Aritzia Stock

Thank you for standing by. This is the conference operator. Welcome to Aritzia's First Quarter 2027 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.

Thanks, operator, and thank you all for joining Aritzia's First Quarter Fiscal 2027 Earnings Call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer; and Todd Ingledew, our Chief Financial Officer.

As a reminder, please note that remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts or projections expressed by the forward-looking information.

We would refer you to our most recently filed management discussion and analysis and our annual information form, which include a summary of the material assumptions as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information. Our earnings release, the related financial statements and the MD&A are available on SEDAR+ as well as the Investor Relations section of our website.

I'll now turn the call over to Jennifer.

Thanks, Beth, and good afternoon, everyone. Thank you for joining us today. We began fiscal 2027 on an exceptionally strong note, delivering net revenue growth of 43% and a record Q1 adjusted EBITDA margin of 20%. This drove a 96% increase in adjusted EPS. These results underscore the sustained momentum of our business model and the best-in-class execution of our team. By consistently delivering against our 3 primary growth pillars: geographic expansion; digital growth; and increased brand awareness, we're amplifying the Aritzia brand and capturing robust client demand. We continue to successfully scale our footprint in the United States while deepening client loyalty in Canada. Best of all, this momentum across the board has carried into the second quarter.

Looking at the drivers behind our momentum, our 43% top line growth was fueled by a robust 35% increase in comparable sales. This performance reflects broad-based strength across the entire business spanning all geographies, channels and brands. In the United States, Q1 net revenue growth accelerated to an exceptional 55%. This was fueled by widespread demand for our brand across new boutiques, existing boutiques and digital.

In our U.S. retail channel, we benefited from 16 highly productive new and repositioned boutiques over the last year. We also delivered outstanding comparable sales growth across our existing boutiques. And in digital, accelerated momentum was fueled by our new mobile app and strategic marketing investments.

In Canada, we delivered net revenue growth of 25%. Our success was underpinned by exceptional momentum in digital. We also had robust comparable sales growth across our established boutique network. In addition, our new boutique at Oakridge Park in Vancouver, and our 2 repositions in the past year are delivering excellent results.

The reopening of our Oakridge boutique was a proud full circle moment for me. When Aritzia was founded by Brian Hill and his family back in 1984, Oakridge debuted as our very first stand-alone location at just 1,500 square feet. It's also in the exact shopping center I frequented growing up and where I first met Brian. Today, the reimagined 10,000 square foot space showcases our modern boutique experience while honoring our rich heritage defined by our loyal people and our loyal clients.

To celebrate this milestone, we hosted a series of specialized events for our people, clients, media and influencers. Oakridge is a reflection of many of our boutiques with its long-tenured world-class style advisers. They're one of the enduring strength of our retail business. Their passion for fashion and deep knowledge of our products are integral to our differentiated premium client service model. As we continue investing in our boutiques, we remain focused on scaling this model as a key element of our brand and part of our everyday luxury offering.

Turning to results in retail. We captured demand across every client touch point, reflecting the balanced omnichannel strength of our business. In retail, we delivered an increase in net revenue of 39%. Our performance was driven by exceptional comparable boutique sales, which was fueled by higher traffic. Our strategic marketing investments continue to help deepen brand affinity and drive sustained demand into our boutiques.

Our growth was also driven by our real estate expansion strategy, which continues to yield exceptional results. In the past 12 months, we opened a total of 19 new and repositioned boutiques. Square footage growth was in the mid-teens. On average, new boutiques continue tracking to pay back in less than 1 year, beating our target of 12 to 18 months. We continue seeing highly attractive unit economics even as we scale into midsized metropolitan markets. Furthermore, we're seeing clear proof of concept with our larger boutiques. The 10,000-plus square foot locations are matching the strong productivity levels of our smaller footprint.

Our digital channel delivered a phenomenal performance in Q1. Net revenue growth accelerated to 56%, led by strong traffic trends. This was fueled by our new mobile app and our investments in full funnel marketing. Our balanced investments across marketing channels continue to introduce new clients to our brand while reengaging existing ones. We're connecting with high-value clients across a diversified mix of owned and paid channels. Our growing brand affinity continues to translate into more efficient client acquisition and stronger retention rates.

We continue to optimize our 3 digital channels through compelling brand storytelling and world-class commerce features. First, ongoing website enhancements, including personalized search improvements, immersive multimedia content and site responsiveness are driving strong conversion and sales momentum.

Second, app adoption remains outstanding with sustained monthly downloads and deep client engagement. Our product initiatives, selling content and continuous release of new features are resonating with clients. This is driving repeat purchasing behavior and higher conversion. We're seeing clients browse and shop the app multiple times per week.

Third, the improvements to our international e-commerce experience continue to pay off, with sales up nearly 170% year-over-year. In addition, our international marketing pilot showed strong initial results.

Turning to products. Our commitment to offering high-quality styles at attainable price points continues to drive outstanding results. Widespread demand across all regions reflects the growing affinity for our brand and deep loyalty of our client space. Our broad assortment and disciplined inventory management fueled strong trends across diverse regional climates, and the healthy composition of our inventory continues to drive a lower markdown rate.

For summer, we introduced [ fresh silhouettes ] and new color launches. From linen to [ satin ] to [ terry fleece and dresses ], we drove client engagement throughout the season. At the same time, we saw sustained momentum in the iconic franchises for which we are well known and loved.

In marketing, our world of Everyday Luxury continued to successfully broaden our reach and introduce new audiences to Aritzia. This fueled another quarter of robust client acquisition. At the same time, we remain focused on deepening our connection with existing clients and maximizing share of [ wallet ].

Our bespoke boutique activations also yielded strong returns. With the highly anticipated openings at Oakridge Park at Toronto Eaton Centre, our activations generated incredible brand heat and community engagement. This drove strong traffic and sales, fueling outstanding opening weekends.

In May, we achieved a meaningful milestone in the expansion of our supply chain network, the go-live of our new 380,000 square foot distribution center in British Columbia. This facility features industry-leading goods-to-person technology, enabling reduced pick times and greater order accuracy. The team executed an exceptionally smooth ramp-up over a matter of weeks, maintaining our high standard of client service throughout. The successful execution gives us great confidence as we pivot toward expanding our distribution network in the United States to support our growing digital and retail channels.

As I noted earlier, our strong momentum has carried into the second quarter, propelled by exceptional client demand for our spring/summer products. This momentum is underpinned by the enduring strength of the Aritzia brand, our disciplined execution and our healthy financial foundation. Our business has never been better positioned for growth, and we are excited to detail our next multiyear strategic and financial plan this fall.

Meanwhile, our focus remains squarely on our 3 proven growth levers: geographic expansion, digital growth and increased brand awareness. This fiscal year, we have a strong pipeline of 12 to 13 new boutiques in premier locations and 4 to 5 repositions. In Q2, we're on track to open 3 new U.S. boutiques. Each one is in a new market for us: Birmingham; New Orleans; and St. Louis. We're also opening 1 reposition in Canada. In addition to generating incremental top line retail growth, we expect these new boutiques to continue fueling an omnichannel halo effect, particularly in new markets.

In our digital channel, we're executing on several key initiatives to support continued momentum. These are focused on channel expansion and digital marketing optimization. Near-term priorities include continuing to embed AI to how we work and support clients, releasing new mobile app features and upgrades, optimizing our omnichannel infrastructure and continuing to enhance our international digital shopping experience.

In terms of brand awareness, our real estate expansion and strategic marketing investments represent proven multiyear levers to help scale the Aritzia brand across the United States. The affinity for our brand continues to grow, leaving us exceptionally well positioned to capitalize on our long runway for growth in the U.S. and beyond. Furthermore, we continue to strategically invest in world-class infrastructure to help ensure our businesses build a scalable, profitable growth for the long term.

In closing, I am profoundly grateful to our people, whose dedication to operational excellence make these results possible. The strength of our brands has never been more evident. With great enthusiasm, we look forward to executing on our strategic vision for the future.

With that, I'll now hand it over to Todd to discuss the details of our financial performance.

Thanks, Jennifer, and good afternoon, everyone. As Jennifer shared, in the first quarter of fiscal 2027, we generated a 43% increase in net revenue to $951 million. Comparable sales grew 35% in the quarter. This was driven by outstanding broad-based growth across channels and geographies.

In addition, we expanded our adjusted EBITDA margin by 410 basis points, all resulting in a 96% increase in adjusted net income per diluted share. Our sustained momentum remains underpinned by 4 factors: one, exceptional demand for our products, fueled by extremely well-positioned inventory; two, our digital initiatives, led by our mobile app; three, highly productive new and repositioned boutiques with square footage growth in the mid-teens; and four, strategic brand and digital marketing investments, which generated meaningful traffic growth and new client acquisitions.

In the United States, first quarter net revenue increased 55% to $638 million. The strength of this performance was fueled by balanced growth across our new boutiques, existing boutiques and our digital business. In the past 12 months, we opened a total of 16 highly productive new and repositioned boutiques in the United States. This resulted in U.S. square footage growth of approximately 25%. In addition, we generated outstanding comparable sales growth in our existing locations.

On the digital front, the momentum in our business accelerated meaningfully, as our performance continues to be fueled by extremely strong traffic growth. In Canada, net revenue increased 25% to $313 million. This was primarily driven by outstanding variable sales growth in both our digital channel and our boutiques. Strong product performance and affinity for the Aritzia brand in Canada continues to drive exceptional client demand.

Turning to our channel performance. Our digital business continues to have exceptional momentum, with net revenue increasing 56% in the first quarter to $285 million. Robust traffic growth remained the primary driver of our performance. This was fueled by the strength of our product, our new mobile app and our strategic marketing investments.

In retail, net revenue increased 39% to $666 million. This reflects double-digit comparable sales growth across both our U.S. and Canadian boutiques as well as the strong contribution from our new and repositioned locations. As we continue to broaden our footprint in the United States, we see ongoing strength in our new boutiques, as well as consistently strong comp performance in our existing locations.

In the first quarter, we delivered gross profit of $478 million, an increase of 53%. Gross profit margin expanded 310 basis points to 50.3% despite 190 basis points of pressure related to tariffs and the suspension of the de minimis exemption. Our gross profit expansion was driven by IMU improvements, leverage on store occupancy and other fixed costs, as well as lower markdowns.

SG&A expenses for the quarter were $305 million, leveraging 150 basis points as a percentage of net revenue to 32%. The improvement was primarily driven by expense leverage and savings from our smart spending initiatives. Adjusted EBITDA was $192 million, an increase of 81% compared to the first quarter last year. Adjusted EBITDA as a percentage of net revenue expanded 410 basis points to 20.1% compared to 16% in the first quarter last year. We've now delivered sustained margin expansion for 9 consecutive quarters. This underscores our commitment to optimizing profitability while continuing to invest in our future growth.

Turning to the balance sheet. Our inventory balance was $548 million at the end of the first quarter, up 34% from last year. We remain pleased with the quantity and composition of our inventory, which continues to be well positioned to drive sales. Our liquidity position at the end of the first quarter is strong with $472 million in cash, no debt and 0 drawn on our $300 million revolving credit facility.

During the first quarter, we repurchased approximately 565,000 shares, returning $66 million to shareholders. We plan to continue to opportunistically repurchase shares throughout fiscal 2027.

Turning to our outlook. The strong momentum in our business has continued into the second quarter of fiscal 2027. Our spring/summer product is resonating extremely well, and we continue to fuel robust demand with disciplined inventory management. Given quarter-to-date trends, we expect net revenue in the second quarter to be in the range of $1.1 billion to $1.125 billion. This represents an increase of 35% to 39% compared to the second quarter of fiscal 2026. This is driven by comparable sales growth in the high 20s and the strong contribution from our boutique openings.

We expect gross profit margin in the second quarter to increase approximately 250 to 300 basis points, driven by ongoing IMU improvements and occupancy cost leverage. We forecast SG&A to leverage 25 to 75 basis points as a percentage of net revenue compared to the second quarter last year. Expense leverage and savings from our smart spending initiatives are partially offset by strategic investments in infrastructure to support our growth.

Due to the strength of our first quarter and the continued strong momentum of our business, we're raising our net revenue forecast for the full fiscal year to $4.55 billion to $4.75 billion. This represents growth of 23% to 28% from fiscal 2026. Our guidance for the year is underpinned by high teens to low 20s comparable sales growth and the strong contribution from 12 to 13 new boutique openings and 4 to 5 repositions.

We expect gross profit margin to increase by 175 to 225 basis points compared to last year. As a reminder, our outlook includes global tariffs in the United States at 10% and the ongoing suspension of the de minimis exemption for the remainder of the year. Our outlook does not yet include the benefit of any tariff refunds.

We expect SG&A as a percentage of net revenue to be flat to down 50 basis points compared to fiscal 2026. Our outlook for adjusted EBITDA as a percentage of net revenue is now approximately 19.5%, primarily driven by improvement in gross profit margin.

In closing, the ongoing strength of our performance further reinforces our confidence in our strategic growth levers. We continue to see a significant runway for profitable growth in the United States. Our strategic initiatives, including new and repositioned boutique expansions, digital growth and targeted marketing investments, continue to drive momentum and support our multiyear growth trajectory. These opportunities, our proven track record of successful execution and our strong financial foundation all position us well to sustain our trajectory of profitable, disciplined growth. Thank you.

With that, operator, let's please now open up the line for questions.

[Operator Instructions] The first question comes from Brian Morrison with TD Cowen.

I guess, well done on the print to guide the brand strength. And to the team's credit, you've had such success recently driving top line and notable same-store sales growth, including your Q2 outlook. But this has been against 2-year stacks in the 20s the past year. In the second half, you're going to start to lap 40% and 50% to your stack.

So the question is, how do you plan for and approach inventory for fall and winter as you comp these numbers as it looks like high single digit, low double digits in the back half of the year? Is it simply plan conservatively and then air freight? I asked as it seems aggressive to think that this elevated rate can go on perpetually.

Brian, thanks for your question. No question that we are lapping extremely robust growth, particularly in Q3 and Q4. But I want to zoom out a little bit on your question there. And we're experiencing fantastic momentum in our business, which we did say has continued into Q2, and quite frankly, has accelerated slightly into Q2.

And I am nothing but confident. I've never been more confident in the business as I am right now. We are very well set up with all of the elements to continue to drive the strength. Starting with product. It all starts -- it always starts with the product. We have an amazing range of products. The assortment is fantastically balanced between client favorites and newness. We absolutely have the right product in the right place at the right time. We will be opening another 12 to 13 boutiques this year. Plus, we're benefiting from the mid-teens square footage growth of the past year. We've got a slew of digital initiatives on the go. We continue our strategic investments in marketing.

And as it relates to product, we have, over the last 24 months, honed our planning and allocation and inventory management aspect of our product strategy. And the team has done a phenomenal job in optimizing our inventory. Part of our business model [ and team part ] of our business model is our ability to flex our inventory in season to meet demand. And so that will be a fundamental part of our ability to perform and continue with the strength and meet the business as we continue with 2027.

The next question comes from Martin Landry with Stifel.

Congrats on your amazing results. I was wondering if you could talk a little bit about the fall/winter collection that's probably going to roll up into your stores in the coming weeks. If you can talk about it from a style perspective, but also from a numbers perspective, percentage of newness, average price point versus last year? Any tidbits on a numbers basis would be helpful as well.

Our product strategy, Martin, has not changed. Clearly, our strategy is working. We'll be launching fall later this month, and excited to see the fall launch perform. We'll be entering the season as we do every season with a balanced assortment between newness and client favorites.

When you walk into the store, [ it went from fully ] launched. When you walk into the store, what you'll see is roughly 50-50 between the two. And as far as price points, as far as style, as far as our franchises, we will continue with our existing product strategy and continue to have a range of products that appears to be resonating with the client very, very, very well.

The next question comes from Jon Keypour with Goldman Sachs.

I guess the question I want to know about is the Canada business, considering how well it held up. And I think there were a good amount of fears heading into this quarter, and you guys did so well with it. Obviously, the growth numbers get bigger in the back half. I'm just wondering how you think about this business entering maturity? It doesn't seem like it's fully mature yet, but it's your most well-established business. So I guess, how long can these kinds of growth rates sustain? And what do you think exactly is driving it from a -- is it new customer acquisition? Or is it bigger basket, something like that?

Thanks for your question. I think you're asking specifically about Canada. And what we're seeing is the comps continue to be meaningfully positive in both countries in both Canada and the U.S. Obviously, our growth is driven by the U.S. But we're super pleased with the trends that we're seeing in Canada. Our performance continues to be strong, and it has been trending strong for the last several quarters. We're not seeing anything in our data that indicates the trend otherwise right now. And so for us, things continue to be strong, and we see that going forward.

The next question comes from Luke Hannan with Canaccord.

Jennifer, you touched on in your prepared remarks that you had undertaken a marketing pilot for the international business, which showed strong results. I'm curious to know if you can share anything, maybe a little bit more detail on what exactly that pilot showed you and whether or not the international customer or potentially the go-to-market strategy there differs at all compared to how it is that you're expanding into North America?

Yes, it was a very small pilot that we started in May. And I want to emphasize, a very, very small pilot. We launched with typical performance marketing in digital, paid search, paid social. We did some affiliate campaigns. We kept the 2 localized regions, 2 countries. And what we saw was a tremendous response, a tremendous response, both in terms of traffic and conversion.

So all of our hypotheses appear to be playing out, and we'll continue with the pilot. It's still very early days, but it's a good test. It's a good test for us to see how our product and our brand is received around the world.

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

Thanks, and let me add my congratulations on the quarter. You mentioned that your stores are paying back or you keep saying rather that the stores are paying back in less than a year. Can you talk about how they're maturing and whether some of these new stores are delivering significantly better-than-expected performance as they go through, let's say, year 2, year 3? And then sort of the related questions, particularly in new markets you're entering. Can you talk about sort of the extended halo effect there in both channels?

Yes, I'll take that, Irene. I hope you're doing well. So historically, when we look at a comp waterfall, our Canadian stores always open closer to maturity, with the U.S. stores having a multiyear ramp. But what we're seeing now and really over the last couple of years is that the U.S. stores are opening much closer to maturity. And we're seeing, especially with the FY '26 cohort of stores, that those -- they're opening in a very strong position from a productivity perspective.

