Aritzia Inc. (ATZ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual General and Special Meeting of Aritzia Inc. Please note, the meeting will be recorded. I would like to introduce Helen Kelly of Aritzia Inc. Ms. Kelly, the floor is yours.

Thank you. Good afternoon, everyone. Thank you for joining Aritzia's Virtual Annual General and Special Meeting of Shareholders. As a result of the COVID-19 pandemic and our continued priority to safeguard the health and safety of our shareholders, Directors and our team, we made the decision to hold this year's Annual General Meeting 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 Jennifer Wong, our President, Chief Operating Officer and Corporate Secretary; followed by remarks from Brian Hill, our Founder, Chief Executive Officer and Chairman. We will conclude with a question-and-answer period open to registered shareholders and duly appointed proxy holders at which time Brian Hill, Jennifer Wong, Todd Ingledew, our CFO; and Ada San, our General Counsel will be available to respond to your 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. We would refer you to our most recently filed management's discussion and analysis and annual information form, which include a summary of the material assumptions as well as certain material risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements. With that, I'd like to turn the meeting over to Jennifer Wong, our President, Chief Operating Officer and Corporate Secretary, to lead us through the formal business of the meeting.

Thank you, Helen. Good afternoon, and good evening to those on the East Coast. Thank you all for coming to Aritzia's Virtual Annual General and Special Meeting of Shareholders. I have been appointed by the Board of Directors to be the Chair for today's meeting. During the formal business portion of the meeting, please note that only registered shareholders or their duly appointed proxy holders are permitted to vote or otherwise participate and ask questions in the meeting. As this meeting is being held virtually via live audio webcast, we would like to clarify a few procedural matters relating to the conduct of the meeting. One, 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. Please note that there will be a slight delay in the publication of the communications received. Two, 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. Three, questions will only be addressed during the question period at the end of the meeting, provided that questions regarding procedural matters are directly related to the motions before the meeting may be addressed during the meeting at the discretion of the Chair. Four, 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. 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. Five, 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 and duly appointed proxy holders, 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. Six, if or 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 and Special Meeting of the company's shareholders. With the consent of the meeting, I appoint Ada San, General Counsel 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 scrutineers. Purposes of today's meeting are set out in detail in the management information circular dated May 20, 2021. Copies of the circular were made available to shareholders on or around June 7, 2021, together with the notice of the meeting and the form of proxy. Accordingly, unless there is any objection, I will dispense with the reading of the notice of meeting. I have 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 June 7, 2021. I direct that a copy of the notices and circular and the declaration of mailing be kept by the secretary with the records of the meeting. In addition to the routine annual meeting business matters, you have been asked to consider a resolution ratifying and approving the adoption of the company's Omnibus Long-term Incentive Plan, together with the ratification and approval of certain grants made under the Omnibus Long-term Incentive Plan prior to the meeting. The full text of these resolutions are set out in the circular. The scrutineers' 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 in 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, and 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. Voting will close approximately 30 seconds after the conclusion of the formal business of the meeting. Under the company's articles, the Chair of the meeting can propose motions and no motion proposed at the 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 electric -- the electronic ballot will now be available on your screen. Please register your votes by pressing on the for, withhold or against button as applicable, next to the name of each proposed director, next to the resolution with respect to the appointment of PricewaterhouseCoopers LLP as the auditors of the company, and next to the resolution with respect to ratification and approval of the company's Omnibus Long-term Incentive Plan and certain grants made under the plan in advance of the meeting. You will have time to vote throughout the formal part of the meeting. The first item of business is the presentation of the company's consolidated financial statements for the fiscal year ended February 28, 2021, as well as the auditor's report thereon. These financial statements and the auditor's report were made available on the SEDAR website under the company's profile and on the company's website on May 27, 2021. The financial statements were also made available on the TSS -- TSX Trust site on June 7, 2021, as required for notice and access. Noting no objection, I will dispense with the reading of the auditor's report. We will entertain any questions with respect to the company's consolidated financial statements in the question period following the formal portion of this meeting. We now move on 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 his or her 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 Directors have each been nominated to hold office until the close of the next Annual Meeting of Shareholders or until his or her successors are duly elected or appointed. They are Brian Hill, Jennifer Wong, Aldo Bensadoun, John E. Currie, David Labistour, John Montalbano, Marni Payne, Glen Senk and Marcia Smith. Each of the persons nominated has confirmed that he or she is prepared to serve as a Director. Each of them qualifies as a Director under the provisions of the British Columbia Business Corporations Act. Given that no nominations were received in accordance with the advance 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 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. Next item of business is the appointment of the auditors of the company for the ensuing year and to authorize the Directors of the company to fix the remuneration of the auditors. The Audit Committee and the Board have approved, subject to shareholder confirmation, 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 fit. The next item of business is the ratification, approval and authorization of the company's Omnibus Long-term Incentive Plan and certain grants made under the Omnibus Long-term Incentive Plan as fully disclosed in the company's circular. The purpose of the Omnibus Long-term Incentive Plan is to advance the interests of the company and enhance the company's ability to attract, retain and motivate eligible persons by allowing for a variety of equity-based awards that provide different types of incentives, including stock options, restricted share units, and performance share units to be granted to eligible persons. Further, the Omnibus Long-term Incentive Plan aims to align eligible person's interest with shareholders by rewarding them for increases in the company's share price. The full text of the resolution language is set forth in Appendix B of the circular. I move that the shareholders approve the ratification, approval and authorization of the company's Omnibus Long-term Incentive Plan and the grants made thereunder as disclosed in the company's circular. Is there any discussion on the motion? Okay, so if you have not voted already, please do so now. After 30 seconds, the voting page will disappear and your electronic ballot will automatically be submitted. The time is now 3:13, and the ballots will close on all resolutions in 30 seconds. [Voting]

