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

Good morning, ladies and gentlemen, and welcome to Groupe Dynamite's Second Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] On today's 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-week period ended August 1, 2026. The press release and related disclosure documents are available in the Investors section of the company's website at groupedynamite.com and on SEDAR+. A replay of the webcast will be available shortly after the conclusion of the call. Before management begins, please refer to Slide 2 of Q2 2026 investor presentation for the company's full statement on forward-looking information and to the appendix for a reconciliation of non-IFRS financial measures to the most directly comparable IFRS financial measures. The call will now be turned over to the Chief Executive Officer and Chair of the Board, Andrew Lutfy. Please go ahead.

Good morning, everyone, and thank you for joining us. Q2 was another strong quarter for Groupe Dynamite. We grew sales, expanded profitability, increased earnings and free cash flow and raised all three guidance metrics. But more important than any single quarter is the trajectory behind it. For 6 consecutive years, we have progressively improved key brand and financial metrics across the business. That's not luck. There's no such thing as 6 years of overnight success. And importantly, that performance has continued through very different economic environments, supply chain disruptions, tariffs, geopolitical uncertainty and rapidly changing consumer behavior. That gives us increasing confidence that what we are seeing is not simply a period of strong performance. It's a result of a business model that has been deliberately built, tested and refined over many years. Our luxury-inspired business model is working and the premiumization of our brands is strengthening. As we enter the second half, we will lap two of the strongest quarters in our history. We knew that when we built the plan. So I see Q2 is another proof point in a 6-year progression and further validation that our model and our brands continue to strengthen. When we talk about our luxury-inspired business model, it starts with the deliberate premiumization of our brands. GARAGE and Dynamite are fundamentally two different brands than they were 6 years ago and even 2 years ago. We have elevated every customer touch point, the product, the confection, the categories we compete in, the real estate and ultimately the entire brand experience. Our AUR has roughly doubled since 2019. And we're not charging twice as much for the same white T-shirt. We have built a more elevated proposition and our brand has followed. That is the difference between raising prices and building brand equity, which creates real pricing power. And that power comes from the emotional equity we have built through an obsession with understanding our customer and staying culturally relevant. Another important part of the model is inventory. We view inventory as capital allocation. We intentionally operate lean and engineer scarcity into the model. In fashion, having too much of the wrong product is far more expensive than occasionally having too little of the right product, but scarcity alone isn't enough. We operate a pull inventory model then we let the customer decide where that inventory goes. Our highest productivity stores pull the hardest against global inventory because that is where demand and full price sell-through are strongest. Our objective isn't to maximize inventory in every store. It's to maximize the productivity and gross margin dollars network-wise. That drives stronger full price selling, fewer markdowns, faster inventory turns and greater agility. That is how we take the fashion risk out of fashion. Real estate is another part of that same equation. Our philosophy is simple, the smallest house on the best street. Today, our investment-grade real estate Tier 1 through 3 represents approximately 72% of sales. In 2017, it was roughly 28%. Our highest quality stores don't simply generate greater volumes, they turn inventory materially faster than our lower tier locations. So as we shift more sales towards investment-grade real estate, we aren't simply improving the quality of our stores. We are improving the productivity of the entire business. Over time, that creates a higher quality network and continuously raises the performance standards across the portfolio. It's a positive flywheel effect. Canada and the United States represent different stages of the same story shaped by GARAGE's significant evolution. Historically, a denim and woven led casual brand GARAGE has become a highly coveted L.A.-inspired lifestyle and activewear brand. That stronger positioning has also changed where the assortment resonates most. Climate and culture influence demand. Our real estate is equally important. Canada has nearly 6x the store density per capita of the U.S. With a greater share of its mature fleet outside the investment-grade locations, we increasingly prioritize. Our strongest performance is concentrated in premium markets where the customer and the brand and the real estate are best aligned. Our pull inventory model reinforces that dynamic by directing product towards the strongest demand and full price sell-through. The U.S. presents a very different opportunity, substantially lower penetration significant investment-grade real estate white space and a customer and climate that align well with GARAGE's evolved proposition. Our opportunity is to scale that success with discipline, opening the right stores in the right markets and directing inventory towards the strongest demand. That gives us continued confidence in GARAGE U.S.'s runway, not to mention the U.K. Ultimately, none of this is possible without our people. Our people are our true superpower. We are a genuinely culture-led organization, and that culture is revealed most clearly when conditions become difficult. In moments of uncertainty or disruption, our people draw on shared values such as ownership, empathy, curiosity and passion to move with urgency, support one another and find creative solutions. These values are not words on a wall. They shape how we think, act and lead. That is the foundation of our resilience. And because so many of our people are also shareholders, that ownership mindset is deeply authentic. People think and act like owners because they are owners. A combination of culture, ownership and talent is extraordinary and quite impossible to replicate. It is not simply our competitive advantage. It is the force that will continue to carry Groupe Dynamite forward. When I step back from Q2, the message is simple. We have made deliberate choices for 6 years, brand elevation over promotion, investment-grade real estate over growth at any cost, scarcity and agility over excess inventory and the culture of ownership over bureaucracy. Those choices are working. Our brands are stronger. Our network is more productive, our inventory turns faster, our economics continue to improve, and our runway remains significant. Q2 is another proof point. Our luxury-inspired business model is working. We're looking at a company that has spent 6 years getting better and still has a ways to go. And with that, I will hand it over to Stacie.

