Groupe Dynamite Inc. (GRGD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Groupe Dynamite Fourth Quarter and Fiscal 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] And I would like to turn the conference over to Alex Limosani, Manager, Investor Relations and Corporate Finance at Groupe Dynamite. Please go ahead.

Thank you, and good morning, everyone. Joining me on the call are Andrew Lutfy, Chief Executive Officer and Chair of the Board; Stacie Beaver, President and Chief Operating Officer; and JP Lachance, Chief Financial Officer. This morning, Groupe Dynamite released its financial results for the 13- and 52-week periods ended January 31, 2026. The press release and related disclosure documents are available in the Investors section of our corporate website at groupedynamite.com and on SEDAR+. We will begin the call with short remarks by management, followed by a question-and-answer period with financial analysts only. A replay of this webcast will be available shortly after the conclusion of the call. Before we begin, I would like to refer you to Slide 2 of our Q4 2025 investor presentation, also available in the Investors section of our website for a full statement on forward-looking information and to the presentation's appendix for your reconciliation of non-IFRS to IFRS financial measures. I will now turn the call over to Andrew.

Thanks, Alex, and good morning. I'd like to welcome you, our valued participants. We know your time is precious, so thank you for prioritizing us in your busy schedules. As most of you know, Q4 marks a strong finish to what has been a defining year for Groupe Dynamite. Fiscal '25's performance was nothing short of exceptional. Notwithstanding a great number of challenges, most of which were outside our control, our performance truly exceeded expectations. As we often say, first who, then what. Well, our agile GDI family, living our shared values, proved to be the right whos delivering incredible results, proactively mitigating risk and often enough, turning them into opportunities. As for the numbers, they speak for themselves. This was both a record Q4 and fiscal year, putting us in a class of our own. Q4's comparable brick-and-mortar sales were up 30.4% and 26.7% for the year. Q4's adjusted EBITDA margin was 36.6%, up a staggering 740 basis points and for the year, 36.5%, up 490 basis points. Q4's gross margin was a healthy 63%, up 400 basis points and 63.8% for the year, up a remarkable 100 basis points. One metric which is near and dear to our hearts, inventory turns, reached an astonishing 9.9x. It's the singular metric that speaks volumes to taking the fashion risk out of fashion. Staying with numbers, we're also pleased to report 8 weeks into Q1, comparable brick-and-mortar sales are up 28%, same-store sales. But enough of the quantitative in these tumultuous times, what is clear is we are delivering on emotion. The brand heat is real. Alex and Rachel are happy. And speaking of happy, pleased to report our 2 best store openings in GDI's history were recorded most recently with the opening of GARAGE Bluewater and our GARAGE flagship on Oxford Street. These 2 stores joined the U.K. e-commerce platform, which has been live since the beginning of February. It's very early days, but incredibly encouraging to see how obsessed this U.K. Alex is for her GARAGE. And allow me to make a big shout out to the teams who brought this all to life. Congratulations. You should be proud. You guys crushed it. [Foreign Language] So that was what I would call a political message. So now back to our regular programming. So let's talk about ownership culture. Proud to report all employees are shareholders through our shared success program with many also participating in our generous share purchase plan. That equity not only drives engagement, but creates an important alignment of business interest. Effectively, we're all rowing in the same direction. Still on the people front, once again, we've been recognized as one of Canada's top employers for young people and one of Montreal's top employers, 2 distinct awards. From an investment standpoint, this was another record year of capital investment. Whether the opening of new stores or upgrading and relocating existing ones, we have stayed true to our strategy of investing in top-tier assets while staying disciplined in closing stores, which did not elevate the brand. It's worth noting the vast majority of stores we do close are, in fact, profitable. They're just not profitable enough, and they create burdens on our teams and inventories. As we look ahead, we remain disciplined and relentless in execution while accelerating innovation at scale, including the continued strategic deployment of AI to drive performance, efficiency and maintain our competitive advantage. We are confident in our ability to sustain clear measurable leadership across the metrics that define performance, which are revenue growth, adjusted EBITDA, return on assets and best-in-class inventory turns, outperforming both our direct and most luxury peers. With that, let me hand it over to Stacie.

