliver a more consistent feeling throughout the entire site.We continue to see the benefits of sharing client reviews which was introduced last fall. These reviews improved the shopping experience by allowing our clients to better understand fit and quality, while shopping online. It has also helped to drive conversion rates, especially in the U.S., where we have fewer boutiques for clients to try on items in person. During the fourth quarter, we also optimized the core checkout funnel to remove fiction, enhance the shopping experience and drive conversion. This included adding Apple Pay on the product details page, allowing the client to immediately check out and pay for the item with a single click.As for our third strategy to grow our clienteling program and fourth strategy to develop our omni-channel capabilities, we are still in the infrastructure building phase of these multi-year initiatives and making great progress. Both of these will ultimately be powered through enhanced data and analytics. And now that the point of sale implementation is largely behind us, we are in the process of implementing the solution for storing the data collected at point of sale and from e-commerce and from customer care, all in one place which will enable the 360-degree view of our customer. We expect to complete the scope of work in the second half of fiscal 2020.We will further leverage this foundation to expand clienteling in our stores and are exploring a sophisticated digital selling tool that will enable all of our approximately 3,000 style advisors, deliver an exceptional client experience across channels. Our style advisors will be empowered to further maximize sales, exceed client expectations and create loyal, enduring client relationship. We believe this will set Aritzia apart and keep us on the forefront of providing exceptional client experience.Now I will turn the call back over to Brian to discuss our future growth strategy.

[Brian James-Beaumont Hill]