And then those stores are falling into the comp that we're seeing across the business, which obviously is extremely strong. So there is still growth in those new stores once they're open, but they're falling more in line with how we're comping across the business. And from a halo perspective, we continue to see approximately a 70% lift in the first year in new markets in our e-commerce business. So that's compared to the growth across the rest of, say, the United States in the case of the U.S. So we're seeing a 70% lift there. So it continues to be a very meaningful contributor to our overall growth, and we're really pleased with the performance of the new stores.

The next question comes from Chris Li with Desjardins.

Congrats on the strong results again. As you continue to exceed your expectations, I know you mentioned growth was very broad-based. I'm just wondering, as you look back, was there 1 or 2 areas that particularly outperformed your internal expectation? Was it the mobile app? Was it a new store contribution? Just curious to see, was it 1 or 2 that really kind of exceeded your own internal expectations.

Thanks for your question, Chris. Really, the strength is driven by a confluence of factors. It's never any one thing. It's everything working so well together and gaining the momentum together. Of course, as I've said in the past and said even on this call, it starts with products. Product is central and at the heart of what we do, and we've absolutely gotten the product right. We have the product that our client is loving and new clients are loving.

And so we've had an exceptional response to our spring/summer product. This is, of course, supported by extremely well-positioned inventory. We continue to see strong momentum in e-commerce. That's led by the mobile app. The retail square footage growth, of course, contributes. And we've increased strategic investments in marketing to help keep awareness and help keep us top of mind with clients and attract new clients as well as, as I said, keep us top of mind with existing clients. So all of that working together, they're all synergistic together. And not one of those things on their own would be -- you can't be -- contributive to any one of those things. It's all of it working together.

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

And I will also have my congrats on a great quarter. I just wanted to ask a question. You've talked a lot about kind of new client acquisition. And obviously, the investments in digital and further expansion in the U.S. as well as international is driving that. I was just wondering if you could give any color on any differences or nuances and shopping behaviors between new and existing clients in terms of things like traffic or basket size or frequency of repeat shopping?

We -- the short answer is we see consistency across both cohorts. We're loving the fact that our client base is growing, that we are acquiring new customers, but we're also seeing returning clients continue to love our product and love our Everyday Luxury experience. So really, the productivity that we're seeing is consistent across those cohorts. We're not seeing any market differences in any of those metrics. And again, really pleased and really encouraged, and really happy to see that we have a broad appeal across such a broad base.

The next question comes from Mauricio Serna with UBS.

Congratulations on the very strong results. Maybe just to follow up on Canada, pretty strong growth. Any sense of how you're thinking about the back half growth, just a sense of that? And then just on that point, maybe could you elaborate a little bit more on the profile of the new Canadian customer that you're acquiring? Is it like maybe in terms of like age or anything like that? That would be very helpful to start with.

Yes. In terms of how we're seeing the back half of the year, we're seeing our trends continue. We're not seeing any -- there's nothing in our data to indicate that anything going to change one way or the other. So we're anticipating that the trends will continue in Canada as we've been seeing them.

And certainly, we have a very broad appeal across 3 generations, effectively. And we're -- as the younger cohort grows into our target, we're acquiring new customers. But certainly, with our broad product assortment and with the expansion of the different occasions that we develop products for, we're able to accommodate and meet the needs of a client as they go throughout all the different phases of their life, which I think is so amazing. So I think that, that -- between those two things, we're picking up new customers. And that's also what's driving the loyal customer who continues to shop with us throughout many, many, many years.

Got it. And a couple of follow-ups just for Todd. I think you mentioned for the full year, the implied comp is high teens to low 20s. Could you talk about -- just to confirm kind of like how you're thinking about the back half in implied comp?

And then just one also quick follow-up. I see that like in the tables in the release, there's a mention -- you guys -- there's a mention of investment in a joint venture. Could you elaborate what that is about?

Yes. Thanks, Mauricio. So yes, as you said, the comps embedded in the FY '27 numbers are in the high teens to low 20s, driven by the continuation of the momentum in the business. And for the second quarter, we're forecasting comp growth in the high 20s. And then for the back half of the year, we're forecasting comp growth in the double digits as we lap 2 years of exceptional growth.

And keep in mind that at the top of the range, our 2-year stack comp is consistent for the first 3 quarters. And our 3-year stack in the fourth quarter actually accelerates. So we're extremely pleased with how the business is performing, and that's reflected in the revenue guidance for FY '27, which is now $4.55 billion to $4.75 billion or 23% to 28% total growth on top of 35% total growth last year. From a -- the joint venture perspective, that's an acquisition of a piece of property, effectively, for a future store location.

[Operator Instructions] The next question comes from Dylan Carden with William Blair. Please go ahead. The next question comes from Dylan Carden with William Blair. Please go ahead.

Sorry, I was muted. Is there a way to quantify the -- and if you did, apologies, I'm kind of just a little bit late -- the benefit of the app from a sales standpoint? And then did you say in the prepared remarks that the productivity of the larger format stores is approaching smaller format? And if that's true or even if it's not, are you kind of thinking about expanding sort of overall square footage across the fleet?

Yes. Thanks, Dylan. From an app perspective, it's contributing incremental sales in the high single digits for the digital business. And that was what occurred in Q1 and what's included in our guide. I mean, we're extremely pleased with the app. We have 2 million downloads thus far, which has been far exceeding our initial expectations. And we're seeing approximately 30% of our digital business now transacted through the app. So it's a great tool for us to drive conversations with our clients and increase our personalization. Do you want to take the other one?

I was going to. You go ahead.

You go.

On the -- I [ said ] in my prepared remarks that I talked about the larger boutique sizes, and we are seeing tremendous success with the larger footprint. Specifically, the sales per square foot are in line with our highly productive smaller boutiques. And if I understand your question, we have, in fact, gone larger with our boutique sizes. If you recall 10 years ago, we talked about an average boutique size of 6,000 square feet. A few years later, we discussed average store boutiques or average boutique sizes being 8,000 square feet. And now we are at 10,000 plus. Obviously, we've had some flagship stores that are considerably larger than that.

And so our unit economics now are based on 10,000 square feet. These stores contribute more in terms of the dollar. Obviously, because they're bigger, they are consuming more on a dollar basis, and that is because their sales per square foot are in line with the original smaller boutiques.

So we're extremely pleased with how this strategy has evolved. And of course, we explore all scenarios on a case-by-case basis, and we'll adjust as we see fit. But right now, we're really, really thrilled with where we're at with these larger format stores. They're producing and paying back.

The next question comes from Joe Civello with Truist.

I just wanted to ask if you could talk a little bit more about where you prioritize incremental investment dollars as sales continue to come in stronger than expected? I know marketing is still growing with sales, but just any additional color there or initiatives on the app or anything like that?

Yes. we are definitely investing in the app, but I wouldn't categorize it as we are investing across the business. We have -- whether it's our distribution center network investment with the opening of our new DC here in Vancouver and the future investments that will be required in the U.S. network. We have tech and AI enablement investments occurring. We -- digital road map, which includes the app, but there's also a lot of site enhancements occurring. And then we also have customer initiatives as well.

So it's very broad-based, the investments that we're making. And we're -- as we've said, balancing margin expansion with investments in our business. And we're excited about the long list of initiatives we currently have underway.

The next question comes from Ike Boruchow with Wells Fargo.

Todd, two for you. the revenue raise for the year, no raise on the leverage you expect for the year, so I assume there's incremental investments you want to make. Can you just elaborate on where those dollars are going? And then sorry if I missed it, but can you quantify the tariff and the de minimis impact on gross margin in the first quarter and kind of what's embedded the rest of the year? Because I assume that because of how tariffs have worked out, there's going to be a benefit that flips around in the back half of the year. So if you kind of walk us through the math, how those line items kind of like play out, that might be helpful.

Sure. So the -- from an SG&A perspective, we are expecting to be flat to down 50 basis points for the full fiscal year. So we are expecting some leverage for the year. But as I literally was just saying, the -- we're balancing that margin expansion with investments in our business. And the investments are literally what I was just communicating.

And the expansion in our EBITDA margin is coming from the gross profit expansion. And I think that's how we see it on a go-forward basis because we do have a long runway ahead of us of growth, and it's going to require investments to ensure we're building the infrastructure and enabling that growth with investment.

From a tariff perspective, we talked about the 190 basis points of pressure in the first quarter. In the second quarter, we expect minimal incremental pressure from -- as compared to last year because the tariffs began to ramp in Q2 last year. And then in Q3 and Q4, we actually expect a modest tailwind from tariffs. There will be a slight benefit.

And I should say, to reiterate, that we have tariffs currently at 10%. So we've -- throughout this whole period, we've been providing our guidance based on whatever is in effect at the time. So our guide today is based off of 10% tariffs continuing. That may change in July, at the end of July and potentially go up to 20%. If that were to occur, it would be approximately $25 million to $30 million of pressure in the back half of the year from the increased tariffs. But remembering that we have actually not yet included any benefit in our outlook for the tariff refunds, which, depending on how we treat them, would likely offset any pressure from the incremental tariffs.

And the 190 for Q1, is that tariffs plus de minimis? Or is that just tariffs?

It's tariffs plus de minimis, 3 quarters plus tariffs.

The next question comes from Michael Glen with Raymond James.

Maybe just on gross margin guidance, specifically. Todd, it looks like the way the guidance is structured, you're embedding [ very ] muted gross margin gains in the back half of the year, but you're also referencing -- you probably have this tariff tailwind. So what are the items that come in and start muting the year-over-year gains in gross margin in the back half of the year that you're thinking about?

Yes. So in the second quarter, we're forecasting 250 to 300 basis points of expansion, which is -- continues to be driven by the IMU expansion and leverage on occupancy costs. And for the back half of the year, we're expecting gross margin to expand approximately 150 basis points.

And the moderation is driven by 3 things. One is a reduction in leverage from the normalized revenue growth. Two is the normalization of markdowns in the back half of the year. Last year, we had extremely low markdowns in the back half of the year, and so we'll be lapping those this year. And then third, the addition of occupancy and depreciation costs from the new distribution center here in Vancouver. So those are really the puts and takes. But I think it's worth reminding that for the full fiscal year, we're forecasting now, 175 to 225 basis points of gross profit margin expansion.

The next question comes from Corey Tarlowe with Jefferies.

Great. Todd, I wanted to ask around gross margin. I think this is the first time in -- literally in the company's history where you've had a gross margin above 50% for the quarter. So I wanted to ask about how you think about perhaps what's transient versus what's more permanent within that margin structure for the first quarter? And it's probably not reasonable to expect this for this year, based on how you guided, of course. But is it perhaps feasible to start maybe thinking about this as a level in the out years for that might be achievable and/or sustainable?

Yes. Okay. So quite a few things there. But first off, it is a record gross profit margin for Q1. Actually, for any quarter. And really pleased with all the work that's gone on over the last several years to achieve that.

We're -- I think we would categorize it in the middle innings of our gross profit expansion. So we do have a number of years ahead of us where we feel like we will be able to continue that expansion. And I think we'll provide more specifics on that in the fall.

So yes, I guess at the end of the day, we're pleased with what we're seeing. And I don't think that we would expect strength in the back half of this year to continue, and that's because of the pressures that I outlined. So while we're extremely pleased with where we're at and we're pleased with where we're going to end the year.

Maybe what I would add, if this is where you're going with your question, is that these improvements are structural. These are improvements that are not transitory for the quarter here that's allowed us to achieve the record. We do see these things being structural and fundamental to our model, our business model.

Great. And then just a quick follow-up, Jen. I think you had mentioned in the Q&A that Q2 accelerated. Curious if you could call out or speak to perhaps what drove that, if there was anything specific from a product perspective? Or whether anything you're seeing would be really helpful.

Yes. We exited Q1 slightly accelerating into Q2. And I do emphasize, it was slightly accelerating. And I've said it a couple of times already on the call that it's not any one thing. It's a confluence of many strengths and many factors of how we execute.

It starts with product. I know I sound like a broken record, but product is at the center of what we do. We have an exceptionally talented team. We do a fantastic job to -- I mean, I [ can't see their prices ] more that -- whether it's the creative team, our products business team, our sourcing and manufacturing team. All of them, all of them and all of the teams within the whole product division really are fundamental to our success in any quarter.

And then that, combined with the store openings, the marketing, our digital acceleration and all of our focus on digital, we're doing a lot of really great things in digital. It all comes together to produce these phenomenal results and these extraordinary results that we were able to deliver this quarter.

The next question comes from George Doumet with Ventum Financial.

Congrats on the quarter. Maybe for Todd, based on your guidance, SG&A is expected to grow kind of in the teens for the second half of the year. Just wondering how much of that level of investment will continue into beyond fiscal '27? Is that -- a bulk of that going to be done this year? Just trying to get a sense of, I guess, how much of it is isolated to this year, how much of the investment is going to be ongoing beyond this year?

Yes. I think we would expect the investments in SG&A to continue into next year and beyond. We have, as I said, a number of tech and AI enablement initiatives underway, our digital road map. The distribution center network expansion in the U.S. does drive operating costs as well, those projects. So all of that will continue into next year.

And we expect our -- well, potentially, we would see some SG&A leverage looking out over the next several years. The vast majority of any margin expansion that we were to accomplish would be coming from gross profit.

This concludes the question-and-answer session and today's conference call. Thank you for joining, and have a pleasant day. You may now disconnect your lines.

Welcome to the Annual General Meeting of Aritzia Inc. Please note that the meeting will be recorded. I would like to introduce Beth Reed, VP, Investor Relations of the company. Ms. Reed, the floor is yours.

Good afternoon, everyone. Thank you for joining Aritzia's Virtual Annual General Meeting of Shareholders. To facilitate increased shareholder attendance and participation, the meeting will be conducted in a virtual-only format that is being streamed via live webcast.

Our agenda today includes the formal business of the meeting that will be conducted by John Currie, our Lead Director; followed by remarks from Jennifer Wong, our CEO. We will conclude with a general question-and-answer period open to registered shareholders and duly appointed proxy holders at which time, Jennifer Wong, Brian Hill, our Founder and Executive Chair; and Todd Ingledew, our CFO, will be available to answer and respond to proper questions.

Please note that our remarks and responses to questions today may include our expectations, future plans and intentions that may constitute forward-looking statements. Actual results could differ materially from the conclusions, forecasts or projections in the forward-looking information. Certain material factors and assumptions were applied in drawing the conclusions and making the forecasts and projections as reflected in the forward-looking information. We would refer you to our most recently filed management discussion and analysis and annual information form, which include additional information about the material risks that could cause actual results to differ materially from the conclusions, forecasts and projections in the forward-looking information and the material factors and assumptions used to develop the forward-looking information.

Our management's discussion and analysis and annual information form are available on SEDAR+ and on the Investor Relations section of the Aritzia website. And with that, I would like to turn the meeting over to John Currie, our Lead Director, to lead us through the formal business of the meeting.

Good afternoon, and thank you for coming to Aritzia's Virtual Annual General Meeting of Shareholders. I've been appointed by the Board of Directors to be the chair for today's meeting.

During the meeting, please note that only registered shareholders or their duly appointed proxy holders, including beneficial shareholders who have appointed themselves as proxy are permitted to vote or otherwise participate and ask questions during the meeting.

As this meeting is being held virtually via live audio and slide show webcast, we would like to clarify a few procedural matters relating to the conduct of the meeting. Questions in respect of a motion can be submitted by a registered shareholder or duly appointed proxy holder using the Question platform service of TSX Trust. When asking a question, please indicate your name, which entity you represent, if any, and confirm that you are a registered shareholder or a duly appointed proxy holder.

Proper questions that do not relate specifically to the business of the meeting will be addressed during the question period at the end of the meeting. Questions relating to the procedural matters or directly related to the motions before the meeting will be addressed during the meeting prior to the closing of the polls.

Voting will be open at the beginning of the meeting and will be conducted by electronic ballots. Only registered shareholders and duly appointed proxy holders of Aritzia are permitted to vote and will be able to vote throughout the formal part of this meeting. I will give a 15-second warning before I announce that balloting is closed. The electronic ballots will be opened for all resolutions at the same time. This will allow you to vote on each resolution immediately or throughout the meeting.

If you have already voted by proxy, you do not need to vote again during the meeting as your vote has been recorded and will be counted by the scrutineer. Registered shareholders who have already submitted a valid proxy and want to vote again by electronic ballot at the meeting will be revoking any previously submitted proxies and only the electronic ballots submitted today at the meeting will be counted. If we encounter any technical difficulties, please remain logged on, and we will resume as soon as possible.

We will now proceed with the formal portion of the meeting. I call to order the Annual General Meeting of Aritzia's shareholders. With the consent of the meeting, I appoint Ada San, VP, Legal and Corporate Secretary of the company, to act as Secretary of the meeting. In addition, and with the consent of the meeting, I appoint TSX Trust Company, through its representatives, as scrutineer. The scrutineer will report on the number of subordinate voting shares and multiple voting shares represented in person and by proxy at this meeting, tabulate the votes and report the results.

The purposes of today's meeting are set out in detail in the Management Information Circular, dated May 14, 2026. Copies of the circular were made available to shareholders on or around June 5, 2026, together with the Notice of the Meeting, the Form of Proxy and the Voting Instruction Form, as applicable.

Accordingly, unless there is any objection, I will dispense with the reading of the Notice of Meeting. I received a declaration prepared by our transfer agent, TSX Trust Company, indicating that either a notice of this meeting and the accompanying proxy materials or the Notice-and-Access notice as applicable, was duly mailed to shareholders of record as of the record date, May 14, 2026.

I direct that a copy of the notices and circular and the declaration of mailing be kept by the Secretary with the records of this meeting. The scrutineer's report indicates that shareholders holding, in the aggregate, more than 15% of the voting rights attached to shares entitled to be voted at the meeting are present in person or represented by proxy. As this meets the quorum requirements of the company's articles, we may proceed with the meeting. A copy of the final report on attendance will be filed with the records of the meeting.

For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Voting will be opened at the beginning of the meeting and available throughout the formal part of this meeting for all registered shareholders and duly appointed proxy holders. You will receive a message on your screen when the online ballots are available. I will announce when voting will close, which will be approximately 15 seconds after the conclusion of the formal items of business. Under the company's articles, the Chair of the meeting can propose motions and no motion proposed at a meeting of shareholders is required to be seconded. In order to expedite the meeting, I will propose certain motions and will not call for a seconder.