Thank you, Andrew, and good morning, everyone. Andrew spoke about the strength of the model. What I want to focus on is how that model translated into execution in Q2. The story of the quarter was our ability to see, respond and execute quickly. We entered Q2 with an opportunity to bring greater newness into our assortment. We recognized it early, acted decisively and used the speed of our operating model to adjust product in season. The response was clear: sales strengthened throughout the quarter and we exited Q2 with good momentum. That is an important distinction about Groupe Dynamite. We don't have to make every decision months in advance and hope the customer agrees with us. We stay close to her, read the signals and move. Our advantage is not simply speed, it is speed with precision. And increasingly, we have the infrastructure to support that speed at greater scale. Our U.S. distribution center is reducing last-mile friction and strengthening our ability to move inventory closer to where demand is strongest. Turning to stores. Our physical fleet remains one of our most powerful customer acquisition vehicles and the fullest expression of our brands. This quarter, sales per square foot reached 1,056, up 28.9% year-over-year. That productivity matters because our strategy is not simply to operate more stores. It is to operate better stores in better locations, generating greater productivity. We opened 7 stores during the quarter across the U.S. and U.K. Early results from the U.K. openings of Bluewater Center and Oxford Street are very encouraging, and we are already applying what we are learning to inventory allocation and localized marketing. That is how we intend to scale internationally: learn quickly, localize intelligently and maintain the discipline that has driven our North American success. Turning to digital. E-commerce sales increased 31.5% in Q2, supported by healthy growth in both traffic and conversion, but we see digital as much more than another transaction channel. It is increasingly the connective tissue of our customer experience. Our road map is focused on greater personalization, removing friction, stronger social integration and extending our brands to customers well beyond our physical footprint. We recently expanded shipping to 9 additional countries across Europe and Australia, meaningfully increasing our global reach. And with Henry Spear joining as Chief Customer Officer, we now have dedicated leadership focused on personalization, friction and increasing customer lifetime value. Now to the most important driver of our business, product. Our teams are staying extremely close to culture and equally importantly, to the customer signals that tell us where to move next. At GARAGE, our off-duty lifestyle continues to perform strongly. Our Wild Tempo campaign with Honey Balenciaga generated significant brand heat, while our Green Envy drop was a great example of the model working in real time. Our community asked for it, our teams listened and we responded. At Dynamite, Q2 delivered strong momentum led by dresses and supported by culturally relevant brand activations from inserting Dynamite into the Montreal Grand Prix conversation to an influencer self-shot campaign in the South of France, we continue to elevate how and where the brand shows up. The objective is not simply awareness. It is to translate brand heat into product demand, full price selling and stronger customer relationships, and that brings me to the customer. Across the business, transactions grew in both stores and online. Our active customer base continued to expand year-over-year, supported by stronger retention and increasing value per customer. And importantly, as customers engage with us across channels, we are seeing growth in their average customer lifetime value. That is ultimately what omnichannel should do, not simply move a transaction from one channel to another, but creating more valuable relationship with the customer. As we enter the second half, our priorities are clear: stay close to the customer, move quickly on products, increase the productivity of every customer touch point and scale without compromising the discipline that got us here. We have strong momentum, increasingly productive stores, a growing digital business and significant white space ahead of us. But none of that happens without our people. I want to thank our field associates and our head office employees. Your ownership, curiosity, agility and passion are what allow us to operate at this pace and bring GARAGE and Dynamite to life every day. With that, I'll turn it over to JP to walk you through the financial results. Thank you.