Thank you, Jennifer. We continue to prioritize the multiple growth prospects for our business. Aritzia's strength has always been in ability not only to drive growth but to profitably sustain it. As a reminder of our growth strategies, we are investing in growing our e-commerce business, expanding our boutique network, driving exclusive brand and product innovation, building brand awareness and enhancing long-term profitability. I will discuss each in turn.The e-commerce initiatives that Jennifer has laid out are already yielding results, and I believe we will continue to see strong momentum in that channel in fiscal 2020. We remain focused on our key priorities, driving client acquisition and retention, enhancing aritzia.com experience, growing our clienteling program and building seamless omni-channel capabilities. Over the last few years, we have put significant resources behind our e-commerce business, setting the stage for future growth. We look forward to seeing the benefits of these strategic investments and initiatives and are poised for continued growth in this channel over the next several years.Our growing brand awareness among both clients and landlords continues to fuel new boutique opportunities for fiscal 2020. The strong sales performance of our U.S. boutiques have created numerous opportunities to negotiate premier locations with landlords, resulting in the U.S. boutique pipeline that is more robust than it's ever been. We plan to open 6 boutiques in the U.S. in fiscal 2020, 4 of which will be in new markets. As always, we have done the research to ensure we are positioned in the absolute best locations within these markets. Boutique location and design aesthetic are key components of our brand building efforts. So our ability to secure the best real estate is paramount to our success. Importantly, we expect these boutique openings to drive incremental e-commerce sales as we typically see a lift in our e-commerce business when we enter a new market.In Canada, we plan to expand or reposition 3 existing boutiques in fiscal 2020. In keeping with our strategy, these boutiques will showcase elevated design and finishes to further elevate aspiration -- our aspirational shopping experience. Aritzia's ability to provide clients with high-quality product and at attainable price point gives us a distinct competitive advantage. Our talented design teams, industry-leading sourcing capabilities and merchandising processes have allowed us to deliver exceptional collection season after season, which in turn has driven strong loyalty amongst our clients. We offer beautiful product and high-quality fabrications, consider details and sophisticated construction. This, combined with our attainable price point, allows us to consistently deliver exceptional value to our clients. We continue to pursue new product categories, some of which we may sell exclusively online to capitalize on the unlimited assortment capabilities of our e-commerce channel.Driving brand awareness remains a primary focus of our marketing initiatives. By enhancing our social media capabilities as well as capitalizing on our growing list of influencers, Aritzia continues to attract new clients. Our influencer program has been particularly successful in United States, and we will continue to leverage both paid and organic methods to secure celebrity and fashion influencer coverage. In fiscal 2020, we look to build on our wins and expand our influencer activations and social optimization. Core to our fundamental marketing strategy, we will also continue to focus on elevating the client experience through optimized content and creative initiatives that create surprise and delight for our clients. This summer season, our product, marketing, retail and e-commerce team is partnered to execute [ tease and drop ] strategy for our product launches, generating anticipation, increased demand immediately for our products.Lastly, long-term profitability remains a priority, as we drive net revenue growth that flows down to our bottom line.Before I pass the call to Todd to speak about our financial highlights and our outlook in more detail, I would like to acknowledge the completion of our secondary offering and concurrent repurchase of Berkshire Partners' remaining shares in March of this year. This transaction marks a significant milestone, after a very successful 14-year relationship between Berkshire Partners and Aritzia. I would like to thank Berkshire for their partnership and collaboration over the years. The transaction represented a compelling opportunity for us to deploy our excess capital and increase shareholder value, while still maintaining ample financial flexibility to invest in our strategic growth initiatives.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. We are extremely pleased to have delivered another year of exceptional performance, keeping us on track to meet our long-term financial targets. As a reminder, all the results reported today are inclusive of the 53rd week, with the exception of comparable sales, which are reported on a like-for-like 13-week basis.First, looking at the fourth quarter, net revenue grew 17.9% to CAD259 million compared to CAD220 million last year. The extra week provided an additional CAD12.2 million of revenue. Excluding the impact of the extra week, net revenue increased 12.3%, driven by growth in both our e-commerce business as well as our boutiques, particularly in the U.S., where we saw sustained momentum. Comparable sales increased 5.5%, in line with our expectations on top of 6% -- on top of the 6% increase in the fourth quarter last year. As we said last quarter, the increasing prominence of Black Friday in Canada pulled revenue from the fourth quarter into the third quarter. Net revenue also benefited from the addition of 7 new boutiques and 4 expanded or repositioned boutiques since the end of the fourth quarter last year.Gross profit margin for the quarter was 36.2% as compared to 37.9% in the fourth quarter last year. The 170-basis point decrease in gross profit margin was primarily due to a 140-basis point impact related to the weakening of the Canadian dollar as well as continued pressure from higher raw material costs. These factors were partially offset by the benefit of sourcing initiatives, lower markdowns and leverage on rent.Our SG&A expenses, as a percent of net revenue, were 22.9%, down 20 basis points from 23.1% in the fourth quarter last year. Leverage on fixed costs were partially offset by our continued investments in people, technology and infrastructure. Adjusted EBITDA increased by 11.7% to CAD42.6 million or 16.4% of net revenue compared to CAD38.1 million or 17.3% of net revenue in the fourth quarter last year. Adjusted net income increased 11.5% to CAD25.1 million or CAD0.21 per diluted share compared to adjusted net income of CAD22.5 million or CAD0.19 per diluted share in the fourth quarter last year.During the fourth quarter, we accrued a onetime expense of CAD5.7 million. This expense was related to the exit of a lease commitment for the planned repositioning of one of our flagship boutiques. We made this commitment due to the uncertainty of remaining in the existing flagship location as a result of redevelopment plans by our existing landlord. The landlords subsequently changed their mind and abandoned the redevelopment. For brand and financial reasons, we exited the alternative lease commitment and absorbed this onetime expense.On March 8, 2019, we announced the completion of the CAD330 million secondary offering of subordinate voting shares and the concurrent share repurchase of CAD107 million of subordinate voting shares and multiple voting shares. We did not receive any proceeds from the offering and the 6.3 million shares we repurchased have all been canceled. Following this offering, we continue to have a strong balance sheet and ample financial flexibility to continue to invest in and execute on our strategic growth initiatives.Long-term debt at the end of the quarter was CAD74.6 million, compared to CAD118.6 million at the end of the fourth quarter last year. Inventory at the end of the fourth quarter was CAD112.2 million. The increase in inventory was driven by the growth in our business as well as earlier timing of shipments related to the shift forward of Chinese New Year and our decision to build our spring/summer inventory earlier than last year.Turning to our outlook. The first quarter of fiscal 2020 is off to a strong start with our spring and summer collections being well received by our clients. Despite the unseasonably cold and wet weather that lingered across most of North America, our quarter-to-date comparable sales growth is trending sequentially higher than the fourth quarter of fiscal 2019. For the full year in fiscal 2020, we expect to deliver low double-digit revenue growth. Removing revenue from the additional week in fiscal 2019, net revenue in fiscal 2020 is expected to grow in the low to mid-teens. We expect gross profit margin to be flat as compared to fiscal 2019. This assumes gross margin to be slightly higher in the first half as we anticipate occupancy cost leverage to be partially offset by the weakening of the Canadian dollar. In the second half of the year, we expect gross margin to be slightly lower with higher raw material costs, primarily from wool and down more than offsetting benefits from leverage on rent and our ongoing sourcing initiatives.We expect SG&A to grow faster than revenue in fiscal 2020, as we continue to make strategic investments in technology and infrastructure. A majority of the investments relate to our e-commerce platform improvements, omni-channel capabilities and other digital infrastructure that are expensed within SG&A. Incremental SG&A expenses related to these initiatives in fiscal 2020 are expected to be approximately CAD7 million to CAD8 million and occurred primarily in the second and third quarters. We maintain a long-term growth perspective on our business and expect the investments we make now to benefit us well into the future.We plan net capital expenditures to be between CAD45 million and CAD50 million, which includes costs related to new and expanded or repositioned boutiques in addition to infrastructure investments. We plan to open 6 new boutiques, all in the United States and expand or reposition 3 boutiques, all in Canada. Planned new store openings include Hudson Yards in New York, which already opened in the first quarter as well as 4 boutiques scheduled for the third quarter and one late in the fourth quarter. The planned expansions or repositions include Mapleview in Greater Toronto, which already opened in the first quarter and 2 boutiques scheduled for the third quarter.Overall, we are pleased with the momentum in our business heading into fiscal 2020. We continue to have a long runway, as we execute on our growth strategies and we remain committed to driving long-term shareholder value.With that, we will now welcome questions. Operator?