I now declare that this meeting was properly called and duly constituted for the transaction of business. I now declare the polls open on all resolutions. If you are a registered shareholder or duly appointed proxy holder, the electronic ballots will now be available on your screen. Please register your votes by pressing on the for or withhold buttons next to the name of each proposed director and next to the resolution with respect to the appointment of PricewaterhouseCoopers LLP as the auditors of the company and authorizing the directors to fix their remuneration. Please register your vote by pressing on the for or against buttons next to the resolution with respect to the advisory vote on the company's approach to executive compensation. You will now have time to vote throughout the formal part of the meeting.

The first item of business is the receipt of the company's consolidated financial statements for the fiscal year ended March 1, 2026, as well as the auditor's report thereon. These financial statements and the auditor's report were made available on SEDAR+ under the company's profile and on the company's website on May 7, 2026. The financial statements were also made available on the TSX Trust site on June 5, 2026, as required for notice and access.

Noting no objection, I will dispense with the reading of the auditor's report. We will respond to any proper questions with respect to the company's consolidated financial statements in the question period following the formal portion of this meeting.

We will now move to the next item on today's agenda. The next matter to be acted upon is the election of 9 individuals to the Board of Directors. The term of office of the directors is from today until the end of the next Annual Meeting of Shareholders or until such time as their successors have been duly elected or appointed. As described in the circular, the company has adopted a majority voting policy pursuant to which any director nominee who receives more votes withheld than for must submit their resignation promptly, and such resignation must be accepted by the Board, other than in exceptional circumstances. The circular contains information on each of the 9 nominees recommended for election as directors.

As outlined in the circular, the following director nominees have each been nominated to hold office until the close of the next annual meeting of the shareholders or until their successors are duly elected or appointed. They are Brian Hill, Jennifer Wong, John Currie, Nick Drake, David Labistour, Doug Mack, Marni Payne, Glen Senk and Marcia Smith.

Persons nominated have confirmed that they are each prepared to serve as a director. Each of them is qualified as a director under the provision of the British Columbia Business Corporations Act. Given that no nominations were received in accordance with the Advanced Notice Provisions contained in the company's articles, I declare the nominations to be closed. I move to nominate the directors as set forth in the circular.

If there is no further discussion, as mentioned at the beginning of this meeting, voting today will be conducted by electronic ballots and the polls are currently open, so you can vote on the election of each director as you see fit.

We will now move on to the next item of business. The next item of business is the appointment of the auditors of the company who will serve until the end of the next Annual Meeting of Shareholders and to authorize the directors of the company to fix the remuneration of the auditors. The Board, on the recommendation of the Audit Committee, has approved, subject to shareholder approval, the appointment of PricewaterhouseCoopers LLP as the auditors of the company. I move that PricewaterhouseCoopers LLP be appointed auditors of the company until the end of the next Annual Meeting of Shareholders and that the directors be authorized to fix their remuneration. As there is no discussion and the polls are currently open, you may vote on the appointment of auditors as you see fit.

The next item of business is the advisory vote on the company's approach to executive compensation. I move that the advisory nonbinding resolution in respect of the company's approach to executive compensation as set out in the circular be approved. As there is no discussion and the polls are currently open, you may vote on the advisory vote on the company's approach to executive compensation, as you see fit. If you have not voted already, please do so now. After 15 seconds, the voting page will disappear and your electronic ballot will automatically be submitted. The time is now 3:46, and the ballots will close on all resolutions in 15 seconds.

[Voting]

Voting is now closed. I would now like to ask that the scrutineers compile a report regarding the results of voting on all business matters. While the scrutineers are completing their report, I will ask whether there is any other formal business to be brought before this meeting.

As there is no other business to be brought before this meeting, and I have received the scrutineer's report, I declare the following: each of the 9 nominees have been elected as directors of the company to serve until the end of the next Annual Meeting of Shareholders or until their successors are elected or appointed. PricewaterhouseCoopers LLP is hereby appointed as auditor of the company for a term ending at the end of the next Annual Meeting of Shareholders and the Board of Directors is authorized to fix their remuneration. The advisory nonbinding resolution in respect to the company's approach to executive compensation as set out in the circular is approved. Final voting numbers will be posted on SEDAR+.

As there is no further business to be brought before this meeting, I declare the formal portion of the meeting closed. I would like to turn over the floor to Jennifer Wong, our CEO, to provide a few remarks before we move on to the question-and-answer period.

Thanks, John. Good afternoon, and thanks, everyone, for joining us today. In fiscal 2026, we drove a 35% increase in net revenue, resulting in a strong 4-year compound annual growth rate of 25% and achieved our fiscal 2027 net revenue target of $3.5 billion to $3.8 billion 1 year early. Our strong performance is a direct reflection of our team's ability to execute impeccably on our 3 strategic growth levers, geographic expansion, digital growth and increased brand awareness. We fueled robust demand for the Aritzia brand while continuing to grow brand awareness in the United States and drive enduring client loyalty in Canada.

Our strategic accomplishments for fiscal 2026 include the following: we generated unparalleled demand for the Aritzia brand supported by strong inventory management, which fueled 26.5% comparable sales growth. We refined our digital and brand marketing strategies to help protect and propel the Aritzia brand, growing brand awareness and generating new client acquisitions. We opened 14 new boutiques and repositioned 4 existing boutiques, including another iconic brand-compelling flagship located in Manhattan's Flatiron District. We launched the Aritzia app, providing clients with greater access to the company's product assortment, styling expertise and guidance and exclusive product and content.

We delivered a 260 basis point improvement in adjusted EBITDA as a percentage of net revenue despite 260 basis points of pressure from tariffs and the elimination of the de minimis exemption. Our sales growth in fiscal 2026 was driven by continued strong digital momentum, our geographic expansion strategy and double-digit comparable sales growth in our existing boutiques. We continue to expand our portfolio of boutiques in premier locations with our retail net revenue growing to $2.41 billion, a 35% increase from last year. In digital, our performance was driven by the increasing affinity for our brand, strong inventory management, our focus on full funnel marketing and the launch of our mobile app.

In fiscal 2026, our digital net revenue grew to $1.29 billion, increasing 36% year-over-year. Throughout fiscal 2026, our real estate expansion strategy continued to yield impressive results. Our new boutiques continue to perform better than our payback expectation of 12 to 18 months.

Net revenue in our United States business grew to $2.28 billion in fiscal 2026, an increase of 44% from last year. In fiscal 2026, the United States generated 61% of our total net revenue, and we continue to have tremendous opportunity for growth ahead of us. In the United States, we see potential for a minimum of 180 to 200 boutiques compared to just 76 at the end of fiscal 2026.

In fiscal 2026, the launch of our mobile app achieved exceptional results and surpassed even our highest expectations. We also continue to refine our digital performance marketing strategy to help grow brand awareness in the United States, amplify our product franchises and drive customer engagement. Further, we launched our enhanced international website, featuring an elevated client experience.

During fiscal 2026, our full funnel everyday luxury campaign continues to help grow brand awareness and introduce Aritzia to new audiences. In addition to our beautiful products and real estate expansion strategy, this propelled us further towards widespread recognition across the United States where our active client base has grown at a 30% CAGR over the past 4 years. At the same time, we remain focused on deepening our connection with our loyal existing clients across all channels and geographies, more clients than ever before shop the Aritzia brand. Underpinned by the strength of the Aritzia brand, our proven operating model and our healthy balance sheet, our business has never been better positioned for growth. Having already achieved our fiscal 2027 revenue target 1 year early, we look forward to sharing our next strategic road map in the fall.

Meanwhile, we remain steadfast in further advancing our 3 strategic growth levers while continuing to invest in infrastructure to support our growth. We have a robust pipeline of boutiques opening in fiscal 2027 with a focus on increasing our presence in existing markets as well as broadening our reach across the United States. Our total square footage growth is expected to be in the low teens, with the vast majority occurring in the United States. In digital, we have initiatives underway to support our continued momentum in the years ahead, such as ongoing digital marketing optimization, client engagement initiatives and additional mobile app features.

Last but not least, our new boutiques and ongoing marketing investments are proven multiyear strategies to help grow brand awareness in the United States. We're becoming increasingly well known and loved in the U.S.A. yet the opportunity for growth remains immense. To help ensure we drive scalable growth for the long term, we continue strategically investing in world-class infrastructure. As always, we operate with a long-term focus and balanced investing for the future while driving profitable growth.

To our shareholders, thank you for your continued support and your trust in our business plan. I have great confidence in our team, Aritzia's consistent performance is a testament to their ability to execute with excellence.

Thank you, Jennifer. We will now move on to the question and answer portion of the meeting. As mentioned at the beginning of the meeting, when asking your question on the question feature of the virtual meeting platform, please indicate your name, the entity you represent, if any, and confirm you are a registered shareholder or a duly appointed proxy holder. Please keep your questions short and succinct. We may consolidate questions that are repetitive or overlap in the interest of all those logged on today.

We will not address any questions or statements that are, among other things, irrelevant to the business and affairs of the company, related to material nonpublic information of the company, related to personal grievances, derogatory or are otherwise in bad taste, repetitive of questions or statements already made by another participant or out of order or not otherwise suitable for the conduct of the meeting as determined by the Chair.

We will now give registered shareholders and duly appointed proxy holders, including beneficial shareholders who have appointed themselves as proxy a brief moment to type in their questions if you have not already done so.

There being no questions, we are now concluding the question-and-answer portion of the meeting. Thank you all again for joining us this afternoon and enjoy the rest of your day.

Thank you for attending today's meeting. You may now disconnect. Goodbye.

Thank you for standing by. This is the conference operator. Welcome to Aritzia's Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I will now turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.

Thanks, operator, and thank you all for joining Aritzia's Fourth Quarter Fiscal 2026 Earnings Call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer; and Todd Ingledew, our Chief Financial Officer.

As a reminder, please note that remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions as well as the competitive environment.

Actual results may differ materially from the conclusions, forecasts or projections expressed by the forward-looking information. We would refer you to our most recently filed management's discussion and analysis and our annual information form, which include a summary of the material assumptions as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information. Our earnings release, the related financial statements and the MD&A are available on SEDAR+ as well as the Investor Relations section of our website.

I'll now turn the call over to Jennifer.

Thanks, Beth, and good afternoon, everyone. Thank you for joining us today. We are thrilled to have delivered yet another quarter of standout financial results. Our consistent performance is a direct reflection of our team's ability to execute impeccably on our 3 strategic growth levers, geographic expansion, digital growth and increased brand awareness. We feel robust demand for the Aritzia brand while continuing to grow our awareness in the United States and drive enduring client loyalty in Canada. What's even more exciting is that fiscal 2027 is off to a great start. Our exceptional momentum has continued into the first quarter.

In Q4, we achieved record quarterly net revenue of $1.2 billion. That's an outstanding 33% increase compared to last year. Comparable sales grew 28%, even as we lapped growth of 26% last year. This was driven by double-digit growth in all geographies and all channels. Our exceptional broad-based performance spans our extensive portfolio of exclusive brands. I could not be more pleased. Outstanding net revenue growth of 38% in the United States and 24% in Canada highlight the strength and amplification of the Aritzia brand across geographies.

In the U.S., our results were fueled by 15 highly successful new and repositioned boutiques over the last year, exceptional momentum in our digital channel, supported by our new mobile app and strategic investments in marketing as well as outstanding comparable sales growth across our existing boutiques.

In Canada, our success was primarily driven by exceptional momentum in digital and outstanding comparable sales growth across our boutiques. Our new boutique in Vancouver and our two repositions in the past year are delivering excellent results.

Our success was broad-based across channels, underscoring the strength of our omnichannel business. In retail, we delivered an increase in net revenue of 35%. Our performance was driven by outstanding comparable sales growth primarily due to higher traffic. This was fueled by the increasing affinity for our brands, which is supported with our strategic investments in marketing.

Our growth was also driven by our real estate expansion strategy. Over the past 12 months, retail square footage growth was in the mid-teens. We opened a total of 14 new and 4 repositioned boutiques. In the fourth quarter, this included 5 new boutiques, all in the United States as well as 1 reposition in Quebec.

Our real estate strategy continues to yield exceptional results. Our boutiques enhance brand recognition, drive new client acquisition and support digital growth, particularly in new markets. In fiscal 2026, the new boutiques we opened in the U.S. are tracking to pay back in less than a year. This continues to beat our target of 12 to 18 months.

In digital, net revenue increased 29%. That's on top of 48% growth in Q4 last year. Traffic was the primary driver of growth, driven by our investment in full funnel marketing. We're attracting high-value clients across a diversified mix of owned and paid channels. With our increasing brand affinity, we're driving more efficient acquisition and stronger retention. In addition, this full funnel marketing is driving clients to both our boutiques and digital sites.

We continue to enhance and extend our digital selling channels through brand storytelling and world-class commerce features. First, we benefited from ongoing website enhancements such as continuing to improve personalized search, leveraging immersive multimedia content and building a more responsive site.

Second, app adoption has been phenomenal with continued strong monthly downloads and active client engagement. We're seeing our clients not only visit but shop the app multiple times per week.

Third, our international e-commerce improvements continue to pay off with sales up more than 53% year-over-year. Notably, in Q4, we drove an increase in omnichannel clients of more than 30%. This is yet another indicator of the growing love for our brand.

Turning to product. Our amazing team continued to deliver a balanced mix of high-quality products at attainable price points. Our assortment resonated extremely well across all regions, reflecting the widespread love that clients have for our brand. We supported robust demand with our meticulous focus on inventory management, which drove lower markdowns during our fall/winter seasonal sale.

For spring, we introduced freshness with new styles and new color launches from fleece to cashmere to lighter weight outerwear and dresses. We drove excitement throughout the season. We also continue to see strength in the iconic franchises for which we are well known and loved.

Our Everyday Luxury marketing campaign continues to help grow brand awareness and introduce Aritzia to new audiences. This fueled another quarter of strong new client acquisition. In all channels and geographies, more clients than ever before shopped the Aritzia brand. At the same time, we remain focused on deepening our connection with existing clients. Strong double-digit growth across new, existing and reactivated clients has been a key contributor to the outstanding momentum in our business.

In Q4, we also announced our acquisition of the Fred Segal brand, including the lease of Fred Segal's original beloved flagship destination in Los Angeles. This is an iconic brand that redefines experiential retail and shaped L.A.'s stylistic and cultural identity for decades. We're thrilled to embark on a new chapter for Fred Segal as we reimagine the brand for a new generation.

As I mentioned earlier, fiscal 2027 is off to an excellent start. Our strong momentum continues into the current quarter, driven by exceptional client demand for our spring and summer collections. Our business has never been better positioned for growth. It's underpinned by the strength of the Aritzia brand, our proven operating model and our healthy balance sheet.

Having already achieved our fiscal 2027 revenue target 1 year early, we look forward to sharing our next strategic road map in the fall. Meanwhile, we remain steadfast in further advancing our 3 strategic growth levers, geographic expansion, digital growth and increased brand awareness. We also continue to strategically invest in world-class infrastructure to help ensure we drive scalable growth for the long term.

In fiscal 2027, we have another robust pipeline of 12 to 13 new boutiques in premier locations as well as 4 to 5 repositions. This year, we'll enter 4 new markets: Birmingham, Fort Worth, New Orleans and St. Louis. Our proven real estate expansion strategy continues to be our most consistent predictable driver of growth.

In our digital channel, we have several initiatives to support continued momentum. These include ongoing digital marketing optimizations as well as channel expansion. We're launching a new SMS program. We're expanding our affiliate influencer program, and we're investing more in awareness tactics across the platforms where our clients spend the most time and where we're seeing incremental gains. We're also launching an international marketing pilot, AI-driven search engine advancements and additional mobile app features. And of course, we expect new boutique openings to continue fueling digital sales.

In terms of brand awareness, our new boutiques and ongoing marketing investments are proven multiyear strategies to help grow the Aritzia brand in the United States. We're becoming increasingly well known and loved, and the opportunity for growth remains immense.

Regarding infrastructure, our new distribution center in British Columbia is on track to open next week. In addition, we expect to begin work on a second distribution center in the U.S. later this year or early next year. Key technology investments in fiscal 2027 include merchandise and workforce planning software, RFID and mobile app upgrades. We're also scaling AI across our workflows to make our people even more productive. As always, we operate with a long-term focus and balance investing for the future with driving sustainable, profitable growth.

Last but not least, I want to express my deep gratitude to our people for their unwavering dedication to excellence and teamwork. The strength of our brand is unprecedented. And on behalf of everyone, I could say we could not be more excited about the journey ahead.

With that, I'll now hand it over to Todd to discuss the details of our financial performance.

Thanks, Jennifer, and good afternoon, everyone. In the fourth quarter of fiscal 2026, we delivered record net revenue of $1.2 billion. This represents a 33% increase from last year, driven by outstanding growth in both the United States and Canada. We also generated meaningful gross profit margin expansion and SG&A leverage, all resulting in a 39% increase in adjusted net income per diluted share.

Turning to the details of our performance. The 33% increase in net revenue was well above our guidance of 23% to 26%. Comparable sales grew 28% in the quarter, generating an exceptional 2-year stack of 54%. This was driven by broad-based strength across channels and geographies.

There are 4 key factors that continue to underpin our outstanding performance. First, exceptional demand for our winter and spring products, supported by extremely well-positioned inventory. Second, our digital initiatives, led by our popular new mobile app. Third, boutique square footage growth in the mid-teens; and fourth, our strategic brand and digital marketing investments, which generated significant traffic growth and new client acquisition.

In the United States, fourth quarter net revenue increased 38% to $755 million. Our U.S. retail business was driven by square footage growth of approximately 25%. This included a total of 15 highly productive new and repositioned boutiques over the last 12 months. In addition, we delivered outstanding comp growth in our existing boutiques. In our U.S. digital business, our performance continued to be fueled by strong traffic growth.

In Canada, net revenue increased 24% to $431 million. This was driven by outstanding comparable sales growth in both digital and our boutiques. Our digital initiatives, including our new mobile app and strategic marketing investments fueled momentum and helped to keep our brand top of mind.

Turning to our sales channels. Net revenue in our retail channel increased 35% to $698 million. This was driven by double-digit comparable sales growth in our existing boutiques in both Canada and the United States as well as the strong performance of our new and repositioned boutiques. Our growing boutique portfolio continues to be our most predictable driver of top line growth.