Thank you, Stacie, and good morning, everyone. Total revenue for the second quarter increased by 29.8% to $423.6 million. Brick-and-mortar comparable store sales grew 10.3% or 12.3% on a constant currency basis. That compares with a 28.6% increase in Q2 last year, and on a 2-year basis is a stack of 38.9%, up from 35.6% in the first quarter. We also had meaningful contributions from stores opened over the past year, including three locations in the U.K. and continued momentum across both banners. By geography, revenue in the United States increased 52.2% to $271.6 million. Canada was $145.1 million, down 1.9% on a fleet that is 13 stores smaller. For the first half of the year, Canada is up 2.1%. The U.K. contributed $6.9 million in revenue in the quarter. Our Canadian business is mature. The United States is earlier in its penetration and the U.K. earlier still. So we expect brick-and-mortar growth to come primarily from the United States and in due course from the U.K. That is purposeful. Those are the markets where we are investing, where we are opening stores, where our most profitable stores sit and where we are building momentum. Moving to digital. Top line growth was also supported by online revenue, which increased by 31.5% to $61.4 million, reflecting continued strength in the channel with balanced growth across both stores and e-commerce. As a reminder, our long-term target for online revenue is 25% of total revenue. As we continue to generate momentum in brick-and-mortar and from new stores, online penetration has to grow faster still. We aim to add roughly 1 to 1.5 percentage points of online penetration a year toward that 25% goal. On a trailing 12-month basis, penetration moved from 17.5% to 18.5%. Turning to profitability. Gross profit increased by 40.5% to $291.6 million. Gross margin expanded 520 basis points to 68.8%. That figure excludes the $9.4 million recovery of tariff refund claims, which appears as its own line on the P&L. Most of that improvement is the lapping of the elevated tariffs that hit the first half of last year. Gross margin also benefited from our disciplined initial markup, a pricing strategy that carries limited reliance on markdowns, and logistics efficiency from our U.S. distribution center. Taken together, those are structural advantages rather than cyclical ones. Markdowns stayed at historically low levels. Roughly 95% of gross sales go at full price. Inventory turned 7.72x in the quarter against 7.25x last year. We chased more than half our receipts in season. That is how we read demand and react inside a quarter. On expenses, SG&A increased 21.8% to $106.8 million from $87.7 million. Wages and salaries were most of the increase. Selling and marketing rose to support growth. Admin costs rose on IT and software. As a percentage of sales, adjusted SG&A decreased 210 basis points to 24.6% from 26.7%. That is operating leverage with revenue scaling faster than SG&A. Moving down the P&L, operating income increased 60.5% to $156.2 million. Adjusted EBITDA increased 55.9% to $187.9 million and adjusted EBITDA margin of 44.3%, our highest since we began reporting under IFRS. That is an improvement of 740 basis points, underscoring the strength and scalability of our luxury inspired business model. That strength flowed through to earnings. Net earnings increased 77.5% to $113.4 million. Adjusted net earnings increased 68.1% to $108.9 million. Adjusted diluted earnings per share increased 68.7% from $0.57 to $0.96. Turning to cash flow and the balance sheet. Free cash flow was $109.5 million against $72.6 million last year. From a balance sheet perspective, net leverage was 0.89x. We ended with $31.9 million of cash and $312 million available under our credit facilities. We repaid in full the $20 million drawn at the end of the first quarter and extended our credit agreement by 2 years to May 2030. From a capital efficiency perspective, return