Voting is now closed. I would now like to ask that the scrutineers compile the report regarding the results of voting on all business matters. And while the scrutineers are completing their report, I will ask whether there is other formal business to be brought before this meeting. As there is no other business to be brought before the meeting, I have received the scrutineer's report and 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 the ensuing year, and the Board of Directors is authorized to fix their remuneration. The ratification, approval and authorization of the company's Omnibus Long-term Incentive Plan, together with the approval and ratification of certain grants made under the Omnibus Long-term Incentive Plan prior to the meeting has been approved. Final voting numbers will be posted on SEDAR. If there is no further business to be brought before this meeting, I move that the formal portion of today's meeting be concluded. I declare the formal portion of this meeting closed. I would like to turn over the floor to Brian Hill, Founder and CEO, to provide a few remarks before we move on to the question-and-answer period.

Thank you, Jennifer. And thank you, everyone, for joining us this afternoon. While fiscal 2021 was one of the most challenging years in Aritzia's history, I'm incredibly pleased with how our team navigated this sustained uncertainty and the exceptional results we delivered. Throughout the pandemic, we looked after our people while offering our clients our much-loved everyday luxury experience, our engaging service, beautiful product, aspirational environments and captivating communications. Our results are a testament to the resilience of our team, the strength of our multichannel business and the growing affinity for our brand. Despite reoccurring temporary boutique closures, significant occupancy restrictions and reduced operating hours, our net revenue in fiscal 2021 decreased just 12.6% from the prior year, as we pivoted our product assortment, optimized our inventory and tailored our marketing initiatives to align with our clients' stay-at-home lifestyle. Retail revenue decreased 42%. However, this was partially offset by meaningful e-commerce revenue growth of 88%. Importantly, e-commerce penetration surged to 50% of total net revenue, more than doubling the penetration of 23% in fiscal 2020. From a real estate perspective, we continued to grow our retail network, opening 7 new boutiques and repositioning 3 others in premier locations, and in doing so, surpassed the 100 boutique milestone. COVID-19's impact made it more important than ever that we uphold our commitment to our people and planet. Throughout the pandemic, we prioritized the health and safety of our people, clients and communities through industry-leading health and safety measures, while ensuring income continuity to all our employees impacted by boutique closures. I'm proud to report that we did not layoff or furlough any of our people due to the pandemic, paying out $25 million in total from our Aritzia Community Relief Fund and in doing so, deepening our team's loyalty and creating brand equity with respect to hires. We committed $1 million to advance our DE&I program to cultivate and celebrate diversity and inclusion at all levels of our organization, recognizing that real change needed to start from within. We conducted our inaugural diversity, equity and inclusion employee survey, staged company-wide training and offered listening, learning and allyship sessions across an evolving spectrum of important social causes. To fulfill our commitments to our communities, we gifted 120,000 COVID-19 frontline health care heroes with custom clothing packages through the Aritzia Community Care program. We also supported women and girls in need through numerous programs, including the donation of Super Puff and the full proceeds from our incredibly successful first-ever International Women's Day Capsule Collection. We also meaningfully advanced our sustainability objectives. In fiscal 2021, we maintained a positive impact on our supply chain, assessing and supporting all our Tier 1 suppliers through our auditing program. In addition, we adopted more sustainable fabrics across 40% of our spring/summer 2021 collection, while making it easier for our clients to shop our product by the organic, recycled and responsible forestry content. We became operationally carbon neutral through renewable energy credits and certified offsets, covering both our Scope 1 and 2 emissions. And we became a participant in the United Nations Global Compact as part of our overall ESG strategy. We are committed to driving responsible practices across every aspect of our operations, and as we move forward, we continue to develop and evolve our ESG strategies. We look forward to sharing our progress with you. While the pandemic continues to evolve in unpredictable ways, robust vaccination programs across North America are reducing case numbers and restrictions on clients, and therefore, our retail operations are easing. Fiscal 2022 has kicked off with our e-commerce business continuing to surge and our U.S. business flourishing. And we are starting to see encouraging signs of similar business recovery in retail in Canada with the reopening of almost all our Canadian boutiques of late. As such, we are more than ever investing in our 4 strategic growth levers that drove our growth pre-pandemic, ensured our success