In our digital channel, net revenue increased 29% to $488 million, resulting in a remarkable 2-year stack of 77%. Robust traffic growth continued to be the primary driver of our performance. In the fourth quarter, digital represented 41% of net revenue. We delivered gross profit of $514 million, an increase of 35% compared to the fourth quarter last year. Gross profit margin expanded 90 basis points to 43.3% despite 390 basis points of pressure related to tariffs and the suspension of the de minimis exemption. We more than offset these headwinds through lower markdowns, IMU improvements and leverage on store occupancy costs.

SG&A expenses for the quarter were $312 million, leveraging 110 basis points as a percentage of net revenue to 26.3%. The improvement was primarily driven by expense leverage and savings from our Smart Spending Initiative.

Adjusted EBITDA was $221 million, an increase of 37% compared to the fourth quarter last year. Adjusted EBITDA as a percentage of net revenue expanded 60 basis points to 18.6%. Excluding the nonoperational FX impact this year and last, adjusted EBITDA margin expanded 200 basis points. Again, this is despite 390 basis points of pressure from tariffs and the suspension of the de minimis. We've now delivered consistent margin improvement for 8 consecutive quarters. This demonstrates our ability to strengthen our margins while continuing to invest in the growth of our business.

Turning to the balance sheet. Inventory was $495 million at the end of the fourth quarter, up 31% from last year and closely aligned with our sales growth. We remain pleased with the quantity and composition of our inventory, which continues to be well positioned to drive sales.

Our liquidity position at the end of the fourth quarter is strong with $592 million in cash, no debt and 0 drawn on our $300 million revolving credit facility. During the fourth quarter, we repurchased approximately 897,000 shares, returning $104 million to shareholders. This resulted in a total of approximately 1.4 million shares repurchased for $145 million in fiscal 2026. We are renewing our NCIB, and we plan to continue to opportunistically repurchase shares in fiscal 2027.

Turning to our outlook. The strong momentum in our business has continued into the first quarter of fiscal 2027. Our spring/summer product is resonating extremely well, and we continue to support robust demand with disciplined inventory management. Given quarter-to-date trends, we expect net revenue in the first quarter to be in the range of $900 million to $925 million. This represents an increase of 36% to 39% compared to the first quarter of fiscal 2026. This is driven by double-digit comparable sales growth and the contribution from our boutique openings.

We expect gross profit margin in the first quarter to increase approximately 225 to 275 basis points despite approximately 200 basis points of incremental pressure from tariffs and the suspension of the de minimis exemption. The anticipated increase is driven by ongoing IMU improvements and occupancy cost leverage.

We forecast SG&A as a percentage of net revenue to be down 50 to 100 basis points compared to the first quarter last year. Expense leverage and savings from our smart spending initiatives are partially offset by strategic investments in infrastructure to support our growth.

Turning to the full fiscal year. We are forecasting net revenue in the range of $4.4 billion to $4.6 billion. This represents growth of approximately 19% to 24% from fiscal 2026, driven by mid- to high teens comparable sales growth and the contribution from our boutique openings.

In fiscal 2027, we plan to open approximately 12 to 13 new boutiques and reposition 4 to 5 existing boutiques. The openings this year will deliver total square footage growth in the low teens. We forecast gross profit margin to increase 150 to 200 basis points compared to last year. This reflects ongoing IMU improvement and occupancy cost leverage, partially offset by approximately 50 basis points of incremental tariff and de minimis pressure.

Our outlook includes global tariffs in the United States at 10% and the ongoing suspension of the de minimis exemption for the remainder of the year. Our outlook does not include the benefit of any potential tariff refund.

SG&A as a percentage of net revenue is expected to be flat to down 50 basis points compared to fiscal 2026 as expense leverage and savings from our smart spending initiatives are partially offset by strategic investments in infrastructure to support our growth.

Further, we expect depreciation and amortization in fiscal 2027 of approximately $130 million compared to $111 million in fiscal 2026.

We expect adjusted EBITDA as a percentage of net revenue to be approximately 19%, primarily driven by improvements in gross profit margin.

We expect capital expenditures for fiscal 2027 of approximately $250 million. This includes $210 million related to investments in new and repositioned boutiques expected to open in both fiscal 2027 and fiscal 2028.

As a reminder, our most recent new boutiques continue tracking to pay back in approximately 1 year or less, exceeding our target of 12 to 18 months.

In closing, our sustained momentum further strengthens our confidence in our growth drivers. As Jennifer mentioned, we are proud to have reached our fiscal 2027 revenue target full year early. With our significant expansion opportunities, proven track record and strong financial foundation, we are well positioned to continue driving consistent profitable growth. Thank you.

And with that, operator, let's please open up the line for questions.

[Operator Instructions] The first question comes from Luke Hannan with Canaccord Genuity.

Congratulations on the very, very strong results. I want to start first with a higher-level question, I guess. Just overall, when it comes to the clientele that you're bringing into your boutiques and bringing online now and when it comes to your marketing dollars. What is the tilt, I guess, between reengaging existing customers or those who would have interacted with you in the past versus going out and bringing in new customers or clientele rather to the Aritzia brand?

Thanks, Luke. Thanks for your question. What we're finding is it's across all 3 categories, really, obviously driven by new client acquisition growth, primarily in the U.S., but what we're really pleased to see is client acquisition in both countries. We're continuing to retain in our existing client. We're seeing strength in that. And now what we're really pleased to see is a reactivated client who we haven't seen shop with us for over 12 months coming back. So we're really pleased across all 3 categories and certainly, our overall active client base continuing to grow significantly.

And then I also wanted to follow up. Jen, you touched on in your prepared remarks about how much more efficiently you're managing the assortment, and that's one of the reasons why you're not -- you're able to generate lower markdowns compared to a year ago. Can you just give us a little bit more granularity on what exactly that means? Is it just that you're managing the existing assortment that you have a lot more smartly? Are you being more strategic in your buys of new product? Or can you just shed some light on what exactly is working for you there?

Yes. I mean I couldn't be more proud of the team and the work that we've done in product, particularly over the last couple of years, all of the above essentially. It starts with having the right assortment in the right range, and we've done a phenomenal job of having product that is really resonating with the customer across everything, across category, styles, color, everything seems to be working. And then one of the strengths of our business is our planning and allocation function.

We have honed our merchandising strategy now over decades and continue to refine it. And in particular, in the last couple of years, have refined it tremendously, which has allowed us to have the right composition of inventory, the right depth of inventory and making sure that we continue to fuel the demand that we're seeing and staying on top of it. So it's been absolutely phenomenal.

That's great. Last one for me, and then I'll pass the line. And Todd, maybe this one is for you. You finished the year with almost $600 million in cash on hand, which is very impressive. You did talk about renewing the NCIB. I'm sure you'll be active there. But even if we were to take that into consideration, there should still be plenty for you to work with there. I mean what else should we be looking for beyond the buyback that you'll be putting your cash towards?

I would say, obviously, CapEx is the first use of our excess cash. We have meaningful investments in our stores this year at $250 million. So making a large investment there with increases for not only FY '27, but for FY '28 in the square footage expansion. And then we are currently planning to assuming opportunistic buying spend approximately $200 million on our NCIB. And then beyond that, we don't have any other plans at this point. We will, as I said, evaluate opportunistically throughout the year, our level of repurchasing.

[Operator Instructions] The next question comes from John Keypour with Goldman Sachs.

I'm just wondering about the gross margin guide for 1Q. It looks like tariffs sequentially get better by, let's just call it, 200 basis points. If we take the 80 of expansion in 4Q and add it to the 200 of tariff improvement, that gets you around 280. I'm just wondering what's baked into the lower end of that guide, the 225? And what might be able to get us over the 275?

Yes. Thanks, John. So for the full fiscal year, we're expecting gross profit expansion and -- but having -- expecting that it will be strongest in the first quarter. So we have 150 to 200 basis points of expansion for the full year, but 225 to 275 basis points in the first quarter. And that's just due almost entirely to the strength of our revenue that we're expecting in the first quarter. So with our guide of 36% to 39%, we're obviously gaining meaningful leverage on our fixed costs within our gross profit.

And then for the balance of the year, we're expecting gross profit to be in the range of 150 to 200 basis points of expansion. And that moderation, again, is really related to the revenue growth being slightly moderated for the back half of the year as well as normalized markdowns in the back half and then additional occupancy and depreciation costs related to our new distribution center. So as we sit here today, Q1 will be our strongest quarter from a gross profit perspective.

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

Congratulations on a great quarter. As you noted, new boutique openings are an incredible predictor of revenue growth. You mentioned 4 new markets that you're going in. Can you tell us where the other stores are going to be? And can you also tell us what your data is showing you about sort of how robust is the existing customer base in these new markets?

I'll take the customer question, and then I'll let Todd answer on the store locations. We're finding that across the Board, our -- we have an extremely loyal client in pretty much all markets. And what's really encouraging to see is that the new clients that we are acquiring in these new markets stay with us. And that's essentially been our model now for decades as well. So we're attracting a true core customer to Aritzia who are an Everyday Luxury client, and we're continuing to captivate more and more clients as we continue our boutique build-out.

Great. And yes, from a new store perspective, we have one new store here in Vancouver, and that's the only one in Canada planned for this year, and the rest are all in the United States. They're really, Irene, across the board, but I guess I can quickly run through it. Save the 4 that were mentioned on the call. We have one opening in Atlanta, another opening in Dallas. Fort Worth is also on the docket. Cleveland, Ohio, Las Vegas, one more in Florida, another one in Woodlands in Texas, and then one in California in Carlsbad. So it's really across the country, North, Sout,h, East, West that we're looking at opening new stores this year in the United States.

That's really helpful. And just as a follow-up, clearly, all the new stores are opening really strongly. Are you seeing any differentials sort of regionally in terms of how they open and the quick maturation? Or is it really just across the board?

It really is across the board. I mean what we're seeing as a more general statement is that as soon as we open stores in new and existing markets, that it's particularly noteworthy in new markets is they are performing right out of the gate. In the past, several years ago, we would talk about a ramp -- a bit of a ramp that would occur. But right now, I mean, we see lineup before the day we open. So again, really amazing to see.

The next question comes from Martin Landry with Stifel.

Congrats on your great results. On the back of the success in North America, I'm just wondering a little bit at what point do you look at expanding internationally? Is this a near-term opportunity within the next 1 to 2 years? Or is this more of a long-term opportunity?

Well, Martin, thank you for your question. We are technically international. We launched our international e-commerce site this past year. And really pleased to see that we're actually shipping in the last 6 months, we shipped to 137 countries around the world. So technically, I would say that we are international. But as it relates to store boutiques, that's something that I've always envisioned that Aritzia is a global brand and Everyday Luxury needs to be taken around the world.

So right now, we're focused on the U.S. We have a ton of runway in the U.S. still to go. We only have 76 boutiques in the U.S. We've talked about having 180 to 200 stores in the U.S. So certainly, we're focused on the growth in the U.S. at the moment. And we're in the process of researching and gathering information from our e-commerce site about the international customer. And certainly, we have an international customer shopping with us in the U.S. So I think that bodes very well for the future internationally, but we'll share more on our long-range plan coming this fall, and you'll hear more then.

Okay. Fair enough. And just to better understand your success in the U.S., could you -- is there like a category? Is there a collection that resonated really well with customers during the quarter?

I mean everything is working well, literally everything. It truly is broad-based across all our categories, styles, colors, you name it. I mean, obviously, we have our franchise programs, whether it be The Super Puff, our fleece. We have beautiful tailored coats from cashmere to dresses, like it really is all working very well. And I suppose you can't have results this good unless it is all working well. So I'm just really happy it's all resonating with the customer.

The next question comes from Mark Petrie with CIBC.

I wanted to ask about your approach to marketing. Obviously, that's evolved over the years. I'm just curious how -- just given your success and significant step-up in brand awareness, particularly in the last year or 2, how you've adapted it sort of over that time frame, adapted your marketing. Hoping you could just give some examples of what you've done differently? And then what that tells you about your brand and the opportunities from here?

Yes. Most recently, we've taken an integrated marketing approach and really approach the full funnel marketing. There was a time about 2 years ago when we -- there was a time when we hadn't done any performance marketing. It was all brand-oriented. And about 2 years ago in order to accelerate digital, we incorporated performance marketing specifically, and that's really made a difference in both channels, quite frankly, but certainly has helped with accelerating our digital business.

And now we're looking at it in more of a comprehensive approach and a more integrated approach. And certainly, top of funnel is extremely important in order to create that brand awareness in order to create that demand. So I think we're refining it with a great balance between brand marketing and performance marketing and doing things that are intelligent and creative and not necessarily just your traditional marketing. And that said, that hasn't necessarily meant that we've increased our marketing spend as a percentage of sales. We've been able to keep that spend maintained at a low single-digit level of our revenue, and it is really absolutely working for us.

Yes. And I guess just to follow up, you sort of addressed it there, but the spend is consistent as a percentage of sales. And then is that still assumed for fiscal '27 as well?

Yes, that's right. Low single-digit percentage of sales. Obviously, it's growing commensurate with our revenue growth. So it's increasing. But as a percentage, it is maintaining the same level.

The next question comes from Ike Boruchow with Wells Fargo.

Just bigger picture question on what you're seeing in the U.S. market today, not necessarily your own business can clearly see your business is outperforming and not having any issues at all. But just competitively in the mall, are you seeing the retailers you guys compete against start to break any price? Do you see any volatility there on promo? Just kind of curious just state of the union over the past month or so. It just feels like it's been a little bit more of a volatile market. Curious if you guys have seen that competitively, even though clearly, it's not affecting you.

Generally speaking, we're not really seeing marked changes in the consumer behavior. Certainly, there's always trading places and positions, I suppose, between different competitors. Obviously, our business is very strong. We're not seeing any letup in demand. The people are there. The traffic is there. And the great news is we're benefiting from it.

The next question comes from Brian Morrison with TD Cowen.

Todd, just following up on the marketing commentary. It was mentioned that it's flat as a percentage of sales for fiscal '27. If that's the case, can you just walk me through your SG&A guide of flat to favorable by 50 basis points because the top line would imply material incremental SG&A leverage. So can you just give me a bridge to support the SG&A segment of your guide and also define what you referred to as strategic initiatives?

Yes, absolutely. So as we said for the fiscal year, we're expecting SG&A to be flat to down 50 basis points. And it's really just a continuation of what we've been doing over the last several years, which is balancing our margin expansion with investments to drive our business and frankly, also enable our growth in the future. And we have, therefore, a long list of projects across all areas of the business that we are currently investing in to build that infrastructure, whether that's our distribution center network expansion, we talked about the merch planning software, a digital road map, customer initiatives, RFID, workforce planning.

We literally -- we have an exhaustive list of projects. And that's why I've been communicating that we expect our margin expansion to primarily be coming from gross profit margin expansion as opposed to SG&A leverage. But we are planning, as I said, for some SG&A leverage. We're just making investments that are offsetting what we would have been driving from a leverage perspective.

Okay. And then can you just update me on the tariff rates you're incurring from your 3 key sourcing markets now? I realize tariffs are a headwind in H1 within inventory. But is it going to be a tailwind in the second half from lower realized tariff rates?

Yes. So we're -- from our key markets, we're currently paying the global surcharge of 10%. And that's how we've developed our outlook for the year with that global surcharge at 10% and then obviously, also assuming the ongoing suspension of the de minimis. And as was pointed out actually already, we are expecting about 200 basis points of tariff pressure in Q1 because last year, we effectively had no pressure in the first quarter.

And then as the pressure started to ramp last year, we're now lapping that in Q2. So we have minimal incremental pressure for Q2, and it actually becomes a slight benefit in the back half of the year. So that's the cadence of the tariff pressure. And obviously, that's, again, at the 10% level that we're paying in most of our markets today.

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

I'll add my congrats to the very strong quarter and guidance. So congratulations. I guess my first question was just around the CapEx. So you talked about increasing that total 3-year CapEx number to $900 million. And I'm just curious, when you think about your new boutique opening plan for the next 2 years, does it incorporate or does it factor in like larger boutiques? Or are you going to be opening any more flagships?

Yes. So this fiscal year in FY '27, the average new boutique is right around 11,000 square feet. So very consistent with -- we were approximately 10,000 square feet on average in FY '26. But looking out to FY '28, we do have 2 flagships planned for that year and do anticipate the square footage starting to expand slightly on a per store basis. But it's primarily the flagships in FY '28 that are being invested in, in FY '27 that's causing the higher spend in FY '27.

Right. Okay. That's helpful. And then maybe for my second question, Jennifer, you talked about the split between owned versus paid channels when it comes to marketing and I guess, engaging with your customers and clients. I was just wondering if you can give a little bit more color around sort of how you're approaching that balance.

We have always prioritized our own channels. That's obviously the one that we want to have the highest return on. So our own channels is where we have prioritized in the past and continue to prioritize. And then we've augmented it with the paid channels. And as I had explained earlier, I think, with Mark, the paid is what we've introduced more recently and also see a huge return on it. A lot of our traffic has been driven by the paid marketing.

The next question comes from Michael Glen with Raymond James.

Just a couple for me. So you mentioned the RFID rollout during the opening remarks. Can you -- what type of gains -- can you talk to the timing and then maybe the type of gains that you're expecting benefits to be realized when you have that rolled out?

Yes. So the planned pilot will be sometime this fall with a full rollout in early next year, January, February of next year. And I mean the key benefit from RFID at the beginning anyways is inventory accuracy in the stores. So instead of doing inventory once 3 times a year, we'll be able to do it once a week. And so that will mean that we have more accurate inventory in the stores and therefore, have the right product in the right place at the right time more often, and it will drive incremental revenue. We have some estimates that are meaningful, but I think I'd be hesitant to communicate them until we run the pilot, et cetera. But we're -- it's obviously a good step for us, and it will have many other operational benefits once it's in place.

Okay. And then just to go back to the capital allocation question earlier. Is there -- has there been contemplated at all the initiation of a dividend or any type of special dividend as part of the capital allocation strategy?

We discuss on a fairly frequent basis with both the Audit Committee, the Board and internally what our plans are, but we have no plans at this point to implement a dividend. It doesn't mean down the road at some point, it won't be on the docket, but it's not in the near future.

The next question comes from Mauricio Serna with UBS.