on assets reached 38.9% from 24.1% last year. Return on capital employed increased to 73.5% from 45% in the same quarter last year. Turning to capital allocation. During the quarter, we repurchased 993,605 shares under our NCIB at an average price of $63.50 for approximately $63.1 million. The framework has not changed. Capital expenditure comes first because the fleet and the platform earned our highest returns. Beyond that, we have been consistent buyers of our own stock, and we remain so. Looking ahead to the remainder of fiscal 2026, we are raising total revenue growth guidance to a range of 25% to 27% from 22% to 25%. We are also raising the bottom of our brick-and-mortar comparable sales range by 1 point to a range of 12% to 14%. New store performance is what moved the revenue guidance. Those openings are not in the comparable base, which is why the revenue range moved more than the comparable sales range. We raised the bottom of the comparable sales range on the continued shift of the network toward our best locations as well as passage of time with half the year now behind us. As a reminder, on the second half, the brick-and-mortar comparable sales range implies 9.5% to 13% growth over last year. We are happy with how the third quarter has started. We exited Q2 slightly stronger than we began it, and we continue to run around that level today. The updated annual outlook we established today balances the dynamics of continuing momentum in the business with the toughest comparison of our year, which are immediately in front of us. From a real estate perspective, we now provide guidance independently of closures. We continue to expect 24 to 26 openings in fiscal 2026, including 5 total in the U.K. The cadence of openings is weighted toward the back half of 2026. Openings and closures are not symmetrical. A store closure has effectively no impact on our EPS. Even several closures together are immaterial. A new store is roughly 4 to 5x the revenue of 1 week close and the profitability gap is wider still. We have established a target of 350 stores by the end of 2028 across both banners. Our total addressable market is slightly much larger. Looking at GARAGE specifically, we have 96 stores in Canada and 139 in the U.S. The United States market is more than 8x the size of Canada by population. We believe there is significant opportunity beyond 2028 to grow our store footprint in the U.S. and internationally. From a margin perspective, we are increasing our adjusted EBITDA margin outlook to a range of 39.5% to 40.5% from 38.5% to 39.5%. This increase comes from three drivers. First, gross margin concentrated in the first half; second, continued SG&A leverage as we scale revenue; and third, greater efficiency from our U.S. distribution center, which is now fully ramped. Once again, we are not including the recovery of tariff refund claims in adjusted EBITDA. As we move into the back half of the year, we have now lapped the tariff impacts that affected the first half of last year. That comparison alone accounts for most of the expansion you saw in Q2. The back half is a clean comparable period. We expect gross margin ahead of last year, again, but by a much smaller amount and against a cleaner comparison. In closing, this quarter is a story about the strength and durability of our financial profile. We raised guidance across revenue, brick-and-mortar comps and margin today, and we did it without leaning on any one-off items. The tariff refund recovery sits outside of our adjusted results entirely. Taken together, expanding margins, strong cash generation and a healthy balance sheet give us a financial profile that funds its own growth. Those margins are structural rather than cyclical and they continue to expand as we scale. That is the foundation we build the next several years on. With that, I'll turn it back to the operator to now take questions from the financial analysts.