[Operator]

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

[Mark R. Altschwager, Senior Research Analyst]

Congrats on a strong year. With respect to how the quarter unfolded, can you give us a bit more detail on how your sale period played out relative to expectations? Some of the industry traffic metrics and just the overall apparel retail environment look to be quite challenging in late January and February period? Curious, if you experienced the same and if that had any impact on your comps and merchandise margin versus your expectations.

[Brian James-Beaumont Hill]

Yes, I'll take that. It's -- as you dig in, it's quite complex throughout, but generally speaking, the third quarter -- the end of the third quarter continues to gain momentum in Canada. And so we see a softness -- ever-increasing softness in our sales in Canada in early December and it sort of matches the pattern or getting close to matching the pattern in the United States. At some point in time, this is going to stabilize. But I still think we're a year or 2 away from that. Our U.S. business remains quite healthy throughout because we're comparing it to something it's been existence for many, many years. So that's fine. January, February, we are a little softer. That said, we deployed a few strategies with our product and made some changes and where we are distributing, our discontinued products and that seem to work quite well. It didn't fuel sales so much because we had such a good fall season. We didn't have a ton of product just continue and to liquidate but what did happen was we were in a position to capture little bit better margins as we're -- markdowns were less to offset some of the pressures from the raw material increases. So overall, our sales, I believe were in line with what we expected, they weren't necessarily over but we come to expect pretty healthy comps and so all things considered, we are really pleased with that. And our gross margin maintained, which I think has not even improved. So at least for the -- that one period to offset those manufacturing costs, which we spoke about on many times we're very concerned about the raw material costs. So all in all, we were happy with where the margins -- the sales netted out and the margins netted out.

[Mark R. Altschwager, Senior Research Analyst]

It's really helpful. And then on the SG&A outlook, it sounds like you're stepping up some key infrastructure investments this year. Excluding the incremental CAD7 million to CAD8 million you called out, would SG&A growth be at or below sales? And I'm wondering if these investments represent a pull forward of plans within the context of your 2021 performance targets, meaning would we expect SG&A to be CAD7 million to CAD8 million less in 2021 all else equal?

[Todd Ingledew, Chief Financial Officer]

The investments that we're making would be incremental to effectively flat or slightly leveraged SG&A margin. So the CAD7 million to CAD8 million would be on top of flat SG&A percentage and I don't think that we expect -- no, we don't expect next year to necessarily be lower incrementally by that amount but these -- the investments we're making are onetime in nature for this year. It's just that they're not being capitalized as investments obviously in our stores would be.

[Mark R. Altschwager, Senior Research Analyst]

Got it.

[Brian James-Beaumont Hill]

So as we continue to drive investments into our business and those investments are continuing to probably take up more and more IT investments, we will see more pressure on SG&A and a little bit less on our capitalized expenses over time.

[Mark R. Altschwager, Senior Research Analyst]

And maybe just one last one. Brian, as we enter the final 2 years of the long-term guidance framework issued along with the IPO, I'm wondering if you're able to provide some high level thoughts on how you're thinking about the longer-term growth plans from here in terms of the sustainable growth rates on the top and bottom line and how the growth algorithm may evolve versus what we've seen in recent years?

[Brian James-Beaumont Hill]

That's a good question. We actually discussed this yesterday at our Board meeting and the thought process is in the fourth year of the period, we're going to start, which is more or less coming up, we're going to start looking into the next 5 years of growth and then start discussing that towards the end of the fourth year and beginning of the fifth year on what the following 5 years look like. So at this point in time, we haven't really dug in, into what the -- what those are going to be. So we're about to commence looking at them and understanding what it is that the next 5 years look like. As you can imagine, when we went public 2.5 years ago and we're still set and focused on those 5-year goals, but we have recognized that as we get to the end of those, we're going to certainly have to start looking at that. That said, anecdotally, we just think we're building the platform we have to work off of and the teams we've assembled, the infrastructure we're putting in place, we are extremely bullish on the next 5 years after this 5-year period, and we're going to be extremely excited to share that with everybody at the time, but we still see meaningful growth ahead of us and -- for many, many years and it's just taking through all the fantastic opportunities that have been presenting themselves to us.