Just wanted to ask on the quarter-to-date, could you talk about where you are and the implied comps in your guide for the first quarter? And then just maybe a quick follow-up on Canada for the year as you're lapping like very outsized growth for a relatively mature market for you, how are you thinking about the growth of Canada full year fiscal '27?

Yes, I'll take that. So we have guided to total revenue growth of 36% to 39% for Q1. And embedded within that is comp of approximately 30%. So as indicated by the total revenue growth, we're doing extremely well thus far in the first quarter, and we're 3 weeks and a few days away from finishing the quarter. So obviously confident in the trajectory. And then from a Canada perspective, short of getting into the breakdown between the 2 countries, our total revenue growth for the year, as you've seen, is 19% to 24% and it's driven by momentum in both countries. We're expecting both Canada and the U.S. to see continued momentum, but the U.S. will continue to be leading our growth.

Got it. And then just one final one on the boutiques. You guided for 12 to 13 this year. You've had the last couple of years that rate, which has been above kind of like what you guided on your Investor Day. So is it fair to assume like the run rate should be more around 12 to 13 boutiques on a normalized basis?

Yes, yes. We've been at that level for the last couple of years now and expect to continue at that pace. And we'll be obviously providing our plans for FY '28 and beyond at our Investor Day in October. But for now, I would say, yes, very safe to assume 12 to 13.

The next question comes from Joe Civello with Truist.

Congratulations on the great results. It seems like you brought spring inventory to market a bit early in January of this year, and we saw working super well despite a freeze in New York, so kudos there. Just wondering if that's a strategic shift we should continue to see moving forward.

That's a great question, and we did launch spring earlier this year. In fact, we actually launched fall a little bit earlier, too. And what we're finding is in the transition weeks from one season to the next that introducing some fresher product into the stores is very effective. And certainly, depending on the region, what we're finding is there are regional nuances with whether it be climate or like the weather or events that are happening regionally. Back-to-school is earlier in the U.S. compared to Canada. So these are all these little nuances where the transition period is important and the timing of the product has been critical to our success.

Got it. Makes sense. And then just a financial question. Can you guys say what the DC investments are baked into the current guidance? Sorry if I missed that.

Yes. There's about $40 million for infrastructure projects that's included in our CapEx expectations for this year. Only about 1/4 of that is related to the completion of our DC here in Vancouver. And then we have a small amount allocated for the potential start of a new distribution center in the U.S., but we currently don't have a location or site or -- so that's still very much in the planning phases, and there isn't a meaningful distribution center cost within the CapEx number for this year.

The next question comes from Chris Li with Desjardins.

Jennifer, I think last quarter, you gave some good numbers on the mobile app in terms of the downloads and the percentage of transactions that are coming from the app. I was wondering if it's possible you can share with us an update on those trends.

Yes. Thank you for your question. Essentially, things are holding strong. If I had to sum it up, things are holding very strong with the mobile app. We couldn't be more thrilled with the response. It has been tremendous. We've mentioned that it's contributing high single digit incrementally to our e-commerce sales. That is still holding true.

Right out of the gate, we appear to be performing in the range of our best-in-class peers where it's accounted for 20% to 40% of our e-com sales total. The week-over-week downloads continues to be strong and remains consistent. We're seeing that the clients who are shopping on the app converts at a higher rate. They visit the app more frequently, and that's both for browsing and for purchasing. It's been tremendous.

That's great. And then just in terms of the downloads, I remember last quarter, you also mentioned that initially a lot of the downloads were from existing customers. In recent months, are you seeing that growth maybe skewing to more new customers as the word of mouth continues to spread?

There's no question that the majority of the downloads are from our most loyal and sort of engaged clients. So the majority of the downloads are with existing customers. But a good portion we're finding is that we are acquiring new clients as well with the app, which is interesting. And then some of the reactivated clients that I had mentioned in general earlier on the call is through our app, which is really interesting. So again, on all points, the app has been a huge success.

The next question comes from Corey Tarlowe with Jefferies.

I guess given the strong results, why acquire a business like Fred Segal? And then also, Todd, on freight, some of your competitors, whether it's apparel or footwear, have called out seeing some sort of impact from surcharges, whether it's several dozen basis points, whatever it might be. I don't know -- I don't recall that you called it out. I'm just curious if you did, if I missed it? Or could you talk about anything you're seeing from a freight perspective?

Okay. In case this is the last question, I'll start with the freight part of the answer. We have seen higher fuel surcharges and air freight costs, and we have included those at the level they're at today in our outlook. So assuming things stay consistent with where they are today, we have that baked in. Obviously, if it grows incrementally, we would have further pressure. But we have it in as of today.

And I have to tell you on the Fred Segal acquisition, I was in L.A. when we made the announcement, the public announcement, and it was incredible, the response. It was quite overwhelming, I think, for all of us. We actually held an event at the Fred Segal location and the number of people who were -- who drove by as we were setting up in the days leading up to that event, who pulled over and rolled down their window and said, congratulations with an amazing move and it's a phenomenal move. You guys made such a great move.

Everybody had a memory. They had a memory of their first this or their first that or they remember back when, and there was such an excitement and such a buzz for it. So I think the move -- I will even say Beth here told me as we were waiting for the call to start that she bought her first "fancy pair of jeans" there. She made a point of going to see Fred Segal when she went to L.A. So I mean, the nostalgia for the brand and just how big of a deal it is in that city is amazing.

And so we have seen this as an opportunity to capitalize on a brand name, the Fred Segal name that we think will be brand propelling for us and will elevate brand awareness for Aritzia in a very important market on the West Coast. So really excited to reimagine what Fred Segal means for a new generation. And I think that the media -- the earned media value of the announcement alone has already paid back some. So that's why.

Got it. That's very helpful. And then just one more follow-up for Todd. The top line guide is for, I believe, 19% to 24% for the full year with SG&A flat to levering 50 basis points. Are we to assume that, let's say, like 19% sales growth would be the leverage point on comp? Or is there embedded conservatism within that? Or how should we be thinking about what your leverage point is on fixed cost?

Yes. I wouldn't say that our guide is reflective of our leverage point. We're going to be investing to ensure we hit that level up to investing up to ensuring that we hit that level, and it's not really about where we lever. I would say we're well past our lever point at 19% to 24% revenue growth.

This concludes the question-and-answer session and today's conference call. Thank you for joining, and have a pleasant day. You may now disconnect your lines.

Thank you for standing by. This is the conference operator. Welcome to Aritzia's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.

Thanks, operator, and thank you all for joining Aritzia's Third Quarter Fiscal 2026 Earnings Call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer; and Todd Ingledew, our Chief Financial Officer. .

As a reminder, please note that remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts or projections expressed by the forward-looking information.

We would refer you to our most recently filed management discussion and analysis and our annual information form, which include a summary of the material assumptions as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information. Our earnings release, the related financial statements and the MD&A are available on SEDAR as well as the Investor Relations section of our website.

I'll now turn the call over to Jennifer.

Thanks, Beth, and good afternoon, everyone. I hope all of you had a wonderful holiday season. I'm pleased to share that Q3 of fiscal 2026 was another standalone quarter. Our teams executed on our strategic growth levers at a high level across the entire business, and our strong momentum has continued into the fourth quarter with record-breaking results over the holiday shopping season.

In Q3, we achieved for the first time ever $1 billion quarter. Total net revenue of $1.04 billion was well above the top end of our guidance range. Sales in October and November exceeded our expectations, particularly as we started to lap the exceptional top line growth beginning at the end of Q3 last year.

On a 2-year stack, trends accelerated sequentially throughout the quarter. This was fueled by broad-based strength across channels and geographies. The unparalleled demand for our everyday luxury offering, combined with our digital initiatives, new boutique openings and strategic marketing investments drove a 43% top line increase over last year. We're extremely pleased with our performance across both channels, with net revenue increasing 58% in e-commerce and 35% in retail.

Comparable sales grew an outstanding 34% fueled by double-digit positive growth in all channels and all geographies, led by our U.S. e-commerce business. The holiday season was off to a great start as we delivered another record-breaking Black Friday event. Retail sales in both Canada and the United States hit all-time daily highs with nearly 60% of our boutiques, achieving all-time sales record. E-commerce sales in both Canada and the U.S. also hit record daily highs.

In addition, we benefited from lower markdowns compared to last year's event driven by increasing affinity for our brand, broad-based demand for our product and our strong inventory position. During the quarter, our performance in the United States continued to drive our overall results. In Q3, we generated a 54% increase in U.S. net revenue. This highlights the extraordinary demand for our product and the tremendous momentum of the Aritzia brand. Our results were fueled by accelerated growth in e-commerce, supported by the launch of our mobile app and our investments in marketing.

In addition, our new and repositioned boutiques over the last 12 months continued to perform well. We also generated outstanding comparable sales growth in our existing boutiques. In Canada, we accelerated our sales growth for a fourth consecutive quarter. We achieved a 29% increase in net revenue in Q3. This was fueled by exceptional performance in e-commerce and strong comp growth in our boutiques.

In our retail channel, we delivered net revenue growth of 35%. This was driven by the success of our real estate expansion strategy and strong boutique comp growth in both countries. Over the past 12 months, total retail square footage growth was in the high teens. We opened a total of 13 new and 4 repositioned boutiques. This included 5 new boutiques in the third quarter, all in the United States as well as the reposition of our Flatiron flagship.

The strong comp growth in our boutiques continue to be primarily driven by traffic. This was fueled by the increasing affinity for our brand, which we supported with our strategic investments in marketing. Our real estate expansion strategy continues to yield exceptional results. This underscores the vast opportunity for growth in the United States, where we have just 72 boutiques today. The boutique we've opened in the U.S. in fiscal 2026, they're tracking to payback in less than 1 year on average.

This continues to be our target of 12 to 18 months. In Q4, we expect to open 4 new boutiques in the United States. These include locations in Cincinnati, which is a new market for us as well as in Las Vegas, Los Angeles and Scottsdale. We've also already opened and repositioned boutiques in Laval, Quebec. Our immersive retail experience is truly unmatched. This includes our operational store design, passionate style advisers, incredible cafes and of course, our beautiful product. Our boutiques, particularly our flagship best showcase of the Aristia everyday luxury brand ethos.

In November, we opened our third New York City flagship located right in the heart of Manhattan's iconic Flatiron District. It's just a couple of blocks away from our original boutique, which opened in 2015, and now a decade later, our new space is nearly 2x larger and it includes very own A-OK Cafe. To celebrate, we hosted a series of exclusive events, which garnered significant social and media coverage, amplifying the enthusiasm for our brand and introducing Aritzia to new audiences.

Every flagship marks a major milestone for our business. With every launch, we've raised the bar, refining and perfecting our strategy along the way. Our Flatiron flagship is the testament to that progress. celebrating the passion, collaboration and drive of our team as we continue building momentum and shaping our success across the United States. In e-commerce, we delivered an increase in net revenue of 58%. This was driven by the increasing appreciation for our brand as well as the successful launch of our mobile app.

Our focus on full funnel marketing continue to fuel website traffic, which increased meaningfully in both countries. We also continue to benefit from site enhancements, operational improvements and higher omnichannel engagement. The launch of our mobile app at the end of October achieved exceptional results and surpassed even our highest expectations. We drove strong adoption and excitement with elevated marketing and an exclusive product drop that sold out in just 1 day in the U.S.

The Aritzia app was the most downloaded app in the entire outdoor on its first day. In Canada, it remains the #1 shopping app for 9 days straight. In the U.S., it was #1 for 4 days. Total downloads to date are more than $1 million, far exceeding our expectations for the entire first year and reflecting the love clients have for our brands. Clients were quick to discover the value the Aritzia app provides to them, including greater access to our product assortment, styling expertise and guidance and exclusive products and content.

This is driving increased conversion and helping further fuel the momentum in our e-commerce business. We've already launched new app features and updates to elevate the client experience with many more to come. In addition, our new international e-commerce website continued to perform well. Sales in the quarter more than doubled compared to Q3 last year. This enhanced shopping experience is already fueling higher revenue growth through increased conversion.

Turning now to product. Throughout the third quarter, our assortment continued to resonate with clients across both Canada and the United States. Our fall and winter launch was exceptionally strong. We saw a positive client response across our iconic franchises, new styles and new colors. We offered excitement through the launch of the app, including [ collab and drops ] such as the Nike Aristia [ collab ] and the multiple color sweatfleece drop.

In addition, we remained well positioned with the right inventory in the right place to drive sales. Our rigorous focus on inventory and the exceptional demand for our brand enabled us to deliver an improvement in the year-over-year markdown rate and higher full-price sell-through. We continue to refine our integrated marketing approach to help grow awareness, build brand affinity and emphasize the features behind Aritzia's unique value proposition.

These include our high-quality beautiful products, our aspirational shopping environment and our engaging client service and our captivating communication, all at attainable price points. We're reaching more and more new clients while reinforcing our connection with existing clients. This is a key contributor to the outstanding momentum in our business. In the quarter, we also continued to leverage product collaborations to introduce Aritzia to new audiences.

This further amplifies our brand and create interesting moments to activate our clients. In Q3, this included the partnership with Nike as well as our collab with SALT & STONE. Both of these created excitement and helped drive traffic online and in our boutiques. As I mentioned earlier, our strong performance has continued into the fourth quarter with another record-breaking holiday period, excellent operational execution across our 3 strategic growth levers, geographic expansion, digital growth and increased brand awareness is driving sustained brand momentum and keeping Aritzia top of mind.

This momentum, along with our proven operating model and healthy balance sheet gives me immense confidence in our long-term goals for the business. As we look to fiscal 2027, we remain steadfast in further advancing our growth levers. First, our real estate strategy has continued to perform exceptionally well. We have yet another exciting pipeline of boutiques in premier locations planned for next fiscal year. Second, we have several digital initiatives that will support continued momentum in our e-commerce channel.

These include additional app features and enhancements for the digital marketing optimization and client engagement initiatives. Third, our new boutiques and marketing investments are proven multiyear strategy to help grow brand awareness in the United States. We also plan to keep making strategic investments to fuel our rapid growth. This includes investments in infrastructure. such as technology and the second distribution center in the United States.

As always, we will continue with a long-term focus and balance investing for the future with driving profitable growth. In closing, I'd like to thank our people for their unwavering commitment to creativity, excellence and teamwork. Without this dedication, our incredible achievement in 2025 would not have been possible. What's even more impressive is these exceptional results came against the backdrop of significant macroeconomic challenges. Our teams have set the standard for everyday luxury, and I couldn't be more proud.

With that, I'll now hand it over to Todd to discuss the details of our financial performance.

Thanks, Jennifer, and good afternoon, everyone. In the third quarter of fiscal 2026, we generated record net revenue of over $1 billion. Top line growth in both the United States and Canada was well above our expectations. We also continue to expand our margins, all combining to deliver a 55% increase in adjusted net income per diluted share.

Turning to the details of our performance. Third quarter net revenue increased 43% from last year to $1.04 billion. This was above our guidance range of 20% to 24% as trends from the middle of October through the end of the quarter exceeded even our highest expectations. Comparable sales grew 34%, driven by outstanding growth in all channels and across all geographies. Here's what drove this unprecedented performance.

First, we saw an exceptional response to our winter product. This was supported by our strong inventory position. Second, we generated accelerated momentum in e-commerce, fueled by the successful launch of our mobile app. Third, our performance was further driven by total retail square footage growth in the high teens. And finally, our increased investments in full funnel marketing generated substantial traffic growth and helped sustain our brand momentum.

In the United States, third quarter net revenue increased 54% to $621 million. This was driven by tremendous momentum in our U.S. e-commerce business powered by traffic growth of nearly 60%. In the U.S., we also benefited from square footage growth of approximately 30%, including a total of 15 highly productive new and repositioned boutiques over the last 12 months. In addition, we delivered outstanding comp growth in our existing boutiques. The consistent momentum we are generating gives us great confidence in our long runway for growth in the U.S. as we bring Aritzia to new markets and strengthen our presence in existing markets.

In Canada, net revenue growth increased sequentially for a fourth consecutive quarter, up 29% to $419 million. This was driven by accelerated growth in e-commerce, which was supported by the launch of our mobile app and strong comparable sales growth in our boutiques.

Turning to our sales channels. In e-commerce, net revenue increased 58% to $383 million. This tremendous performance was fueled by strong traffic growth driven by exceptional demand for our products, the successful launch of our mobile app, our investments in digital marketing and the halo effect from our new boutique openings. In Retail, net revenue increased 35% to $657 million. This was driven by the ongoing strong performance of our new and expanded boutiques as well as outstanding comparable sales growth in our existing boutiques.

Importantly, boutique openings continue to be our most predictable driver of top line growth, enhancing brand visibility and supporting client acquisition in both new and existing markets. This top line performance was instrumental in delivering gross profit of $479 million, an increase of 44% compared to the third quarter last year.

Gross profit margin expanded 30 basis points to 46% despite 410 basis points of pressure related to tariffs and the elimination of the de minimis. This pressure was more than offset by leverage on fixed costs, improved markdowns and freight tailwinds. SG&A expenses for the quarter were $290 million, leveraging 170 basis points as a percentage of net revenue to 27.9%.

The improvement was primarily driven by expense leverage and savings from our smart spending initiatives. Adjusted EBITDA was $208 million, an increase of 52% compared to the third quarter last year. Adjusted EBITDA margin expanded 120 basis points to 20%. The consistent margin improvement we've now delivered for 7 consecutive quarters underscores our dedicated focus on delivering multiyear margin expansion. Excluding the nonoperational FX impact this year and last, adjusted EBITDA margin expanded 220 basis points.

Turning to the balance sheet. Inventory was $508 million at the end of the third quarter, up 10% from last year. Our inventory continues to be well positioned to meet client demand and a key driver of our sales momentum. Our liquidity position is strong with $620 million in cash, no debt and 0 drawn on our $300 million revolving credit facility at the end of the third quarter.

With our growing cash balance, we are reviewing our capital allocation strategy with our Board of Directors. In the meantime, we plan to continue to opportunistically repurchase shares under our NCIB. Since the implementation of our NCIB on May 7 and through the end of the third quarter, we repurchased 474,000 shares, returning $41.3 million to shareholders.