Thank you, Andrew, and good morning, everyone. Fiscal 2025 was a strong year for the business and one we're really proud of. We entered the fiscal year focused on elevating how the brand shows up across every touch point, and we're seeing that translate into the performance across both GARAGE and Dynamite. We stayed focused in our approach, aligning product, storytelling and the customer experience across digital and stores. When those elements combined together, we see a clear response from the customer, and that's what drove the business this year. Before getting into each part of the business, I want to highlight the strength of our operating model. As you know, one of our key strengths is the agility of our supply chain, which allows us to read the business in real time and react quickly to buy closer to demand and to adjust our inventory in season. That flexibility allows us to reduce risk, stay relevant and move with the customer as trends evolve. You see that reflected in our results with inventory turns reaching 9.85x this year. Now turning to our stores. Our store network continues to be the primary engine of new customer acquisition and growth. For the full year, we achieved $952 in sales per square foot. This productivity reflects our disciplined real estate strategy as we continue to prioritize higher-quality locations where footfall is stronger and our brands sit alongside premium and luxury peers. The U.S. remains a key growth driver for us with 20 stores opened this year in high-quality locations that maximize our visibility, examples including Somerset Collection in Troy, Michigan, which opened in May; and Oakbrook Center in Chicago, which opened in December. At the same time, we renovated and relocated 13 stores within existing malls, upgrading them into higher-quality spaces. This included a relocated GARAGE and a new Dynamite 3.0 concept at West Edmonton Mall in Alberta, along with 2 additional Dynamite 3.0 locations at Promenade St. Bruno and Carrefour Laval here in Quebec. On the digital side, we're pleased to see e-commerce grow 44.2% in fiscal 2025 with penetration reaching nearly 19%. This performance was supported by continued investments in our platform and capabilities, including the rollout of our headless architecture on mobile app, a new refresh navigation on web and progress on personalization across multiple touch points, all improving speed, flexibility and the overall customer experience. At the same time, we see meaningful opportunities ahead as we continue to scale. This includes continuing leveraging AI to drive more personalized experience and conversion, further integrating the community and socials into this experience and building on the early momentum we're seeing from our U.K. store launch. Over the long term, we remain focused on increasing e-commerce penetration towards 25% of total sales as digital continues to play a central role in how we tell our brand story and engage with our customers. Another key fiscal 2025 initiative to highlight is our U.S. distribution center. We continue to ramp up in line with our plans, strengthening service levels for our U.S. customers while also adding important redundancy to our supply chain. From a brand perspective, we truly raised the bar this year in generating what we call brand heat. More specifically, we stayed close to culture and our community to create hyper-relevant products and campaigns. This includes our Sour Cherry color drop in July and Perky Plum drop in August, which featured influencer Hallie Batchelder, among others throughout the year. This resulted in us more than doubling our media impressions for the full year. This momentum translated into strong customer growth with our total active customer base up meaningfully to last year, driven by both strong new customers and returning customers both in frequency and in spend, increasing double digits year-over-year. Now a couple of words on Q4 performance specifically before JP dives into the numbers. Customer demand remains strong, supported by relevant product and clear brand messaging. We saw continued AUR growth with stable unit per transaction, reflecting both product relevance and disciplined pricing. In stores, comparable store sales were up 30.4%, driven by growth in both AUR and traffic with price contributing a slightly larger share. On digital, sales grew 63.3% in Q4, with penetration reaching 25.5%, driven by higher traffic and conversion as we continue to enhance the customer experience. Furthermore, the heat behind our brands continued to build. For GARAGE, our community-led storytelling reached new heights with the Midnight Blue, Teal Tease and Mint Julep color drops. These drops and brand moments drove significant top-of-funnel reach and reinforcing our fleece category as a top volume driver. For Dynamite, Q4 was driven by the strength of our Hotel Dynamite holiday campaign featuring Elsa Hosk, which firmly positioned the brand as a destination for holiday dressing, particularly in dresses. This campaign resonated strongly with customers, reinforcing our authority in social life wear and contributing to strong engagement and sell-through. The growth in our brands reflects the discipline and focus across our teams. We exit the year with a proven and improved playbook and the confidence to continue scaling our impact and deepening our customer relationships. As we look ahead to 2026, we're focused on execution and continued elevation of our brands across every touch point. As Andrew mentioned, the dedication of our teams grounded in our core values is what drives these results. I want to echo his gratitude to our 6,000-plus field associates and our head office teams for their agility and passion. They are the embodiment of our culture and their commitment is our greatest competitive edge. With the foundation we've built, we are poised to take our performance even higher. With that, I'll turn it over to JP to walk through the financials.