mid-pandemic and will fuel our growth post-pandemic. E-commerce and omni innovation. First, capitalizing on our accelerated multichannel client relationship, we have brought forward our omni capabilities project and expect it to start rolling out throughout the year several key initiatives, including store inventory visibility, buy online ship from store, and buy online pick-up in store. We will continue to invest in new digital capabilities, both online and in our boutiques, including ongoing personalization development, enhancements to our international site and the expanded usage of our digital selling tools. Geographical expansion. Second, we will continue to grow our boutique network across North America with a focus on the United States, capitalizing on the availability of premier real estate locations. In fiscal 2022, we plan to open 6 to 8 new boutiques, all in the United States and 6 expansions across North America with additional opportunities under consideration. Product expansion. Third, we will continue to meaningfully expand our beautiful and multidimensional product lines from new categories, including swim and intimates to extended depth such as color, size and length and breadth, including warm and hot weather, denim destination and Super World. A recent note, we also accelerated our product expansion amends by acquiring the premier athletic wear brand, Reigning Champ. I've had great admiration for Reigning Champ's leadership team and brand for years. And this timely acquisition brings incremental growth to our already surging women's e-commerce and U.S. business. Capitalizing on our world-class operational expertise and infrastructure, men's merchandise independently will become a meaningful part of our platform through this acquisition. In 2020, we set a 5-year strategy to double our style count. And with these myriad product initiatives underway, we are well on track to achieving that target. Brand awareness and customer expansion. Four, finally, we have a comprehensive strategy to further capitalize on our existing growth opportunities across the United States. In doing so, we expect to significantly increase our brand awareness while also growing our branch strength in digital marketing in this flourishing market. We are confident in our ability to attract new clients to Aritzia while deepening our current clients' brand affinity to the delivery of our much-loved everyday luxury experience. To support these 4 growth levers, we will continue to invest in strategic infrastructure, including growing our high-performing team with targeted world-class talent, enhancing our processes for even greater efficiency, enriching our technology suite and expanding our distribution center network to fuel our long-term growth. In conclusion, we reflect on fiscal 2021 as a time of determined resolve, resilience and accomplishment under extraordinary conditions. Through the tireless work of our team, and the adaptability of our operations, we're in an extremely exciting position with bright future ahead. I would like to thank our almost 5,000 Aritzia team members who 37 years on, I remain humbled and privileged to lead. To our shareholders, we deeply appreciate your ongoing confidence in our business and our team. And as always, thank you to our Board of Directors for your wise counsel and support. We look forward to reporting our Q1 results next week with more details on our exciting progress to date and a further outlook on what lies ahead. I'll now turn the call over to Jennifer Wong for her Q&A period.

Thank you, Brian. We will now move on to the Q&A 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 limit your questions to topics relating to today's subject matter and keep your questions short and succinct. We may consolidate questions that are repetitive or overlap in the interest of all those [indiscernible] today. We will now give attendees a brief moment to type in their questions if you have not already done so.

So we do have a question from Sarah Britt on behalf of [indiscernible] as follows: When will Aritzia begin to show respect for its consumer base, stop hiding behind ineffective standards and prohibit the sale of animal-derived materials, starting with Mohair and Alpaca? Our answer is as follows: At Aritzia, we are committed to sourcing all of our materials responsibly, including animal-derived materials. We follow various best practice standards, including those set by Textile Exchange, the leading standard setting body for the sourcing of more responsible textile fabrics. These standards are established through multi-stakeholder consultation and are in line with the 5 Freedom's framework. We will continue to take concerns about animal welfare in the fashion industry under very serious consideration and to do our part in moving the global industry towards best practices. And we are very grateful to industry-related advocacy organizations, who engage in a regular dialogue with us. Thank you for your question. We'll give a moment for any further questions. And there appears to be no further questions, so we are now concluding the question-and-answer portion of the meeting. This concludes -- yes, this concludes the meeting. Thank you all for joining us this afternoon. Enjoy the rest of your day or evening, wherever you may be. Thank you.

Ladies and gentlemen, thank you for attending today's meeting. As the meeting has now concluded, you may now disconnect.