[Mark R. Altschwager, Senior Research Analyst]

That's great. Thanks for all the detail and best of luck this spring.

[Brian James-Beaumont Hill]

Thank you.

[Operator]

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

[Stephen MacLeod, Analyst]

I just wanted to follow-up on the outlook, specifically around the gross margin. I was just wondering, you talked about gross margins being down in the back half of the year. Can you just talk a little bit about what raw material costs you currently have, good enough visibility into to have that expectation? And then, is there any opportunity as you move through the year to offset this expected raw material cost inflation?

[Brian James-Beaumont Hill]

So as you know, raw materials across a lot of different commodities change and go up and down. Where we're seeing the pressure is on wool and down and that's where we're seeing them and that's why we are feeling the pressures on wools and down and that's where we're seeing them and that's why we're feeling the more in the fall than we are in the spring/summer periods because we're obviously using more wool and more down during those periods. We haven't seen any let up in the pressure on those raw materials and we actually don't expect to see any pressure let up. We continue to receive these increased levels could be something a little bit more permanent and they're continuing to increase. To offset that, the best we can do is buy futures. We can't get someone out of a down jacket into a silk dress or someone into wool coat into a cotton T-shirt. It just doesn't work as you know. So we kind of at the end of the day, we want to give customers what they want and if they want down or they want wool, we're going to provide that to them and believe me, we still make pretty darn good margins. So just our objective then is to sell them more of those products versus try and squeeze more margins out of them. So we're -- those are where we're seeing the pressure. That's why we're seeing it to fall. We're going to continue to see it this fall and winter pressure in those 2 commodities, which are a meaningful part of our business in that season. And we were buying futures and doing the best we can, but at this point in time, our strategy is to sell more and more and more of it and if we're successful in doing that, we'll -- because at the end of the day here, we're not dealing in percentages, we're dealing in dollars. So if we can sell more units, then we are going to be fine.

[Stephen MacLeod, Analyst]

All right. Helpful. And then I guess, you talked a little bit, Brian, about -- and this has been a couple of quarters now and nothing new, but just about your influencer campaign, for lack of a better word. Can you just talk a little bit about how you go about seeking out influencers and how do you measure the return of investments you make in both vouching for the brand and advertising for the brand?

[Brian James-Beaumont Hill]

So listen, we're not the first company that's -- the only company that's in the -- using influencers or crowded businesses and we probably rely on it a lot less than what some companies in our industry do. So I'm not necessarily the best [indiscernible] to speak specifically to this, but I can just speak to our experiences. First and foremost, most of our influencers and most of the representation we get is organic and free. We do not use a lot of paid, but we pursue them through the relationship building, gifting of product and things like that. So the influencers love our product too and they don't just where product that is paid to wear, otherwise they wouldn't be that influential. They're doing things on their own and they have their own style and create their own style. Fortunately, for us a lot of that involves Aritzia and our product. So that's first and the foremost what we're doing. Of the paid, we do -- we do track it. We track it through direct purchases of that product. We obviously see patterns and analytics on what we are selling before an influencer wore something. We can then measure how many of those things we sell. We can track them as far as when -- certainly when they are shopping online, where warehouse and other purchasers are buying and they came to our website through that product that an influencer was wearing and then went on to purchase other products and things. So we do run numbers and analytics when we do make these investments and pay influencers. And then what we don't count is all the brand recognition, all the new customers we achieve, both from an influencer and Instagram and through all our social media and all the different followers we get, and we also don't track all the subsequent purchases that these gained customers will have over the years to come. It's all based on the direct short-term payback when we do pay these influencers and obviously, the mathematics worked very well and that's why we're continuing to pursue it.

[Stephen MacLeod, Analyst]

Yes. Okay, that's great. And then just finally, U.S. growth has been quite strong over the last couple of quarters and pretty consistent. Is there -- what's the governor that prevents you or what do you limit yourself internally from growing faster in the U.S.? Like stores...