Thank you, Stacie, and good morning, everyone. Total revenue for Q4 2025 increased by 45% to $394.2 million, driven by strong retail performance, including comparable store sales growth of 30.4% alongside contributions from new store openings. For the full year, comparable store sales growth landed at 26.7%, consistent with our prior guidance. Staying on top line, we were very pleased to see online revenue increased 63.3% to $100.6 million with penetration expanding by 280 basis points year-over-year in Q4 to 25.5%. We remain focused on advancing our digital initiatives to support sustained growth and progress towards our medium- to long-term target of 25% online penetration while maintaining or improving the profitability of the e-comm channel. Gross profit for Q4 increased by 54.9% to $248.3 million with gross margin expanding 400 basis points to a record 63% for the fourth quarter. This performance reflects the strength of our pricing strategy, disciplined inventory management and lower markdowns. Turning to expenses. SG&A for Q4 2025 increased by 21.6% to $105.8 million, primarily driven by the company's growing scale and activities as well as increased marketing investments to support brand awareness. Administrative expenses declined year-over-year, benefiting from lower IPO-related costs and stock-based compensation versus last year. As a percentage of sales, adjusted SG&A decreased by 340 basis points to 26.2%, reflecting strong operating leverage. Moving down the P&L. Operating income increased by 128.8% to $116 million. Adjusted EBITDA grew by 81.6% to $144.4 million, representing a margin of 36.6%, up 740 basis points year-over-year, driven by both gross margin expansion and SG&A leverage, underscoring the scalability of our luxury-inspired business model and placing our margins in line with some of the world's leading luxury houses. For the full year, adjusted EBITDA margin landed at 36.5%, also consistent with our most recent guidance. Net earnings increased significantly, supported by higher revenue and profitability with adjusted net earnings up more than 120% year-over-year to reach $81.6 million. Turning to cash flow. We generated strong free cash flow of $101.5 million in Q4, nearly doubling year-over-year, reflecting higher earnings, partially offset by increased capital expenditures. For the full year, we generated free cash flow of $335.2 million, more than doubling year-over-year, while CapEx totaled $85.5 million, also in line with our most recent guidance range. From a balance sheet perspective, net leverage improved to 0.83 turns, reflecting strong EBITDA growth. We ended the year with over $82 million in cash and $312 million available under our credit facilities, providing significant financial flexibility. We also continue to deliver strong capital efficiency. Return on assets reached 36.2%, up from 26% last year, reflecting improved profitability and more effective use of our asset base. Return on capital employed increased to an impressive 70.3% compared to 47.4% in the prior year, driven by strong growth in operating income relative to the more measured increase in capital employed. Together, these metrics highlight the strength of our model and our disciplined approach to deploying capital. Turning to capital allocation. During fiscal 2025, we repurchased approximately 883,000 shares at an average price of $39.28 for a total of $34.7 million. We continue to view share repurchases as an efficient use of capital to return cash to shareholders, and we remain bullish on the underlying fundamentals of GRGD as we continue to execute our strategy with discipline. As of this morning, we have repurchased over 1.2 million shares under the NCIB, representing approximately 94% completion of our 2025-2026 program. Looking ahead to fiscal 2026, we are introducing guidance reflecting continued strong momentum across the business. From a real estate perspective, we expect to open 24 to 26 gross new stores, including 5 locations in the U.K., representing 10 to 12 net new openings as we expect to close approximately 14 stores during the year. Most of these openings will be under the GARAGE banner in the U.S., where we continue to see significant runway for growth. We continue to target approximately 350 stores by fiscal 2028 with potential upside as we see strong performance across all regions in which we operate. We expect comparable store sales growth of 11% to 14% and total revenue growth of 22% to 25%. Our comparable store sales outlook reflects strong year-to-date performance, coupled with our strategy of growing AUR at approximately twice the rate of inflation as well as positive traffic trends driven by the continued premiumization of our store portfolio as we believe higher quality real estate will continue to concentrate footfall. In addition, we expect online revenue to continue outpacing brick-and-mortar growth, while contributions from new store openings further support total revenue growth. From a margin perspective, we expect adjusted EBITDA margin expansion, leading to a range of 37.75% to 39.25%. As a reminder, the first half of fiscal 2025 was impacted by elevated tariff rates of 145% on imports from China. These major headwinds have fully flowed through our P&L, and given our best-in-class inventory turns which amounted to 9.85 turns for fiscal '25, were no longer impacting our business as of Q3 2025. As a result, the first half of fiscal 2026 presents a more favorable comparison period, supporting our outlook for margin expansion year-over-year. In addition, as our U.S. distribution center ramps towards full capacity, we expect incremental efficiencies to further support margins. Turning to capital expenditures. We expect CapEx of $100 million to $110 million in fiscal 2026. CapEx remains our top capital allocation priority with most of this envelope directed towards growth initiatives, including new store openings, store optimization and continued investment in our digital platforms. Fiscal 2026 is off to a strong start, and we are confident in our positioning within the consumer discretionary spectrum, supported by an operating model built to navigate uncertainty, anchored in our open-to-buy, chase-driven approach with over 50% of inventory dollars left open to read and react and disciplined inventory management. We remain focused on advancing our brand elevation initiatives supported by disciplined execution and continued investment in our platform. With that, I'll pass it over to Andrew for closing remarks.

