Aritzia Inc. ($ATZ)

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.