[Brian James-Beaumont Hill]

I think historically, probably the biggest governors what we're comfortable in doing historically, how we've always grown, you grow too fast and things will start going pear-shaped on you and that hurt you. So we have a pretty comfortable rate of growth here. Now as our business continues to accelerate as you mentioned and our business in the U.S., particularly accelerates. It's pretty exciting and so we're looking at opening more stores and we are looking at becoming more famous and promoting our e-commerce sites and just working towards focusing on United States businesses. For sure, we are doing that. We're going -- as we mentioned we're opening the most stores we've ever opened in the U.S. this year and I'd like to think we're going to open, be in the sort of same area next year. We're going to continue with the influencer, continue with marketing and continue to drive growth and sales growth and awareness about Aritzia through our e-commerce sites too. So we've been pretty happy with that growth. We have been sort of around 40% and if we continue 40% compounding, I'm not sure we can, but if we continue that for -- it doesn't take many years for this business to become a -- the most important part of our business and that's the goal. We haven't put a stake in the ground when the U.S. business will surpass out of Canada, but it certainly, this rate of growth, that will happen and that day will come. We haven't figured out when that is exactly but we're going to continue to promote and drive our sales in United States. And then as well, we'll certainly continue to keep our eye internationally as well and what our opportunities are there. We're tracking all our international e-commerce sales. We're tracking along, looking at all these things, but we're primarily in -- focusing on the U.S. and gaining data from an international perspective because there will be a day one day and it's not in the near future certainly, but at some distant point where international will become a meaningful part of our business as well.

[Operator]

Our next question comes from Mark Petrie of CIBC.

[Mark Robert Petrie]

I wanted to ask a couple of questions about the assortment [indiscernible]. First, how has denim evolved in terms of [indiscernible] program sort of performed as expected? And how do you think about the opportunity [indiscernible] big or small or[Audio Gap]

[Brian James-Beaumont Hill]

I mean in our assortment and one of the things we've always been proud of is you've heard many times is our balanced assortment and balanced approach to all our product. We're going to continue to promote sweaters and outerwear for fall. We're going to continue to drive where opportunities we see in dresses and lighter wear and certainly more climate appropriate product as we continue to open stores in the Southern United States. As far as denim goes, we haven't released denim until recently. It was a couple of months ago. We had a -- [ denim ] has surpassed all our expectations on all our launches. So our fall launch will surpass our expectations that we mentioned before. Our spring launch surpassed our expectations. We have deliveries coming in both of new product and repeat product and we're starting to establish a lot of product that is -- product that we consider to be foundational and product that we -- within denim that we can continue to sell constantly week-in, week-out throughout the year. So we're continuing to pursue our denim, our collections expanding, it's expanding not only just in bottoms and denim, typical by pocket denim, but it's expanding in other accessories, denim -- other denim aspects as well, whether it be dresses and blouses and we actually have some extremely good dresses and blouses too. We're continuing to expand our denim into out of denim form, which is our very successful launch line into denim, into our other collections as well, because we feel they need to, certain collection, house denim as well. So we're continuing to do that. So we don't really know where the growth expectations were and are sort of where we should be. We just knew that we had a huge opportunity and we still think we have a huge opportunity, but I would suggest at this point in time, we're at if not ahead of where we expected it to be at this point.

[Mark Robert Petrie]

And then, Brian, you mentioned the potential online items. Is that something that you're doing today? And how material could that be? Or is it something that you sort of [Audio Gap]

[Brian James-Beaumont Hill]

It's an interesting question because we'd -- one point in time when we first started, I'm going back 35 years ago, I'm dating myself, but we had 1,500 square foot Aritzia stores and now we have 15,000 square foot Aritzia stores. So we have stores that are 10x the size. But what's ironic about that is they still don't hold all our product mix and the beautiful thing about e-commerce is there is unlimited 4 walls and so we've started now, as we expanded our stores, increasing our product mix to fill our stores, but now it's gotten to the point where we're not going to continue to increase the size of our stores, our stores are ample big enough. That may change, but right now -- and so we're -- but we still see product opportunities to continue to expand our product opportunities. And our e-commerce site is now big enough and e-commerce business is now big enough to stand on its own and sustain all the minimums we need to create and sustain all the product and the product development costs by just selling that product online. So now probably in the last sort of 6 months, we've been putting together the rough framework of the strategies to create product that will just be housed online and we're quite excited about this and if you actually look out into the industry and whether it be Net-a-porter or ASOS or some of these pure plays, the amount of product and breadth of product they sell sometimes 10-fold of what we sell and we just have an opportunity online to pursue that. And so we're going to take advantage of it.

[Mark Robert Petrie]

Okay, that's helpful. And just one other question. I guess now you sort of ramped up, the Vancouver [indiscernible]. Could you just talk about the benefits that you're seeing now or you expect to see [Audio Gap]