Thank you. [Operator Instructions] Your first question comes from Irene Nattel with RBC Capital Markets.

The topic du jour everywhere is same-store sales. Can you talk about what you're seeing in terms of customer behavior? I think you mentioned that traffic was up across the board. So what you're seeing in terms of product demand, traffic counts, pricing and where or if you're seeing any kind of weakness or deceleration.

Irene, it's Andrew. So yes, very good question, great question. Listen, and there's a lot in there. So let me endeavor to unpack this a little. What we're seeing is probably a bit of a tale of two cities. In this case here, I guess, it's a tale of 2 countries. You've got the U.S. economy that's really, really, really strong. The Canadian economy is definitely a lot softer and why it's softer. I think most of us appreciate why it's softer and the data is the data, right? Like GDP growth is pretty anemic. It hasn't really budged per capita GDP real growth hasn't changed in 20 years. And I think it's actually gone negative recently. So the Canadian and -- Canadians are anxious. On the South of the border really, you've got an economy that's firing on all cylinders. Unemployment is low. Personal indebtedness is low, wage growth is high. And then you've got a brand, you've got our GARAGE brand, let's say, that has really pivoted over the last couple of years. And as we keep premiumizing, if you will, or elevating the brand and the brand's equity and including the assortments, right, which incidentally we're moving in our more expensive product as we get into like activewear and whatnot. So a combination of the evolution of the brand as also extrapolated into the even the store footprint that we have in the U.S., where 85% of our stores are sitting in these investment grade, high quality, high-volume assets. It's just really I guess we're seeing a big difference between the 2 countries. So to pinpoint exactly where and why, I don't, I can't tell you with great precision, but I think all these factors go into play. Evolution of the brand, the real estate strategy, right, you have 6x the store density, if you will, in Canada relative to the U.S. So, in the U.S., it's a much higher quality real estate portfolio. And consequently, we're dealing with a K-shaped consumer down there at the top end of a K-shaped consumer who is probably more resilient in a more resilient economy. So not sure it fully answers, but it's ultimately what we're seeing.

That's really helpful, Andrew. And just sort of as a follow-up, if I may. Obviously, we're seeing a very impressive gap between that same-store sales number and the total revenue number. How should we be thinking about the magnitude of that gap on a go-forward basis?

Irene, this is JP. Thank you for the question. So you are correct in that in Q2, there was a noticeable gap -- and obviously, this is the impact of new stores that are performing incredibly well. So if you look at our comps for Q2 on a constant currency basis, at 12.3% versus the total revenue that was up almost 30%. That gap is almost 18 points. There is a little bit of it coming from a better e-com penetration rate, but the majority of that gap truly comes from store openings that were open in the past year, not only in the past quarter because that's a year-over-year number, and that cohort in the last year has performed incredibly well. So we are happy with the performance of those new stores. And in fact, that's why we were comfortable this morning, raising the full year revenue guide by 2 to 3 percentage points. So really, the new stores are doing well. We're happy to see that, and we believe that will continue for the next quarters in front of us.

Your next question comes from Chris Li with Desjardins.

My first question is, if I take the low end of your revised full year comp sales guidance, it would imply a continuing acceleration on a 2-year stack basis to around 40% to 41% in the second half. Is that correct? And then if so, what is your confidence in achieving this despite all the ongoing macro uncertainties out there?

Chris. So you are correct. Effectively, the lower end of the range on an annual basis, the 12%. So maybe if I take the whole range for a second, so the brick-and-mortar comp range is now 12% to 14%, which is -- which means that by difference, the back half is 9.5% to 13%. Now if you look at it on a 2-year stack basis, that will give you 40% at the lower end of the range and 44% at the top end of the range. And I think what is important here to note is that we feel good about this range. We are very comfortable with that range, which is why we've increased it this morning. And effectively, also you are right, pretty much every point here points to an acceleration versus Q2, which was also an acceleration versus Q1. So again, the business is not getting harder the compare is getting harder as Q3 and Q4 last year were two of the best quarters in the history of this company. So we feel comfortable with the guide. And yes, your math is correct.

Okay. That's helpful. And my follow-up is, I'm sorry if you disclosed this already, but can you share with us the breakdown in same-store sales between AUR and traffic this quarter?

Chris, I'll take that one. So AUR, as it has been over the last few years, is most of the work. While we have clearly stated in the past that we're targeting 2x inflation, I want to be very clear with all of you that, that's the output. The input is not taking a $20 top and charging $22 next year. The input is coming from an AUR strategy focused on brand elevation across three metrics, which Andrew has touched on, but I'll follow-up with. One, product mix, so our positioning of off-duty and on-duty that enable a bear top to move from $26 to a $45 retail when it shifts to a performance fabric with technical capabilities. AUR isn't just a higher ticket. It's elevating what we're actually offering and our merchant and design teams know that we are not creating anything that anyone needs. We are creating things that people want. The second thing is our geography. So geography, as you guys know, we've mentioned we charge the same price in Canada and the U.S. So as both gentlemen have spoken to, our success in the U.S. just by penetration alone, we pick up AUR. Third is our real estate strategy. So as Andrew likes to mention, the smallest house on the nicest street. This is where actual units matter more than the actual transaction. Our order value rose and units are orders per price per unit rose -- I said that backwards, sorry. Generally, what I'm trying to say is if price is an issue, the units are going to fall first and price and units are rising. So we continue to believe in this 2x inflation as a strategy, but know that is not actually the action we're taking is the three inputs I just mentioned.