Turning to our outlook. The strong momentum in our business has continued into the fourth quarter, fueled by another record-breaking holiday season. Given quarter-to-date trends, we expect net revenue in the fourth quarter to be in the range of $1.1 billion to $1.125 billion. This represents an increase of 23% to 26%, driven by double-digit comparable sales growth and the contribution from our boutique openings.

We expect gross profit margin in the fourth quarter to be approximately flat to up 50 basis points compared to the fourth quarter of fiscal 2025. As ongoing leverage on our fixed costs and lower markdowns are offset by approximately 400 basis points of pressure from tariffs and the elimination of the de minimis exemption. We forecast SG&A as a percentage of net revenue to be approximately flat to down 50 basis points compared to the fourth quarter last year as expense leverage and savings from our smart spending initiatives are offset by strategic investments in digital and technology to fuel our growth.

Given our year-to-date performance, and improved outlook for the fourth quarter, we are raising our net revenue forecast for the full fiscal year to the range of $3.615 billion to $3.64 billion, representing growth of 32% to 33% from last year. We are also increasing our outlook for adjusted EBITDA as a percentage of net revenue to the range of 16.5% to 17% for fiscal 2026. The strength we've generated in our business and our mitigation strategies are more than offsetting the 280 basis points of additional tariff and de minimis pressure this year. Importantly, excluding this pressure, our adjusted EBITDA margin for fiscal 2026 would be above our previous long-term target of 19%.

We are extremely pleased with the sustained momentum in our business, particularly as we've begun to cycle the extremely strong revenue growth starting in November of last year. This puts us well on track to achieve our fiscal 2027 revenue target 1 year early. Our proven operating model, healthy balance sheet and long runway for growth in the United States gives us confidence in our ability to sustain strong momentum in our business. We are executing at a high level, and we continue to make strategic investments to fuel our growth. This leaves us well positioned to create long-term value for our shareholders. Thank you.

With that, operator, let's please open up the line for questions.

[Operator Instructions] The first question comes from Irene Nattel with RBC Capital Markets.

And congratulations on another exceptional quarter. As you noted in your commentary, boutique openings continue to be the most visible driver of growth. And you mentioned a few times the long-term sustainable runway. And I'm wondering whether we should be thinking that at this point, maybe you might be accelerating the number of new store openings as we look ahead.

Irene, thank you for your question. We certainly did have a tremendous quarter, and we have talked about the market potential in the past, particularly in the United States, where we have just 72 boutiques right now, I have mentioned that we see a long-term opportunity of anywhere from 180 to 200, possibly north of 200 boutiques in the U.S.

And our focus continues to attract to be on attracting new clients and engaging our existing clients. And so right now, we're talking about opening a minimum of [ 12 to 14 ] boutiques in this year and in the next year. And as we look forward, we think that this cadence probably makes sense for us. That also includes a number of repositions, 4 to 5 repositions. And at this time, this is the cadence of store openings and repositions that we're looking at.

The next question comes from Luke Hannan with Canaccord Genuity.

I wanted to ask about the app. More specifically, how successful was the launch of the app and the promotion for the 20% off on the initial order? How successful was this in driving new clientele, both online and in-store.

Thanks for your question. The app launch was phenomenal. In 2 words, I'd say it was wildly successful. In my prepared remarks, I talked about downloads of over $1 million to date is at 1.4 million downloads. In the first day that we launched, we were the #1 app in the entire app store in both countries. I think we were the #1 shopping app in Canada for 18 days. we were beating out ChatGPT there for a number of days, particularly in Canada. So I mean, the app launch was beyond our wildest expectations. And we couldn't be more pleased that the results, I'm so proud of the team.

The next question comes from Corey Tarlowe with Jefferies.

I just had a couple of questions. One, on the complexion of the comp, could you just talk a little bit about the traffic versus ticket and maybe how that's trended so far throughout the year? And any color on what that looks like quarter-to-date? And then the second one is just a follow-up for Todd. On the second DC that you're opening, are there any considerations about what that cost might look like from a margin perspective or the fact that you're comping so strongly? Does it just basically netted out. I'm curious if you could provide any color there.

So on traffic -- Corey, on traffic, we said in our prepared remarks that our business, our top line and our comps, in particular, are primarily driven by traffic. We are seeing a huge change in terms of any other indicators like ticket price or basket size. I would say our business is primarily driven by traffic.

Great. And on the new distribution center in Vancouver, which I assume is the 1 you're referring to, not the potential second DC in the United States. For next year, obviously, we will have incremental rent as that DC ramps, we do expect to have savings from it but not at the beginning. And we are still planning for increased margin or margin expansion next year, and we look forward to providing guidance in May as it relates to the distribution center and the rest of our line items. But we do anticipate margin expansion next year despite the DC starting up.

Great. And is there any color on maybe any category specifically or anything you can provide there? That resonated really well in the quarter and then maybe quarter-to-date as well where you've seen some nice traction.

Yes. There's nothing really that we can speak of in terms of category. The demand for product was broad-based across all of our assortment. And everything -- when our business is -- we've said this before when our business is good, and we're delivering 43% top line increase, I mean there's a lot of things working really well. And certainly, our product assortment is just fantastic. I love what I see when I walk into the stores and when I'm growing online, I think our product looks absolutely fantastic. And what's even more is that we are in and have been in an excellent inventory position to meet the demand. So everything is working.

Next question comes from Brian Morrison with TD Cowen.

I want to go back to the mobile app. Can you just talk about perhaps what the penetration rate as a percentage of e-commerce was, maybe elaborate, Jen, on you talked about additional initiatives or new features that are forthcoming. And does the initial reception make you feel in time it could represent 40% of e-commerce sales? Is that realistic? And then just as a follow-up, your international website, can you just comment on where you're seeing the greatest traction with respect to regions?

Yes, all really good questions. Thanks, Brian. It's still very, very early days for us with the app. We just launched it. It's really only been up and running for a couple of months now. And I have also said that it's going to take us a few quarters to really see where the app nets out. .

What we're seeing with our best-in-class peer set is that the app makes up anywhere from 20% to 40% of their overall e-commerce business. I would say we are on track to be in that best-in-class category for sure. And so I'm very encouraged to see these early results. But as I said, it's probably too early to tell. I do anticipate that a portion of that will be incremental lift to our e-commerce business. And so only time will tell.

And certainly, as it relates to the new features that you're asking about? I suppose a byproduct of our success that everyone is watching us. So keeping in mind the competitive factors, I can share probably in very broad strokes what we we're leaning into. Certainly, the digital styling is something that keeps our customer returning to the app will produce more content, more interesting content, unique content and storytelling for the app.

Of course, there will always be smaller optimizations to reduce the friction in the shopping journey, looking to integrate the app with the boutique experiences in store for a truly omni experience so things of this nature. We've got a really robust road map that the team has put together and again, super excited for future releases of the app and upgrades. And so this, again, couldn't be more thrilled with the performance of the app so far.

As it relates to international, continue -- it's almost -- I mean that was a big piece of news too. And Todd and I were actually kind of joking that after the app news, it's almost, I guess, secondary thought, but still a really important aspect of our overall digital business. We're already seeing higher revenue growth driven by increased conversion on the international e-com side. I realize that it's only just over 1% of our current e-commerce business, but we've stated that we see that tripling in 2 years, and we are, again, well on track to see it that.

And so -- right now, I don't know if we're sharing what the top 5 areas of the world are. But certainly, guess I'll say in no particular order, English-speaking countries like the U.K. and Australia, [ which has been ] a surprise. Certainly, we have interest in Central Europe, like Switzerland and Germany and certainly in Asia, like China is a very big market for many people. And so you would expect that to be a good response there, too. What I'd say the good news is that we're getting lots of good information for future expansion of the Aritzia brand.

The next question comes from Jon Keypour with Goldman Sachs.

So I was wondering, given the momentum you guys are seeing and the seeming synergies in the word of mouth and the awareness around the brand. Are you finding any flexibility in the previously stated target of low single-digit marketing as a percent of sales?

Yes. Marketing has certainly amplified our brand and created a building greater affinity for our brand. I think it's been a huge add in the last year, 1.5 years to our overall playbook. And what we see with marketing is increasing the marketing spend in line with sales. So it will grow commensurate with our overall top line sales and remain a low single-digit percentage of sales.

Great. If I could get a follow-up. Just curious about the progression of the sales momentum from the pre-Black Friday period to the off-sale period between Cyber Monday and Boxing Week, so like the 2 periods of nondiscounting. Just what the momentum between those 2 periods look like?

I mean as both Todd and I see, we're absolutely thrilled with the momentum going from Q3 into Q4, effectively, we -- the momentum has been tremendous. We have -- it's -- and what do I say, we've had a phenomenal season. We've had a phenomenal last quarter, couldn't be more thrilled with what's happening going into Q4. We remind you we're lapping extremely robust growth last year in Q4, and we just really see our business firing on all cylinders.

The next question comes from Mark Petrie with CIBC.

And I'll echo my congratulations on the stellar results. Two areas of follow-up, I guess. first, just on the app integration or introduction, where would you say that put you in terms of e-commerce 2.0? Like how far are you in terms of, I guess, execution? And then how far along do you think you are in terms of seeing the payoff from that with consumers?

Yes. We -- about 2 years ago, we embarked on e-commerce 2.0, and we had a real concerted effort and intention to accelerate our digital and omni business, with the build-out of the team and leadership there. I think we're probably 1/3 to approaching halfway through. I think we've built a lot of good fundamentals, a lot of good base infrastructure. We re-platformed our technology stack. We've restructured the team and our ways of working a little bit. We've now hit a couple of milestones with the international e-commerce side with the app. There's still a lot of runway to go and still a lot of really exciting things for us to do. .

And I think with it continuing to be about 1/3 of our business, while our retail business is absolutely taken off as well. I think back when we were talking about e-commerce 2.0, the retail -- we had been projecting the retail business at a certain clip. And the retail business has actually outperformed what we originally thought then, too. So considering that our penetration has stayed the same and continues to keep up with the retail base continuing to grow at the clip that is growing. I think overall, our business in both channels is doing phenomenal. And certainly accelerating digital and the omni-experience is a big part of that.

The next question comes from Joe Civello with Truist.

I just wanted to ask, were there any transitory costs associated with kind of logistical process shifts due to de minimis exemption change. And then secondly, as we build through next year, can we just talk more about some of your IMU initiatives and what inning you're in there, especially as scale continues to grow so rapidly?

Yes. Thanks. 100%, there were costs in Q3 embedded related to the de minimis removal and the shift of all of our fulfillment in the United States. That makes up a portion of the 410 basis points of pressure that we experienced from the tariff and the removal of the de minimis with about 2/3 of the pressure coming from the tariffs and 1/3 coming from the removal of the de minimis. Of note, obviously, we are extremely pleased that we still leveraged 30 basis points for really a total increase of 440 basis points [ ex the tariff ] and de minimis in the quarter. So pleased with that. And there was some benefit from IMU improvement in Q3. But as we look forward, we are continuing that multiyear IMU improvement and do anticipate that it will be part of the driver of what helps us improve our margins again next year.

The next question comes from Mauricio Serna with UBS.

First, maybe could you talk a little bit more about the brand awareness component. You mentioned that as one of your levers. How has that progressed in the U.S.? How does that look relative to Canada? And then quick follow-up on the Q4 guidance. Just fair to assume on sales that, that implies around like a mid-teens comp for the quarter? And what is that -- like what is the comp looking quarter-to-date?

Thanks, Mauricio. I'll take the first part of the question on our brand momentum. I mean experiencing amazing brand momentum, particularly in the last 1.5 years when we when we increased our marketing efforts and our strategic investments in marketing and that, coupled with the boutique openings themselves and the flagships are opening.

So I think it's not any one thing. It's many things all coming together and certainly the marketing is amplifying all of the amazing things that we're doing in the business to elevate our brand and to really ensure that everyday luxury comes to life in everything that we do in every touch point with the client. And certainly, I think our business itself is showing the results of the increased brand awareness in the U.S. and not just awareness but actual affinity for the brand and love for the brand. In Canada, we're very well known and loved and that our goal was to achieve that same level in the U.S. And I think we are well on our way. And certainly, our results with the 43% top line increase, a $1 billion quarter shows that.

Great. And I'll take the comp portion of the question. In the fourth quarter, our guidance assumes comp in the high teens, which delivers the 23% to 26% revenue growth, and we are trending slightly ahead of that today.

Got it. Just a very quick follow-up on that. So I guess like if I think about your commentary that you said 2-year stacks accelerated throughout Q3. That means like that acceleration has continued into December and quarter-to-date just based on this guidance and what you -- yes, what you're expecting in the comp?

Yes, yes, 100%. It's accelerated slightly. Obviously, we're lapping 26% comp in Q4 last year. So we've got 43% to 46% approximately from a comp -- a 2-year stack comp that we have embedded in our guidance. We're extremely pleased with what we're seeing in the fourth quarter. And we were obviously a number of months ago seeing great momentum in our business and knowing that we had November and the acceleration that we saw in November coming up. And obviously, we've just moved right through that and continue to see the extremely strong momentum in the business.

The next question comes from Chris Li with Desjardins

Congrats on the strong results. The first question is, I know that over the last couple of years, you've done a lot of work to make the inventory more productive and efficient. Are you pretty much where you need to be now? Or is there room for further optimization that will allow you to really capitalize on the strong product demand and drive further margin improvement?

Thanks for your question, Chris. We have done a lot of work in terms of how we approach our inventory. And I would say that the team has done tremendous work and has taken things to the net level in terms of how they're looking at our inventory and the level of sophistication with our inventory management is just it is phenomenal.

So I would say nothing is ever perfect around here. I mean I think that's one of the things that drives us is we're striving for perfection and we're always -- we have this culture of continuous improvement and always refining right down to the last minute and [ finest detail ] of what we can be better. So we're always going to be honing our craft here and always getting better, and we always do get better. But certainly, as it relates to inventory, I would say that is huge driver. One of the many things that we're doing very well, but it's a huge driver to these fantastic results. Certainly, we have had the inventory to meet the demand and the increase in demand that we've experienced particularly in the last year. And again, I couldn't be more pleased with what the team has done in order to make sure that we are in that position and continue to be in that position.

That's very helpful. And if I may squeeze in just a follow-up, just in terms of the comp guidance for Q4, the high teens would imply north of 45% 2-year stack. I know you guys haven't given guidance for next year. But as you start really lapping reallhy strong comps, it's sort of that 2-year stack reasonable to expect for next year it's given the really the strong momentum that you guys are continuing to see?

Yes. I like your enthusiasm for what's going on here for us. We were just as enthusiastic about 2027 as well, although we're not providing any guidance on this call today for 2027. What I will say is we are thrilled with the momentum. We do have to keep in mind the 2-year stack. That said, we are super well set up to succeed and have a strong year with all the elements in place to deliver in 2027 like we have in -- so far 2026 and we're going to stick to our strategy and stick to our playbook and because that's proven that's delivered, whether it be having the right product in the right place, at the right time, increasing our square footage, growth with the 12 to 14 boutique openings and an additional reposition.

We got those digital initiatives on the go. And certainly, the strategic investments in marketing that help create more demand and drive even more traffic. So all of those things remain in place and it gives me tremendous confidence for what we have ahead. I've been with the company now for a very long time. I'm coming up on 39 years, and I've never been more excited about the business as I am right now.

The next question comes from Ike Boruchow with Wells Fargo.

Let me add my congrats. I guess 2 questions for me maybe for Todd. I guess -- I know you're not going to comment specifically on guidance for next year. But last quarter, you kind of took the '19 off the table and just went a little bit lower to high teens given the tariffs that you've meaningfully outperformed in Q3 and your implied 4Q just went up by a lot.

So I mean are you comfortable putting the '19 back on the table just because of the upside you've kind of generated this quarter and what's coming up in the fourth quarter? And then a quick follow-up to that is it's a product of your own success. You guys are going to be lapping something like 25% plus comps annually next year. You go back a couple of years ago, you guys also had a phenomenal year, and you had a little bit of trouble lapping those tough compares. It doesn't seem like it's happening at all here. But are there learnings from fiscal '24 that you kind of apply to kind of make sure that doesn't happen again. I'm just kind of curious how you can compare and contrast what's coming up in '27 versus kind of what happened back in '24.

I'll take the first question. So first off, no, we would not put the '19 back on the table at this point. And I think we're most comfortable with that high teens. We do plan to have further margin expansion next year. But I think we're more comfortable with the high teens than leaving the '19 or putting the '19 back on the table. But we look forward to providing guidance again in May.

And the second part of your question, which is kind of a broad question. My response to that is it comes down to execution. And what we're experiencing right now is an example of -- it's close to an impeccable execution as you can get. And I think we've always prided ourselves on executing in the business. And when we're executing in all areas of the business is when we see these exceptional results. So what I would say to your question is, right now, I find it immensely gratifying to see how our strategy which has not changed and the focus of the last 3 years is coming to fruition and delivering on these results. And I think if we stick to that and continue to do what we're doing, we [ will see ] the consistency in our growth and in delivering results.

The next question comes from Navin Nuchem with BMO Capital Markets.

You have [ Navin ] for Steve today. I'm hoping you can provide an update on your sourcing exposure by company -- or sorry, country rather and just confirm whether you're on track for the mid-single-digit percentage or less from China by spring '26.

Yes, we're on track. That's one of the things that we're extremely pleased with what we've accomplished over the last 12 months. The team has done a remarkable job, sitting here this time last year, we were receiving our spring inventory and approximately 30% to 35% of that was being sourced from China. And today, we are in the mid-single-digit country margin from China. And so it's actually remarkable what the teams have done over that 12-month period. We are more weighted now to Vietnam and Cambodia as well as a number of other countries. But I think over time, our -- the next phase of our sourcing initiative is to balance more evenly and try to get to a position where maybe we have no more than 20% to 25% sourced from any given country.

The next question comes from Michael Glen with Raymond James.

Just 1 question for me. The 1.4 million downloads that you spoke about, Jennifer. How do we think about that in terms of a penetration rate across your overall customer base? And how does that penetration rate compare against what you see with peers. Thank you.

Yes, great question. Obviously, the response to our app has been tremendous, and I think our clients have been very quick to recognize the value that the app offers and hence, the number of downloads. So the majority of the customers downloading the apps are our existing customers. They are a highly engaged customer. The great news is, is that there is a good portion of those downloads that our new customers. And what I find particularly encouraging is that we even have a few reactivated customers, customers who haven't shopped with us in quite some time and because of the app that they renewed their relationship with us. So I think on all different points, the app is providing us tremendous benefit and certainly is allowing us to engage with a customer even more deeply.