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

Hi, Mark, it's Jennifer. Yes, we continue to really enjoy that distribution center. What we found particularly over holiday, when our peak day can be 12x a regular day, the ability for us to lay out the DC and the way that we did has allowed for our team to pick and pack and ship more orders per hour. They actually take more lines per hour and pack more orders per hour than we ever did before in the Winston DC. So just to give an example of what happened over holiday, our Ontario distribution center, which was thralled as high as it to go, we felt that -- we made a decision essentially to move some of the volumes from the east to the west. We typically have this fabulous new DC in the west and it was sort of a game day decision to do that and we moved a percentage of our volume over to the western DC without any hiccup whatsoever and thralled over to increase the volume and the capacities at [ our ] distribution center. There was like zero disruption to this. I don't even know if everybody knew we even did that and kind of made it to a holiday without compromising any service levels. In addition to that, we are also -- we've newly launched borderless shipping. So we're fulfilling orders into the United States from Canada as well and that proved to be very advantageous in terms of service levels -- not just service levels, but also optimizing our inventory network. So all of the benefits have been operational and ultimately providing that client experience, getting what she want, when she wants it. So we're super pleased with that. And the good news is that we're in a facility that we will be able to continue to grow in for some years.

[Operator]

Our next question comes from Camilo Lyon of Canaccord Genuity.

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

Great close to a great year. I've a couple of questions. Number one, within the context of how you're thinking about price, you're clearly are getting some strong momentum in the [indiscernible]. Are you -- you talked about a little bit of pricing opportunity last conference call. Curious if there's any sort of pricing that's built into this year's plan. And then secondarily to that, are you [indiscernible] any sort of price distortion by region to help mitigate some of the margin pressures on the [ FX ]?

[Brian James-Beaumont Hill]

Thanks, Camilo. Will depend who you talk to within the organization. I think we have some varying people with different opinions. Our manufacturing people want us to put our prices up for sure, right across the board and our retail people are telling to put the brakes on it, our product are mixed. We're doing a few initiatives. First of all, we think we have too many prices. So what I mean by that is we have certain price points we don't hit. We don't sell things for CAD51 and we don't sell things for CAD53, but we still think we have too many. So right now, we're reviewing all our prices. In doing so with that exercise, we have an opportunity probably to reprice things in a very marginal manner, but when you're selling tens and millions of product a year, they can have a meaningful effect to year top and bottom line. So we're certainly looking at doing that, but obviously not enough to change customers' appetite to purchase our product. And we don't really look at them as price increases because in some cases the prices actually well maybe come down a little bit. We just want to get -- make sure that we're dealing with price points that are consistent across the board. Are we at CAD59 or are we at CAD58? Are we at CAD64 or are we at CAD65? And we just want to kind of do that. We think -- but whatever we are going to do there, it's not going to decrease, we'll not take any decisions that decreases our margin. With our new items, we're certainly looking at things and the reality of our business over time is that the new items prices get reflected into new raw material costs. So if we had a coat that we're selling before for X amount of dollars and raw material costs go up 5% or 10%, we typically don't put the price of that coat up, but when we're looking at our new coats, we do take the price of those raw material costs and we price it accordingly to get the margin -- target margin that we want. It's that we're now getting a target margin that we want to make up for the lost margin on the other product because when we do that, we actually then -- our self-fulfilling prophecy in the previous item will continue to sell at a higher rate. That said, the new item with the new realities hopefully will sell and over time, as these new items replace the older items and they become our core items and replenishable items, our new pricing and new reality of the raw material costs do over time reflect in. How fast? It depends, obviously, but we think over a course -- I can -- we did a study about 2 years ago when we first started seeing cotton prices going up and I can't remember what the numbers were, but it was within 3 years, you have well over 50% of your price -- of our items, not style sold but total gross items sold are under the new realities and are changed over. So we have a built-in raw material mechanism that does reflect and give us some margins and does right set our margins over time. The question is how quick do we want to do that and do we want to take a chance of alienating our customers or not. So that's the debate we have within the organization. Obviously, if we think some things are priced too low, we will put the prices up on them and in other items we're very hesitant to. The debate goes on here obviously is we're selling a lot of an item. Those are the important ones to put the prices up, if we have an opportunity to put the prices up. On the other hand -- the other side of the argument in the team here is, hang on a minute, we're selling a lot of those, we can't afford to put the prices up and so come to a drop in sales. So these are spirited debates we have within the organization. Typically overall, we don't like putting our prices up on existing items and have hesitated in the past. We will though continue to focus certain pricing points and hit certain price points and we will make sure all new items reflect present raw material increases.

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

And any sort of intent to distort the pricing U.S. versus Canada? I think right now it's the same cross border.

[Brian James-Beaumont Hill]

Yes, it is on a lot of items. There's some that have -- we've changed and we've lowered our prices in the U.S. I think the majority of people here regret in hindsight that we did that though in most cases. So the present pricing policy that we have primarily -- the intent is to leave it the same for now. It's working, it's really working.

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

Definitely. And Brian, you mentioned, I think in your prepared remarks new categories that you're pursuing. I'm wondering, is that a kind of a continual process that each brand and design team goes through [ yearly ]? Or are you talking about altogether new categories that are adjacent to what's in the store now? So whether that's beauty or self-care products of some sort. I'm curious, what do you mean by these categories?