Your next question comes from George Doumet with Ventum Financial.

Congrats on the quarter. I think you mentioned early in the quarter, the assortment was pivoted towards newness. I was hoping to get a little bit more color on that. And JP, I believe you mentioned the markdown rate is at 5%. I just want to confirm that number. Maybe you can tell us a little bit what that number was last year? And perhaps, what's embedded in the guide for an exit rate this year?

Yes. So Stacie will start with newness and then I'll take the Markdown question.

So newness is a factor we're hedging really hardly on. We're watching it as a leading indicator. Again, as I just mentioned, we can't keep taking up retails if we don't invest in that quality and the offering that we're serving up to the customer. So we're paying close attention to what culturally or watching what the customer is telling her. And again, we're trying to create an emotion of a want that she can't pass it up when she walks in the store. there's too many options out there competitively on needs, which is why we're trying to focus or create one. So with that, the team is very focused. And with it, if we can turn faster, create those wants, that AUR can come with it.

On the markdown question, that's correct. Our markdown rate has remained at or around 5%, which was also consistent with the past couple of quarters. And in terms of what's being baked in, in our forecast, we effectively assume will remain at or around these levels, could be a point to the left could be a point to the right, but broadly speaking, we assume status quo.

As a quick follow-up, I was hoping to get a little bit an update on denim. I know it was a pressure point last quarter. Maybe if you can just give us -- let us know how that's trending and maybe as we exit the year.

Yes. I'll mention it because I think my takeaway was wrong or what I said was inferred wrong. Denim is downplayed in our assortment mix as we talk about shifting more to an athleisure lifestyle in both on-duty and off-duty. So off-duty for us is based around fleece bottom outfitting. Think of her going to and from campus, to and from the gym. On-duty is more technical. She can actually work out in it. It supports, it holds in all the right spots. So we have purposely downgraded our denim contribution to the business, and it's coming in as we planned it to. But as we've mentioned in the past, and Andrew just opened with, Canada and the U.S. are in different spots on expectations. The U.S. is picking up what we're putting down in on-duty and off-duty because they have no expectation or a new brand and they're absorbing it. In Canada, denim is hurting a bit because we used to be like the general store up here. You could buy jeans and a plaid shirt, you could buy a dress to a homecoming event, like we used to carry everything and we're in some very remote locations where we are the only game in town. But when you go to the U.S. and you have to compete, you need a point of view on your customer and your assortment. And as we've narrowed that and doubled down on this athleisure assortment, it is working in the States very aggressively. They're adapting to it. We're taking market share, and we like where we're positioned. In Canada, we need to work on that repositioning and that's where you'll see a little bit of a degradation on denim.

Your next question comes from Michael Glen with Raymond James.

I just want to go back to these -- to the strength you're seeing in the new store openings should -- what should we anticipate as these new stores go into the comp base? Will they continue? Are you seeing a leveling off or trending lower on the new stores as they mature a little bit? What are you seeing in terms of, say, a 2-year or 3-year trend?

Mike. So historically, when we open up a new store it starts off really, really strong. And then it continues to be strong. So we are not one of these retailers where we'll start at say, 80% of performance and work our way to 100%. In fact, the first month is usually incredibly strong. So as those stores eventually join the comp base, we are very excited by the dollar contribution that those stores are bringing because those are top-tier assets. However, if you look at the comp or the gain year-over-year in percentage terms, it's very healthy. Don't get me wrong, but the rest of the network is also healthy. So in terms of contribution to the comp in percentage points, it's not going to hurt us, let me be very clear, but it's not going to add a lot of points to it either. It's really on the dollar side of things where these stores make a noticeable difference.