And I know you're unlikely to give me a number, but is 1.4 million, how do we think about where that number could eventually get to over time?

As I said earlier in this call, it's too early to tell and you're absolutely correct. [ I am unlikely to tell ] you that number. But really, it's very early to tell. And certainly, there was a lot of marketing support around the launch of the app. So we came out with fantastic success. And we'll share more as we know more as the quarters progress.

The last question comes from Martin Landry with Stifel.

Congrats on your results. Maybe just a quick one for me on fiscal '27. You've talked about 4 -- 12 to 14 boutiques opening and for the 5 relocations. What does that mean in terms of square footage growth?

Overall total square footage growth, it would be in the low teens.

low teens. Perfect. Okay. Thank you so much, and congrats again.

This concludes the question-and-answer session and today's conference call. Thank you for joining, and have a pleasant day. You may now disconnect your lines.

Thank you for standing by. This is the conference operator. Welcome to Aritzia's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I will now turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.

Thanks, operator, and thank you all for joining Aritzia's Second Quarter Fiscal 2026 Earnings Call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer; and Todd Ingledew, our Chief Financial Officer.

As a reminder, please note that remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts or projections expressed by the forward-looking information.

We would refer you to our most recently filed management's discussion and analysis and our annual information form, which include a summary of the material assumptions as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information. Our earnings release, the related financial statements and the MD&A are available on SEDAR+ as well as the Investor Relations section of our website.

I'll now turn the call over to Jennifer.

Thanks, Beth. Good afternoon, everyone, and thank you for joining us today. I'm delighted to share that our results for the second quarter of fiscal 2026 exceeded the outlook we provided in July across sales and margin. Trends in July and August surpassed even our highest expectations as we fueled exceptional broad-based strength across channels and geographies. This was driven by continued robust demand for our high-quality beautiful products as our summer assortment seamlessly transitioned to the launch of our fall campaign, which began at the end of July. This, combined with our strong inventory position, strategic marketing investments and new boutique openings drove a 32% top line increase over last year.

We achieved net revenue of $812 million in the second quarter, well above the top end of our guidance range. We're extremely pleased with our performance in both channels with net revenue increasing 34% in retail and 26% in e-commerce. Comparable sales grew an outstanding 22% fueled by double-digit positive growth in all channels and all geographies, led by our U.S. e-commerce business. Our performance in the United States continued to drive our overall results.

In the second quarter, we generated a 41% increase in U.S. net revenue, underscoring the strength and growing awareness of the Aritzia brand. Our results were fueled by the strong performance of our new and repositioned boutiques over the last 12 months. In addition, elevated demand for our products drove continued momentum in e-commerce, which we supported through strategic investments in marketing.

We also generated outstanding comparable sales growth in our existing boutiques. During the quarter, we continued to focus on driving brand awareness and fueling the growing appreciation for our everyday luxury offering. We've seen outstanding new customer growth in the United States, where our base of loyal clients expands quarter after quarter. We're also super pleased with our second quarter results in Canada. We accelerated our sales growth for a third consecutive quarter, achieving a 21% increase in net revenue in Q2.

We continue to maintain strong loyalty in Canada as clients responded well to our product assortment. In addition, our marketing investments helped drive double-digit growth in our active client base. In our retail channel, we delivered net revenue growth of 34% in the second quarter. This was driven by the success of our real estate expansion strategy as well as strong comparable sales growth in both the United States and Canada. Over the past 12 months, we increased our retail square footage by 25%, opening a total of 13 new and 4 repositioned boutiques. This included 3 new boutiques and 1 reposition boutique in the second quarter, all in the United States.

We also generated high teens comparable sales growth in our existing boutiques. This is primarily driven by traffic growth due to the elevated demand for our product and supported by our strategic investments in marketing. Our real estate expansion strategy continues to yield exceptional results. This underscores the vast opportunity for growth in the United States, where we have just 68 boutiques today. The boutique we've opened in the U.S. in fiscal 2026 are tracking to pay back in less than 1 year on average that exceeds our target of 12 to 18 months. Boutique openings continue to be our most predictable driver of top line growth. They enhance brand visibility and support client acquisition in both new and existing markets.

In Q3, we expect to open 6 new boutiques in the United States. This includes locations in Pittsburgh and Scottsdale, which are new markets for us as well as in Denver, Miami and Minneapolis. We also plan to open our newly repositioned Flatiron flagship in Manhattan. In e-commerce, we delivered an increase in net revenue of 26% in the second quarter. This was driven by the robust demand for our product from our summer assortment to the launch of our fall campaign. Notably, our focus on full funnel marketing fuels an increase in website traffic of nearly 50% in the United States. In addition, we benefited from site enhancements, operational improvements and higher omnichannel engagement.

In late August, we launched our new and improved international e-commerce platform. The site offers an enhanced shopping experience, which is fueling higher revenue growth through increased conversion. Its performance in the first 6 weeks have meaningfully exceeded our expectations, and we're confident we'll hit our target to triple sales within 2 years or less and that's before we've even launched any dedicated marketing, which is still to come. In addition, I'm excited to report that we're on track to launch our mobile app later this month. The Aritzia app is the introduction of an entirely new shopping channel for our clients. It will place duration, selling expertise and our quality product right in their hands.

These new platforms provide clients with greater access to our product assortment, while reducing friction, increasing conversion and most importantly, further fueling the momentum in our e-commerce business.

Turning now to product. Throughout the second quarter, demand for our assortment was broad-based across multiple categories. We saw an outstanding response to our fall launch across all geographies as clients responded well, both to our iconic franchises and our new styles. These included exciting new colors and prints. Due to the success of our spring/summer styles and focus on seasonal transitions, we drove stronger full price selling year-over-year.

In addition, we remain well positioned with the right inventory in the right place to drive sales. Looking ahead, new winter styles and exciting drops and collaborations will surprise and delight our clients. We're confident these will keep clients engaged and attract new clients, all driving continued strong performance. We're continuing to refine our marketing engine across the organization to help grow awareness and spotlight all the different aspects that set Aritzia apart, namely high-quality, beautiful product, aspirational shopping environment, engaging client service and captivating communications, all of which is provided at an attainable price point.

In Q2, we continued to deepen our focus to ensure that everyday luxury is synonymous with the Aritzia brand. Partnerships with Sperry and Whistle helped solidify Aritzia as a destination for exciting brand collaboration. In addition, celebrity sitings in iconically Aritzia pieces reinforced Aritzia as a much loved and highly sought-after brand with aspirational appeal. Our increased investment in digital marketing continues to fuel our growth, both online and in our boutiques. We're continuing to refine our programs and tactics across existing channels while launching new channels to further drive brand awareness. Our focus remains on reinforcing our everyday luxury brand ethos, growing awareness across U.S. demographics and acquiring new clients and retaining existing clients to drive incremental revenue.

Shifting to the current trade environment, Previously, under the de minimis exemption, we utilized our existing supply chain network in Canada to fulfill a portion of U.S. e-commerce orders. However, the removal of the de minimis exemption in August required an operational pivot. We've relocated all U.S. order fulfillment to our distribution center in Ohio, which we strategically expanded last year to 560,000 square feet, more than double its prior size. We've also hired additional staff and pulled forward retrofitting work.

We are now operating at triple the capacity compared to prior to the de minimis removal. And eventually, further optimization will allow us to quadruple our prior capacity. More importantly, there was no impact on the exceptional client service for which we are known and loved. This will allow us to handle U.S. order volume for the next 2 years. I'm extremely proud of our teams for the seamless transition.

Despite headwinds from the elimination of the de minimis and higher reciprocal tariff rates on Vietnam and Cambodia, our proactive mitigation strategies and strong revenue growth have positioned us very well. As a result, our margin outlook for fiscal 2026 is unchanged at 15.5% to 16.5%. We're leveraging our agile global supply chain to minimize tariff exposure where possible. We continue to expect our China sourcing mix to be in the mid-single digits, if not lower for spring 2026. We've also received cost-sharing support from our long-standing supplier partners. In addition, we're continuing to focus on smart spending and IMU improvement to key multiyear initiatives to drive margin expansion.

We continue to navigate macro development from a position of strength. The fact that we're still growing our margins this year in spite of these developments speaks to our agility and ability to execute with excellence. Without reciprocal tariffs and the removal of the de minimis, we would otherwise be tracking to an adjusted EBITDA margin of 18% to 19% for this year. That's in line with our long-range target 1 year early. Looking ahead, we're pleased with the start to our third quarter. The outstanding momentum in our business has continued across all channels and all geographies. We continue to be in a strong product position with the right product in the right place at the right time. We're also in a strong inventory position to meet the robust demand for our product.

In addition, we continue to make progress with our digital initiatives. We're launching our mobile app later this month delivering ongoing site enhancements and operational improvements and continuing to refine our strategic marketing investments, which are all driving traffic and creating demand. And last, but certainly not least, we have a terrific pipeline of 9 new boutiques opening in the back half of this year as well as the reposition of our Flatiron flagship. The momentum in our business, our proven operating model and our healthy balance sheet give us confidence in our path forward as we capitalize on our vast opportunity for growth in the United States and beyond.

In closing, I would like to thank our people for their hard work and commitment to excellence as we grow the Aritzia brand. Our consistent strong results would not be possible without all of our exceptional teams across the business. With that, I'll now hand it over to Todd to discuss the details of our financial performance.

Thanks, Jennifer, and good afternoon, everyone. In the second quarter of fiscal 2026, we generated outstanding net revenue growth above our expectations and delivered meaningful gross profit margin expansion and SG&A leverage. This resulted in over 600 basis points of improvement in our adjusted EBITDA margin and adjusted net income per diluted share that nearly tripled compared to the second quarter last year.

Turning to the details of our performance, we delivered net revenue of $812 million in the second quarter, an increase of 32% from last year. This was above our guidance range of 19% to 22% as trends accelerated meaningfully in the back half of the quarter. Comparable sales grew 22%, driven by double-digit growth in all channels and across all geographies.

Here's what drove this strong performance. First, our summer product performed extremely well, and we saw an exceptional response to the launch of our Fall product in late July, supported by our strong inventory position. Our growth was further fueled by a 25% increase year-over-year in total retail square footage. And finally, our increased investments in digital and brand marketing resulted in significant traffic growth across both channels. All of this manifested in a meaningful increase in active clients. In the United States, second quarter net revenue increased 41% to $486 million, exceeding our expectations. Our U.S. e-commerce business was driven by traffic growth of nearly 50%.

In U.S. retail, our performance was driven by the opening of highly productive new and repositioned boutiques as well as strong comparable sales growth in our existing boutiques. Our ongoing success in the United States underscores the strength of our brand and our long runway for continued growth. In Canada, our performance also came in ahead of expectations. Net revenue growth accelerated for a third consecutive quarter, increasing 21% to $326 million. In addition to the strong performance of our product, we continue to benefit from our strategic investments in marketing.

Turning to our sales channels. Retail net revenue was $572 million, an increase of 34%. This was driven by high teens comparable sales growth in our existing boutiques as well as the strong performance of our new and repositioned boutiques. In e-commerce, net revenue was $240 million, an increase of 26%. This was driven by strong traffic growth that was fueled by the positive response to our product as well as the halo effect from new boutique openings and our investments in digital marketing.

We delivered gross profit of $356 million, an increase of 44% compared to the second quarter last year. Gross profit margin expanded 360 basis points to 43.8% despite 220 basis points of pressure from tariffs and the start of the de minimis elimination. The increase was primarily driven by IMU improvements, leverage on store occupancy costs, lower warehousing costs and improved markdowns.

SG&A expenses for the quarter were $250 million, leveraging 160 basis points as a percentage of net revenue to 30.8%. The improvement was primarily driven by expense leverage and savings from our smart spending initiatives. Adjusted EBITDA was $123 million, an increase of 123% compared to the second quarter last year. Adjusted EBITDA margin expanded 610 basis points to 15.1%. This was driven by our ongoing efforts to deliver multiyear gross profit margin expansion as well as SG&A expense leverage. The margin improvements we've now delivered for 6 consecutive quarters, continue our progress toward achieving our previous adjusted EBITDA margin levels in the high teens.

Turning to the balance sheet. Inventory was $527 million at the end of the second quarter, up 9% from last year. We are pleased with the composition and quantity of our inventory and are well positioned to meet client demand. Our liquidity position is strong with $352 million in cash, no debt and 0 drawn on our $300 million revolving credit facility at the end of the second quarter.

Turning to our outlook. The strong momentum in our business has continued into the third quarter. Given quarter-to-date trends, we now expect net revenue in the third quarter to be in the range of $875 million to $900 million. This represents growth of 20% to 24%, driven by double-digit comparable sales growth and the contribution from our boutique openings.

Our net revenue outlook for the third quarter is based on continued outperformance in the United States as well as strength in Canada. We expect gross profit margin in the third quarter to be approximately flat compared to the third quarter of fiscal 2025. This is driven by IMU improvements and leverage on store occupancy costs offset by approximately 400 basis points of pressure from tariffs and the elimination of the de minimis exemption. We forecast SG&A as a percentage of net revenue to also be approximately flat compared to the third quarter last year as strategic investments in projects to support our growth are offset by expense leverage.

Given our year-to-date performance and improved expectations for the second half of the year, we are raising our net revenue forecast for the full fiscal year to the range of $3.3 billion to $3.35 billion, representing growth of 21% to 22% from fiscal 2025.

Turning to tariffs. We now forecast 280 basis points of tariff-related headwinds for the full fiscal year compared to 150 basis points previously. There are 2 factors driving the 130 basis point increase. First, reciprocal rates on Vietnam and Cambodia increased to 20% and 19%, respectively. They had been at 10%. This results in an incremental 50 basis points of gross margin pressure for the fiscal year.

Second, as Jennifer mentioned, the removal of de minimis exemption means that we will no longer be able to realize duty savings on a portion of our U.S. e-commerce orders. This creates an additional 80 basis points of gross margin pressure for fiscal 2026. Despite the incremental 130 basis points of pressure, our adjusted EBITDA margin forecast for the fiscal year is unchanged at 15.5% to 16.5%. Our ongoing mitigation strategies and the strength of our business fully offset the incremental tariffs and de minimis pressure.

Importantly, excluding the 280 basis points of total tariff and de minimis related pressure, our adjusted EBITDA margin for fiscal 2026 would be in the range of approximately 18% to 19%. We are extremely pleased with the consistency and the strength of our performance. We are well on track to achieve our fiscal 2027 revenue target. We also continue to make strategic investments in our future growth while delivering ongoing margin improvement despite the incremental tariff impacts.

In closing, our product is resonating extremely well with our clients. We have a robust pipeline of new boutiques and our growth opportunity in the United States remains sizable, with only 68 locations currently. Our digital initiatives are helping to build brand awareness, generate loyalty and drive revenue, all positioning us for continued growth now and into the future. The combination of our anticipated revenue growth and margin expansion will drive meaningful multiyear EPS growth and deliver long-term value to our shareholders. Thank you.

With that, operator, let's please open up the line for questions.

[Operator Instructions] The first question comes from Irene Nattel with RBC Capital Markets.

Great quarter. It certainly sounds as though there's very strong momentum in the business. Wondering whether as we look ahead to F '27, how confident you are in that high teens guide? What would be the factors that would cause you to either over or underdeliver relative to the soft guide that you include in the release?

Irene, it's Todd. The high teens guide, we updated that for FY '27 just due to the fact that we've now had another incremental 130 basis points of pressure from the tariff changes for Vietnam and Cambodia as well as the de minimis removal for the rest of the world. So that will create obviously pressure next year. But we still expect to deliver high teens adjusted EBITDA margin, which does include 19%, but we thought it was prudent to give ourselves a bit more of a range on that. And we still have multiyear IMU opportunities. Obviously, the strength in the business is supporting operating leverage, diversification of our sourcing continues as well as negotiation with suppliers.

Our spend management initiatives are delivering benefits. So we still anticipate continuing to grow our margins next year despite all of the added pressure, and we do continue to have a multiyear runway for margin expansion.

That's really helpful. And so how would you -- just following up on that, are you satisfied with sort of the margin mix that you're delivering across different categories at this point in time?

I mean we're extremely satisfied. We obviously delivered 600 basis points of EBITDA expansion, saw meaningful gross profit margin expansion, 360 basis points and also SG&A leverage. So we couldn't be more pleased with what we're seeing in the business. And obviously, if we didn't have any of this tariff and de minimis pressure, we'd be talking about our EBITDA margin forecast for this year being in the 18% to 19% range. So we're incredibly proud of the teams across all components of the business.

Our next question comes from Martin Landry with Stifel.

Todd, I would like to touch on your cash balance. You guys are exceeding expectations, your own expectations for a couple of quarters now and your cash is building up. I think it's around $350 million for the quarter. Like what is at the level that you need to operate your business on a daily basis? And what is the level of extra cash that you currently have according to you?

I think we're obviously above the level of what we need from a working capital perspective. Anywhere between $100 million and $200 million would be a comfortable position from a working capital perspective, depending on the time of year. But we have started repurchasing shares last quarter during the open trading window. We purchased 200,000 shares under the NCIB. And we actually also purchased 250,000 shares to use for the settlement of our RSUs that we're vesting this year.

So we have actually purchased back a meaningful amount of shares in the last several months. And we continue to target offsetting our option dilution for the year and at a minimum, buying back about 1 million shares.

Okay. So your targets for 1 million shares of buyback this year? And then what could we expect that to accelerate next year? I mean, your CapEx should not expand a ton and your earnings will continue to expand. So I mean, is it fair to expect that your buyback could accelerate in fiscal '27?

I mean, at this point, our plan is as -- has been communicated, which is to buyback to offset option exercising. We will, as we do every quarter, discuss our cash position with the Board. And at some point, we may increase the cadence. But at this point, we don't have plans currently to do that.

The next question comes from Mark Petrie with CIBC.

Obviously, the consumer is reacting incredibly favorably to the assortment. And I know it's broad-based strength, but helpful to hear anything specific that is working better than expected? Or were you sort of see opportunity to further lean in, and then I'm also hoping you can talk about the U.S. specifically and your momentum with regards to brand awareness and maybe that layer that into how you're approaching the marketing around the final New York City flagship opening next month or later this moment.