[Brian James-Beaumont Hill]

So we're always looking in both. If you put a grid together, we'd have the lines across the -- the various collections across the top, Babaton, Wilfred, whomever and then TNA and then down the left-hand grid, we put all the different categories, the T-shirts, blouses, sweaters and then down at the bottom there, the various accessories and then we put denim there for instance and we're looking at both. We look at adding collections and lines catering to different customers across the top and we look at new categories of product down -- the other down the vertical column as well. That's where the denim came from. It wasn't spawned out of a thought we needed a new collection. It was just -- we thought there was an opportunity for Aritzia to sell more than denim and specifically, our exclusive branded denim that we then created. So typically when we look into these new categories, so to speak, we're not actually hiring a designer per se of a collection, we're hiring specialists, like our denim specialists, we're hiring specialists in those. And as we continue to expand into the U.S. and particularly the southern U.S., other categories become more important. So it's not just a seasonality issue in fall and winter where we need lighter product and for warmer weather, but there's obviously other categories, whether they be swim and things like that, that certainly are in discussions here. And so we're continuing to look at these categories. Once again, we have a website that I just mentioned in one of the other questions that can sustain some of these new categories as well. And so perhaps, you might not even see them in the stores, perhaps we will, it depends on what stores they are and where they are and how we might do things. So we're looking at all these different categories, whether it be fragrance and beauty, whether it be different categories of swim, lingerie, things like that. And then of course, we're looking across the top and looking at other opportunities with new collections and it's catering to different customers. So we're pursuing this and looking quite hard at this right now in some of these -- based on the success of new lines we've introduced, also based on the success of the new categories we've introduced like leather and denim.

[Operator]

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

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

As I said on call after call, and as you talk about the success of initiatives that you're rolling out, whether it's new stores in the U.S., whether it's the reposition flagship store, whether some of the e-commerce initiatives, it sounds and it feels as though you're really gaining confidence in each step with your ability to kind of continue to succeed and exceed expectations. Is that a fair comment?

[Brian James-Beaumont Hill]

I mean I think Irene, we've always been pretty confident in our ability to grow our business or we wouldn't be here right now with -- where we are right now. We are a Canadian Company with a store in San Jose and 1 in Seattle when we decided to open a flagship store in SoHo and just that in itself didn't lack confidence, I guess. But yes, we're getting more and more confidence as we have season after season same-store sales -- positive same-store sales and if I'm talking here 10 years from now, Irene, I don't think I'm going to be saying perhaps, maybe I will be, but this is our 60th quarter of same-store sales increases. I mean the elevator doesn't always go up, but we've got a lot of momentum in the U.S. We're getting more famous yet at the same time every time we talk to somebody, they've never heard of Aritzia and these are people that live in Manhattan and these are people that I'm interviewing. I interviewed a designer, a serious designer the other day that works at one of the top design houses and the top designer and first of all, the fact that they're actually talking to us now gives us confidence but the fact that he said 3 months ago, I've never even heard about Aritzia until a talent acquisition people approached him. So we are -- we're gaining confidence just because on one hand, we're becoming more famous, our sales are certainly reflected in that, we're hearing it from influencers and people that are wanting to wear our clothes, we're seeing it with different celebrities that are wearing our clothes, we're seeing it in more and more people wanting to come and work in and be a part of the Aritzia team, yet at the same time we see huge opportunity, particularly in the United States, because still we're just the tip of the iceberg as far as recognition goes. So we have a lot of confidence for sure, but at the same time, we do recognize that, hey, most people still haven't heard of us in the U.S. and we still have a lot of work and quite frankly, coupled with that a huge opportunity ahead of us. So we're not overconfident because we're still not famous in the United States, but it's the stores were opening are working and things like that. And then in Canada, we continue to be the meaningful fashion destination for women right across the country. So that hasn't changed and we are hopefully that won't change for many, many years. So yes, we're getting pretty -- we're doing this for 35 years now, Irene. I'm starting to feel that myself and Jennifer has been here for 32 years. We've certainly kind of figured this thing out a little bit [ through this way ].

[Operator]

Our next question comes from Dylan Carden of William Blair.

[Dylan Douglas Carden, Analyst]

I actually have another question for Brian, I just want to follow-up on the awareness in the U.S. I mean is it sort of anywhere further from where you were maybe 2, 3 years ago? I know you don't necessarily measure it, but you feel you're making some progress there though or is there more to be done from a marketing standpoint?