Thank you, both Stacie and JP. Well, enough of us. Let's turn it back to the operator as we are ready to take questions from the financial analysts.

Thank you, Sir. [Operator Instructions] First question will be from Irene Nattel at RBC.

Congratulations on a very strong end and a very strong beginning. So -- and leveraging sort of jumping off of that, we seem to be at yet another period of heightened uncertainty and a lot of discussion around deterioration potentially in the macro backdrop. Andrew, in your opening remarks, you talked about proactively mitigating risks, Stacie talked about adaptability. Can you walk us through how you're thinking about F '26? And as you frame the guidance for this year, how you're thinking about potential scenarios around consumer spending and economic activity?

Thanks for the question. Listen, I mean, we can only control what we control. And I'll take a step back and as we think about what we're -- the segment we're in, we're in the consumer discretionary segment. Consumer discretionary is a big catchall. And at one extreme, you've got consumer discretionary that requires debt like a motor home or a car or a basement renovation or something like that, and furniture. And then at the other end of the spectrum, it's things that kind of like make you happy, instant gratification, whether it's the red lipstick effect or whether it is a martini or whatever, a cute top at GARAGE or Dynamite, it falls within that realm. So fortunately, we are in the easier, I guess, department, if you will, within consumer discretionary, where really our job and what we ultimately control is emotion. And so to the extent that we keep doubling down on delivering amazing emotion through the brand, through the marketing, through the product, through the collections, through the social engagement, then ultimately, I think we're going to fare well altogether. So again, so I mean, long answer, short question, but I think ultimately, that's what it comes down to.

Next question will be from Stephen MacLeod at BMO Capital Markets.

Just looking at the store network, you're sort of increasing or you're bumping up the net new store adds in 2026. So I'm just wondering if you can give some color around just maybe the thought process behind the acceleration and the timing of store openings through the year, including the U.K.