Yes. Thanks, Mark. That's a great question. As usual, when our performance is great, everything is working really well. In particular, in Q2, we mentioned we saw our business accelerate in July and August. So there wasn't anything in particular to call out in terms of categories or styles, colors, fabrics, they're all of it was working.

One of the things that did happen in the quarter was our summer to Fall transition was particularly very well executed, I think our timing was impeccable. We did have some marketing around that, the product marketing around the earlier launch in July was very, very effective. And so that does lead to probably the second part of your question, which is our marketing is getting better. We're getting better at it, and we're seeing that it's really quite effective.

And certainly, last year, when we opened 3 flagships, always in a matter of recent each other right around Black Fiveday, and we marketed it, it was very, very effective. That was somewhat of an unprecedented moment.

That said, our Flatiron flagship will be opening around the same time, but the timing happens to incidentally work out for us. And given the success of what we saw last year, we do hope to have similar programming around the flagship in November. That said, it's 1 flagship -- it is also in Manhattan. The sale won't be necessarily the same as opening 3 flagships at once. But certainly, we do see that when we open a flagship and we amplify the news, it is quite effective.

Yes. Okay. That's helpful. And then just given the even further improvement in the store paybacks, I'm wondering what you're thinking for new stores next year? And also if there's sort of value or merit in kind of further tweaking the store experience, whether that's store sizes or like more cafes or other features?

Maybe I'll sort of frame it up, zooming out in terms of the bigger picture and then Todd could speak to some more of the details. But certainly, what we're seeing with our store openings right now and in particular, as it relates to the flagship, they are an amazing showcase of our everyday luxury experience. And so what we're seeing like with the flagships and in some of our bigger format stores, introducing the A-OK cafes has been really, really successful.

We just opened in Brickell in Florida, couple of weeks ago last week, and the A-OK cafe had lineups around the door, just like when I talked about the one here locally just outside of Vancouver. So those aspects of our retail experience really seem to be resonating very well with the customer. That, coupled with the in-store experience with the Italiers and just our style advisers in the store are some of our biggest differentiators when it comes to our retailing.

And as you know, over the years, we've increased the size of our stores. When we -- 10 years ago, we were talking about stores that were 6,000 square feet, then a few years after that, 8,000 square feet. And now we're talking about an average store size of 10,000 square feet. So we are seeing lots of momentum in our retailing and our retail experience and a lot of these aspects that we've introduced over the years is really, really catching on and really resonating with our customer.

Great. And then just to add on from a specific perspective, we do have a strong pipeline of boutique planned for next fiscal year with, again, a minimum of 12 new boutiques and 4 to 5 expansions and repositions with leases signed on a majority of those locations. So we have already -- and the specific locations for the others already identified and the negotiations underway. So yes, we're pleased with the cadence for next year, and it will be slightly more balanced to the first half, second half than weighted to the back half.

Next question comes from Stephen MacLeod with BMO Capital Markets.

Firstly, yes, congrats on the very solid quarter. Great to see. So I had 2 questions. One is sort of high level and one is a bit more nitty-gritty, I suppose. But just on the high level, just sort of picking up with the commentary you were currently discussing around the U.S. stores. Can you talk a little bit about kind of how you're thinking about your total U.S. store growth potential over time, whether it's new locations, new markets or just total sort of store count?

Thanks, Stephen. Yes, we see still a ton of runway in the U.S. As we've mentioned, there's only 68 boutiques in the U.S. today. And long term, we see an opportunity that might be closer to 200 -- 180 to 200. Our focus is on attracting and acquiring new clients. We still see that there's a lot of runway there, a lot of white space. And our strategy is clearly proven and strong. And the great news is that we have a pipeline of stores that are identified, and we see that this is something that we can really capitalize on over the next few years.

That's great. And just along those lines, can you just remind us how many new markets you've entered or will be entering in fiscal '26?

The new markets this year are total 5. It's Raleigh, Salt Lake City, Pittsburgh, Cincinnati and then 2 stores in Scottsdale.

Okay. Great. And then just my more specific question was around -- just on the SG&A leverage. I mean, obviously, this strong top line is continuing into fiscal Q3, but you're not seeing -- not expecting SG&A leverage. Can you just talk a little bit about some of the strategic investments that you called out in your guidance commentary around SG&A?

Yes, absolutely. So one is the distribution center here in Vancouver, where we have both capital and expenses related to that project. So there's incremental investment happening there compared to the prior year. And then we just have a number of projects underway that are across the business, whether that be RFID, merge planning software, ongoing investments in digital. We have workforce planning software development underway, really just improving on our world-class infrastructure. And just as it works out, the cadence between our project spend in Q3 and Q4 last year wasn't at the same level as the project spend for the back half of this year.

[Operator Instructions] The next question comes from Dylan Carden with William Blair.

Okay. It seems sort of a not insignificant piece of the acceleration over the last 3 quarters in part some of the incremental marketing and obviously, the awareness boost you're getting from the flagships. I'm just curious, you had a comment in there about sort of the meaningful increase in active customers and Todd in some of your last comments touched on sort of loyalty. Do you have a read or are you sort of confident with the profile of quality of some of these customers that are coming into the business quick?

And particularly as you have a view to lapping 20-plus percent comp on the back end of this, presumably, you keep marketing at a similar level, you gain efficiencies. But anything around kind of how you're thinking about how these customers roll forward would be helpful.

Thanks, Dylan. That's a very good question, and I do appreciate it. I just want to reframe something before I get into the marketing aspect because it does -- ultimately, our business is driven by product. And the reason why our business is so good is because we have what the customer wants and our product is resonating extremely well. So I just want to start off by saying the assortment is performing exceptionally well.

And then, of course, the marketing amplifies that. And yes, we have introduced more marketing in the last 1.5 years, and we are getting better at it. And certainly, it's driving -- we're looking at full funnel marketing. So it's driving brand awareness at the top of the funnel and then driving traffic and conversion at the bottom of the funnel is kind of classic.

And I guess what is really the headline here is that the new customer growth is a combination of both boutique openings and the marketing. And the great news is that this is a customer that's very consistent with our existing active client base, meaning that it is a high-quality customer, and we have enjoyed and benefited from a very loyal customer for decades now. And what we're seeing is a very similar customer. And in particular, what we love is when a young customer discovers Aritzia, falls in love with our brand and continues to grow with us for many years to come.

And certainly, we've been able to attract this customer, and we are seeing the new customer come back. So I think all of those points -- point to that it's all working, starting with having a great product that then we can tell people about and amplify through our store openings and marketing.

Certainly. And there's a huge difference between acquiring a customer with product and with a discount. So I appreciate that. And the last one for me. I assume that we're going to hear a lot about sort of a warm fall in the United States come earnings season. And it sounds like between pulling forward your Fall launch and kind of the trends continuing into September, you're not seeing any of that. And I just was hoping you could sort of square that circle for us.

Yes. Another great question. We have had some internal conversations about the weather. And certainly, with the 30 degree Celsius -- 30 degrees in the East in Toronto as of late, that does affect the product mix. But the great thing about us, as we've said in the past, too, is that we have such a broad assortment that you sell more sweaters instead of jackets when it's a little warmer. We did have some great transitional pieces. And so maybe some of the outerwear -- even though the outerwear is selling and a lot of folks are buying that early to get a jump on the season, we do have things that suit the weather.

And so I would say, over on the whole, we're not going to be citing weather. We're not citing weather at all right now in terms of the performance of our business. Clearly, you can see that we have many other things going on that allow us to perform the way that we are. So really, that's not a factor for us.

The next question comes from Joe Civello with Truist.

Congrats on a great quarter. Just wondering if you could give a little bit more color on the IMU and smart spending opportunities. What inning are we on those? And where are the biggest opportunities you're looking at for on the efficiency side?

Yes. From an IMU perspective, obviously, we have benefits from cost improvements with negotiations with suppliers sourcing, relocations as we grow and scale, we just have more and more negotiating power. So that's a key benefit that we're seeing on the IMU side, our seasonal pricing adjustments, there will obviously be another -- we have an ongoing tailwind from just the mix of our business as our business grows in the United States. There's IMU benefits there.

And then from a spend management perspective, for this year, we're really focused on process improvements and looking across the business as we do every year, but we have a really distinct focus on it this year as well as procurement. And just again, dialing in our negotiations across the business. Those are the key things that we're focused on in those 2 buckets for this year.

Got it. And then great to hear on the international website surpassing expectations. Just wanted to see if we could drill down a little more color and also how we're thinking about those markets eventually for a physical footprint. Thanks so much.

Thank you, Joe. Yes, I don't think I met you yet. Nice to hear from you. Certainly, the day we turned on our international e-commerce side, we immediately saw our dailies double effectively. So that was driven primarily by conversion. As we mentioned, we haven't even turned on any marketing, dedicated marketing yet. That is to come. We'll start that next month.

And so again, really encouraged by our efforts with that platform and its customer experience has significantly improved. Now I'll remind you that the e-commerce business before we had the new -- the international side was just a little over 1% of our e-com sales. So we're not talking about big dollars here. But certainly seeing that there is worldwide demand for Aritzia and everyday luxury in our products. And it's quite, again, expands it with 3 different continents in terms of where our top countries are.

So I think it's very encouraging. It's still obviously early days, but it's very encouraging because what this is helping us with is -- we continue to gather more data about how we could perform beyond the borders of Canada and the U.S. And I think it's a really good start for us to continue to monitor.

The next question comes from Michael Glen with Raymond James.

Maybe just first, Jennifer, can you maybe give some thoughts on the mobile app launch, what you would expect? Do you expect this to be a contributor to sales? Like how you think about increase in spending per customer? Anything along those lines that you think will happen with the mobile app launch?

Yes. Thanks, Michael, for raising that. We're all very excited about the mobile app that's scheduled to launch at the end of this month. I've talked about it now for a few quarters about it being our digital flagship. So just like our boutique flagships have been a huge brand propelling marketing vehicle that, again, they showcase everyday luxury. They offer a great product assortment. The same thing goes for our mobile app. It will certainly drive brand awareness. I believe it will be a best-in-class experience. It completely embodies the everyday luxury ethos.

And I see this being a vehicle for driving frequency among our existing base of clients as well as growing base of clients. And so we do envision a meaningful amount of our digital business running through the mobile app. Obviously, it hasn't launched yet, so we can't really talk too much about what that is other than we know that our peers do have anywhere between 20% to 40% of their business running through their app, and we always pride ourselves on being best-in-class.

So right now, when we launch it, it's going to be about the downloads. It will be about monitoring the downloads. That will be a great early indicator as far as the potential for the app. And it become -- it's an iterative kind of process in terms of making sure that we keep up with interesting releases and engaging releases. And so we'll be able to report more once it's launched. But right now, very excited for the launch and monitoring the downloads.

Okay. And just on the store fleet, I know we talk about store openings a lot, but what's the opportunity for renovations and relocations within the store fleet right now? And are you able to give any indications what those -- what that type of activity, like how much it contributes to top line, what some of the paybacks are on those type of investments, how they impact square footage? Anything you can add there?

Yes. I mean, Michael, it's highly dependent, obviously, on the type of relocation you're talking about. Last year, when we relocated our SoHo and Fifth Avenue stores, we had meaningful expansions of square footage. And this year, we have the Flatiron store. But our typical expansion would be moving from, say, 5,000 to 7,000 square feet to maybe 10,000 to even 15,000 square feet, and it's very dependent. So it doesn't -- I don't -- I wouldn't say there's one tried tested rule on that. We do have a pipeline of what we feel is about 4 to 5 expansions or repositions a year.

And that evolves. As Jennifer mentioned, our store size has been growing larger and larger. Our average new store is now 10,000 square feet. So obviously, as we grow the optimal size of our stores, that creates more opportunity for expansions and repositions.

From a payback perspective, we typically target 18 to 24 months of payback for those stores. It's a little higher than the new store paybacks of typically under 12 months, but that's because we're only using obviously the incremental revenue and contribution against the capital expenditures for the store. But we continue to be extremely pleased with how they're performing, and they're a meaningful component of our real estate expansion strategy.

The next question comes from Brian Morrison with TD Cowen.

First question for Todd, please. The strategic initiatives that you announced that are going away a little bit on the margins in the back half of the year. Were any of those incremental to your prior guide for fiscal 2026. I'm talking about the RFID, the merged software, or were those also included in your previous guidance?

No. Those have all been contemplated, the ones that I listed.

Okay. So nothing incremental then?

Not from those, no. We have -- we do have -- and we have incremental projects, but they're not ones that I just listed.

Okay. I guess the second question is for Jen. You have many top line category drivers, including the mobile app that you just talked about. And clearly, your product is resonating very well. But absent in terms of your revenue drivers or potential offsets to the tariff pressures, anything about price increases? I'm just wondering how you think about that lever.

Yes. We -- again, a fair question. We are thinking about pricing the same way we always think about pricing, which is our pricing strategy is to uphold everyday luxury. It is not based on tariffs. So we will continue to do what we've always done, which is we do evaluate our pricing every season. It's on a seasonal basis. It's very important that our priorities to stage that everyday luxury value proposition.

That said, any pricing actions we take is more part of a broader IMU improvement initiatives that Todd referenced, I think I've referenced it as well, that's a multiyear initiative that involves cost savings negotiations as well as pricing actions.

The next question comes from Mauricio Serna with UBS.

First on Canada, could you talk a little bit more about what kind of customer like describe a little bit more about the new customer that you're having there because it's pretty impressive considering that the brand has been there for over 40 years. So more curious to hear about the type of customer that you are tracking? And then maybe could you just talk about like for fourth quarter, what is the implied comp range that you are contemplating in your current time?

Thanks, Mauricio. I'll take the first part, and then maybe I'll let Todd take the second part. Regarding the new customer in Canada, or -- I guess I'll start off by saying we're -- we continue to attract the same sort of profile of customer. Remember that we have a very, very broad appeal across 3 generations effectively. Gen Zs, Millennials, Gen Xers. And so the majority of our customers do tend to be in the Gen Z, millennial category.

So as I alluded to earlier in the call, when a younger customer discovers Aritzia and falls in love with our brand and they become a very, very little customer and continue to grow with us. So in spite of being in Canada now for over 40 years, we continue to attract a customer that's between the ages of the core of 15 to 45 and even younger and even older. So the fact that, that customer still remains and loves high quality, beautiful products and attainable price point and really enjoys the boutique experience as well as our online experience. It's again, very encouraging for us to know that our brand still resonates with our new customer, even in Canada. And so we are seeing, in fact, double-digit growth in our customer in Canada.

Great. And the second part of the question was about our comp for Q4. Is that correct, Mauricio?

Yes. Just like the implied range of that comp.

Yes. So we've updated our guidance to $3.3 billion to $3.35 billion for the fiscal year, which is growth of 21% to 22%. Maybe I'll just talk about Q3 first and then give you some color on Q4. As we've discussed, quarter-to-date trends in Q3 are consistent with what we saw in Q2 with total growth outpacing or pacing 30%. So we're just above 30%.

But we're only 5 weeks into the quarter and our highest volume period of the quarter is still ahead. We'll be lapping exceptionally strong growth from last November. So therefore, in Q3, our guidance range assumes a total comp growth in the mid-teens, delivering that total growth of 20% to 24% that we've guided to.

And then for the fourth quarter, we're lapping extremely robust growth with comp of 26% last year. There's actually some FX headwinds with our forecasted rate at $1.38 on compared to $1.43 last year. And there's also some conservatism. But our Q4 guidance assumes mid-single-digit comp growth and high single-digit total growth for Q4. But I mean, I think it's important to remember that we do have a great momentum in our business. And I don't know if you want to go into some of the things.

Yes. Let me just remind everybody that we're definitely set up to succeed with all the elements in place to deliver in the back half of the year. We talk about it a lot, but let me just run through it all. It starts with product. Having the right product in the right place at the right time. Our product assortment is outstanding right now. I love seeing it in the stores. It's absolutely merchandises and present well. We're hearing anecdotally as well as obviously, to our sales results that it's resonating well. We are in an excellent inventory position between what's on hand, on order, in transit. We are in an excellent inventory position.

We have 9 boutiques opening in the back half of the year, 6 of which are in Q3 alone. That includes the flagship in Flatiron. As we said before, our new boutiques are the most predictable driver of top line growth. We're well on track with all of our digital initiatives. We're delivering those on time. The mobile app is scheduled in a few weeks. We do have these exciting collaborations that continue to drive interest and engagement and traffic to aritzia.com, and in our boutiques and top it off with some strategic investments in marketing, and we are getting better in our marketing and more effective.

We are seeing a return of creating demand and driving traffic and looking forward to some of our best campaigns ever during the holiday time. And so all of these things across the business, we have already executed very well on in the last couple of quarters and continue to go into the next couple of quarters in a very, very, very strong position.

And I suppose -- what I would add at the end is last but not least, our teams, our teams are phenomenal. Our teams are highly motivated right now and highly poised to execute with excellence.

The last question comes from Chris Li with Desjardins.

Thanks for all the great discussion so far. I wanted to just maybe ask about your EBITDA margin guidance for the year. I guess first, at a very high level, what needs to happen for you to achieve the higher end of your guidance? And then maybe vice versa, what should happen to get you to the lower end of your guidance for the year?

Yes. I mean I would just simply put that to the revenue and leverage at the top end of the range from higher revenue and the bottom being more reflective of the lower part of our range from a revenue perspective. We obviously have all of our mitigation strategies in place to -- that are what's helping us offset, the increased tariff pressure and why we've been able to keep the adjusted EBITDA range for the year, unchanged at $15.5 million to $16.5 million. But it's predominantly the revenue range that would push us both up and down.

Okay. That's helpful. And maybe just a follow-up. If I do the math correctly, just based on your guidance, it would imply Q4 EBITDA margin might be down kind of in that 100 to 150 basis points depending on your assumption. Am I -- is that directionally correct? That's what you're saying?

We're expecting flat both gross profit and SG&A in Q4 also. It's really the -- unfortunately, the other income, I hate to bring that up, but it is -- it's the other income that we benefited meaningfully in Q4 last year because of the exchange rate strength in Q4 last year. We can take that offline, but that's really what's driving the change in the fourth quarter.

This concludes the question-and-answer session and today's conference call. Thank you for joining, and have a pleasant day. You may now disconnect your lines.