[Brian James-Beaumont Hill]

I mean there is more to be done but we weren't even on the map 3 years ago. I mean I joke and this is probably more like 7 or 8 years ago, 9 years ago, but I remember, I went to the GGP booth at the real estate conference and this is right in the sort of towards before e-commerce had really hit and there had to be 400 people in the GGP booth and I don't know if I've shared this with you before publicly but I walked into the booth, and I got -- pushed off into a corner, I'm the CEO of probably at that point in time the most successful fashion brand in Canada and I looked at this young lady across me and after about 10 seconds, I realized she wasn't particularly longed for the industry at the time. And so I asked her, I said, how long you -- when did you graduate from the university and she said 2 weeks ago, and it was on [ May 24 ], she graduated 2 weeks before that, and I said, how long you worked at GGP, she said this my first day. At that point in time, I came home at the time, I remember looking at Jennifer and few of our executive team saying, wow, we got our work cut out for us. I just met with the most junior person at the whole real estate conference, that's when they came from Aritzia. I mean now, when we walk in to these meetings, well, in lot of cases, they're applying flying up here. We have the presidents and vice presidents of the real estate companies flying up here because we're one of the few companies opening stores, we're 1 of the few companies opening beautiful stores and 1 of the few companies driving traffic and quite frankly, important traffic to the shopping centers. So whether it be recognition in the landlord community, which is exponentially different than it was, whether it be sitting down with famous people that didn't even want to wear our product before and now not only do they want to wear our product, they are excited to see us and excited to hear from us. I mean we got Hailey Bieber to fly up to Toronto to come to our opening. Now truthfully we did pay her, but she's got lots of choices to get paid and if she wasn't a fan of the brand and the fan of Aritzia, she wouldn't have flown up to see us. And so I think that we are gaining momentum anecdotally everywhere with our customers, you see it in our growth, that 40% growth is not just coming from existing customers, obviously. We're seeing it through the landlords, we are seeing it through our marketing efforts and just what models are prepared to work with us even for our catalog shoots and photographers and talented people like that. What artists, we have Juergen Teller on our shopping bags right now. I mean he wouldn't even talk to us 5 years ago or 3 years ago. So we're getting -- seen it, we're seeing it and the industry is -- we've really take note -- we had an opportunity to participate in the Met Gala the other day and dressing a celebrity at the Met Gala, it was a little last minute, I'm not sure if it was a planned invite and they’ve gotten a pinch or not, but that call would not have happened 2, 3 years ago. I mean Anna Wintour approved Aritzia to put a dress at the Met Gala and previously, I'm not sure she even knew who we were. And unfortunately, we got the call sort of 4, 5 days before the Met Gala. They say -- I'm not sure, this is a planned thing, I think something might have happened, they needed to find somebody at the last minute, but it was a massive opportunity that 3 years ago wouldn't have happened. So we don't have any numbers as far as recognition goes, but it's not like we're struggling and we don't understand it. Otherwise, we kind of go out and probably get those numbers and figure it out. We see huge momentum in our recognition. But once again, we have a huge opportunity ahead of us because the amount of customers we do have and I'm not going to share this number with you, but the amount of customers that come in, that we get data from in our stores that have previously never shopped in our stores is colossal and much higher in the U.S. than it is in Canada by 3x, 4x. So we're continuing to see our recognition grow, but still to this day the amount of opportunity we have is colossal.

[Operator]

Our next question comes from Patricia Baker of Scotiabank.

[Patricia A. Baker, Analyst]

I've a quick -- a quick question. Most of my questions have been asked, but when you're talking about, if we can follow-up on the discussion of the denim and the fact that you want to take the denim assortment beyond denim forum, how many of your brands or collections do you think can or should carry and support a denim offering?

[Brian James-Beaumont Hill]

I think this probably, we think about 70% of our brands, we call it 2/3, 66% of our brands can support a denim offering. I think some of them can support a denim offering higher than others, though. And so some more maybe have 1 or 2 silhouettes and some good have 6 or 8 silhouettes. Some could have just 5-pocket jeans, some could actually have dresses and fashion items. Some actually or primarily have fashion items and not have 5-pocket jeans, we just have a few of them. So -- but we think 66% of our brands can carry and/or have a denim component to them. How much of that? I don't know. The goal is though that we're selling 50% of our denim through denim forum and 50% of our denim through our brands -- of our exclusive brands.

[Operator]

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

[Brian James-Beaumont Hill]

Thank you, everybody, for participating today. We're really proud to discuss our -- the past year and our future here. As we mentioned, we remain very well positioned to capitalize on a next phase of growth and are excited about the opportunities ahead. We believe our commitment to executing on our powerful business model, combined with our strategic investments we're making leaves us positioned and poised to achieve or exceed our fiscal 2021 financial targets that we talked about earlier in the call. With that [ Ted ], I'd like to thank everybody for participating today and we'll hopefully talk to you soon. Thank you.

[Operator]

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