Steve, thank you for the question. More than happy to do so. So if we break that down a little bit, let's start with North America. So our guidance for North American store openings is 19 to 21 stores in fiscal 2026, which is quite consistent with what we've delivered in fiscal 2025. Please do note that all 19 to 21 stores, those leases are actually signed. Happy to report they're all Tier 1, 2 and 3 locations, and the vast majority are GARAGE locations in the U.S. So we feel really good about that. And then in addition, which might explain the year-over-year increase in the number, to your point, is 5 U.K. store openings that are planned and included in the fiscal 2026 guidance. Those 5 leases are also all signed, and they're all Tier 1 and Tier 2 locations. So we are certainly very excited about the pipeline here, and that's why you're seeing a year-over-year increase. And when it comes to the pacing part of your question, I would continue to expect the bulk of store openings to be delivered between Q2 and Q3, although there will be some in Q1 and Q4.

Next question will be from Martin Landry at Stifel.

Congrats on your results. I would like to dig into your comparable sales guidance of 11% to 14% growth for this year. It is impressive given you're lapping a strong year. So 2-part question. First, what is your assumption for price increases this year? Is it still twice inflation? And if that's the case, then it implies pretty strong volume growth. So just trying to get a little bit of an understanding of what's -- what kind of growth comes from your relocated stores in that guidance?

Thank you, Martin, for the question. So you are right. Our outlook for comps this year is a range of 11% to 14%. So a few things I would say around that. First of all, and that's aligned with Andrew's opening remarks, 8 weeks into Q1, we're currently sitting at plus 28% on same-store sales. So we certainly need to account for that in the outlook for the full year. And then to answer the price component of your question, we continue to see AURs raising at approximately twice the rate of inflation. So that certainly explains part of the guidance of 11% to 14%. And then on the last piece, we continue to believe in positive transaction growth, positive traffic growth year-over-year as a result of the optimization of our real estate network as we continue to open high-quality locations and close certain locations that are, yes, profitable, but not profitable enough. This premiumization of our network really does attract and concentrate footfall, which has to translate into positive comps. So when you add all of these buckets together, that leads us to a guidance for the full year between 11% and 14%.

Next question will be from Mauricio Serna at UBS.

Just on the online business. Seemed pretty strong and it kind of the guidance continues to call out for outperformance versus brick-and-mortar. What is the company doing here to really drive an acceleration of that business? Like what should continue to be the drivers as we look into '26? And just quickly on the Middle East situation, I mean, I know you don't have exposure to that region. But just in terms of like how could that impact things like your supply chain agility and the margin front, given the rise of oil impacting freight and some of your other costs that are depending on that?

Listen, I'll take the second part, which is, let's say, the Middle East part. Listen, so far, we're seeing certain costs going up, namely at this point, really transport more than anything else as the price of fuel has gone up and also shipping routes have been kind of like dislodged as a result of what's happening in Strait of Hormuz and through the Middle East. So really, it's one big global network shipping. So there's an impact there as well. Listen, at this point, it's really nominal, and we're totally in a position to address it. And I'm not saying absorb it. I'm saying address it. And insofar -- but listen, I mean, the longer this Middle East situation, war, I'll call it a war, the longer this Middle East war persists, obviously, the greater the impact is going to be. But at this point, again, we're agile. I think you kind of lived our saga through Liberation Day and tariffs and so on and so forth last year, and we were quite resilient. So this is actually far more manageable situation. And I'm very confident in leadership team -- leadership team in being able to mitigate and deal with it. Regarding e-commerce, Stacie, do you want to take that?

Yes. Thank you, Mauricio, and we want to thank you for initiating coverage on us. So I guess we'll let you have 2 questions. But the first one on e-com is, yes, e-com is outpacing brick-and-mortar. That is our expectation go forward. We have put a lot of investment in around the platform capabilities that we've included headless in our architects on the app. We've refreshed the navigation in the web, and we're working on personalization across all touch points. All of our efforts are focused on improving speed, flexibility and most importantly, the customer experience. So we're excited to go into '26 to really leverage AI and see what we can do with that customer with our long term, as we've mentioned to you guys to try to get to that 25% penetration. As strong as the comps are, we should expect and we do continue to see e-comm outpace that brick-and-mortar number.

Next question will be from Brian Morrison at TD Cowen.

Can you hear me?

Yes.

Andrew, I'm standing right in front of 321 Oxford right now. And the store traffic, it looks incredible. It looks like a potential fire hazard. Can you just walk through the steps that you took to seed this market? And I know it's early days, but what that might suggest to you about other European markets?

That's hysterical. And having just been there over the weekend or last weekend for the opening, I could well imagine what you're seeing. Yes, it's -- listen, the store open -- well, I mean, we opened 2 stores, as you guys know, in the U.K., we opened Bluewater Mall, which is a suburban -- great suburban asset, I would say, slightly northeast from Piccadilly Circus in London as well as 321 Oxford, which is between New Bond Street and Regent, a fantastic location. Listen, these 2 stores are the 2 best store openings in GRGD's history. Like that's a lot of stores that we've opened and closed and opened. I mean, I could probably count a 1,000 store openings over time. These 2 are the 2 best. So really, really excited about that. Both Oxford and Bluewater, similar yet different kind of customer. One is more urban, one is more suburban. We've always said that, that customer reminds us of a Northeast U.S.A. customer, but just happens to be in the U.K. And I think we've been proven right. The demand is really, really, really strong for the brand, for our products. Reception has been amazing. And I think it's a great proxy for the U.K. I'm not used to, I would say, instant success. Usually, we suffer in all our endeavors. We're just tenacious, and we grind our way through and achieve success. Ultimately, this one feels a little unexpected. And -- but listen, I think it's great for the U.K. But listen, there's a lot of other markets that are similar to the U.K., and the world is a much smaller place today. Everyone is getting their information, their fashion cues and whatnot from similar communities and perhaps even people. And so yes, the world is a really small place. So it will be -- for sure, this is a great proxy for further global growth. But I think it's early days to figure out where we go. And the nice thing about an Oxford Street is it is a bit of a melting pot of the world, and we're going to come to appreciate where we over-index and with what customers we will over-index with and it might be a good little proxy. And thanks for visiting. I am sure there's a lineup for the fitting rooms going all the way up to stairs. I could almost see it.

Next question will be from Vishal Shreedhar at National Bank.

Following on along a question that's been asked earlier, just on the economic backdrop and the difficulty on setting guidance given all the uncertainty. I was wondering if you could just walk us through your thinking on when you set the guidance and what would be the difference between, call it, the top end and the low end? And what would the major factors be in your mind?

Yes. Listen, thanks for the question. Always wonderful chatting with you. I would say you opened with like given the difficulties in the macro environment and how that connects to providing guidance, actually, there is no connected tissue between those 2. I'll be just very frank. Again, we're within that consumer discretionary realm where as long as interest rates are slightly higher where they are today and inflation seems to be reasonably real and there's angst in this world, we actually do better. So I mean, that's actually a good tailwind for us. And so I mean, that's kind of like the way we see it. And we don't -- so -- and we don't -- and again, these are things that are really beyond our control. So we don't even -- we really don't weigh on that as we think of our plan. And listen, I'll pass it to JP to get a little deeper in this.

Yes. Thanks, Andrew. Vishal. So further to what Andrew just said, obviously, if you're referring to the EBITDA margin guidance, there is a range of, say, 150 basis points, but we need to appreciate that a full year is a long period of time, 12 months. And also, obviously, the sales are a very important factor. So as we start with this initial guidance for fiscal '26, I think it's reasonable to have a bit of a range, especially on comps and total revenue growth, and that will certainly impact your range for adjusted EBITDA margin. So that's nothing different than the approach we would have taken last year. And with passage of time this year, you can expect us to refine our guidance as we know more when Q1 and Q2 become actuals and so on and so forth.

Next question is from Michael Glen at Raymond James.

I'm just hoping that you can maybe parse the expansion you're expecting on both your gross margin line and SG&A leverage. Obviously, last year was a massive year for SG&A leverage. Are you expecting that to slow down this year? I'm just trying to figure out what you're contemplating for the guide.