Okay. And then just on gross margin through the back half of the year, I know that we're dealing with a lot of the tariff noise. But in a normal year, would your gross margin increase sequentially from Q2 to Q3? I'm just trying to understand what that cadence looks like on a relative basis.

Yes, I'm happy to speak to that as well. So last year, in Q1 and Q2, tariffs were very topical, and we talked about that, which is why in Q1 and Q2 of this year, our gross margin year-over-year is up 520 basis points. So as we get to Q3, we're now on a level playing field. So the comparison is clean and it's a real comparable base. To illustrate what I'm saying, if you look at our LTM gross margin rate, at the end of Q2, we are at 66.3%. Effectively, that rate is Q3 and Q4 of last year and Q1 and Q2 of this year. And as such, that number of 66.3% is not impacted by last year's crazy tariffs in the first half. That is a clean comparable base to start with. Back to my earlier comments in the opening remarks, we believe there is further room for expansion in Q3 and Q4. However, the magnitude will be far smaller than what you've seen because we no longer get the benefit of comping those tariffs. What we're going to get in Q3 and Q4 are the benefits of our U.S. DC on logistics and that is expected to be incremental to the gross margin. So starting from your 66.3 LTM, which is a good, solid, clean base, we expect to grow that a little bit with passage of time, but certainly not with the same magnitude that you've seen in the first half of this year.

Your next question comes from Brian Morrison with TD Cowen.

Andrew, I think at the beginning of the call, you said that the AUR has doubled since its certain time frame. I didn't get that. But then Stacie highlighted product mix and U.S. parity and higher U.S. mix to justify some of that. And at the beginning of the call, you said this reflects brand building and improved brand strength. I'm just wondering, has this resulted in any changes to your consumer profile, the average age to GARAGE customer?

Yes. Great question. And yes, it Yes. Yes. It's all changed. Yes. So what we spoke about or what I spoke about earlier was basically doubling in the AUR over the last 6 years. JP is looking at me. Yes. And if you think about where the brand was 6 years ago, I mean, our target customer was our target market, our muse, if you will, she was 16 years old. And mathematically, we would land the best customer best markets, probably land around 14 years old. Today, our muse is 24 years old, and mathematically, we land at about 22.5 years old. So for sure, the customer has aged up from 14 to 22. So the customer's aged up even the end use, again, Stacie mentioned, I mean we used to be a denim and applied shirt and homecoming dress and that's kind of like what you could expect at a GARAGE 6 years ago. And today, you're wearing our proudly wearing our booty shorts and support tops, bra-support tops into an active wear class, the yoga class, Pilates class, kickboxing class and furthermore, we're dressing you in the right lifestyle to get you to and from that class. So the brand has evolved completely. The customer's evolved completely, the real estate and the real estate strategy has evolved completely. And this investment-grade real estate that we always talk about, I mean, it takes courage, right? Like to do a store in SoHo, these are big, big rents are Oxford between New Bond Street and Regent. These are big commitments, you're playing with the world's best brands. So you need to be at that level, and that's really what we've been quarter after quarter. That's what we keep doing is elevating that brand. And I know you're not asking, but I'd like to follow up even to Irene's question is what's really, really important, I do mention in my opening comments, we run a pull model inventory model. What that really means is we're not playing God planning and allocating and where we send the inventory. We actually don't. We send a very small percentage of the inventory sprinkle it all over the place. And then we basically let the customer and ultimately, the demand coming out of those store locations dictate where the inventory is going to go. So when you have a store and as you think about these amazing assets that we're opening up in the U.S., right? And again, we are only 1/6 as penetrated in the U.S. as we are in Canada, let's not even talk about the U.K. that's overperforming. These assets are pulling hard on the inventory, and we like engineered scarcity because I hate inventory. So as we keep pulling on this inventory, unfortunately, that store in Sudbury, Ontario, in tertiary parking, nothing in Sudbury may ultimately pay the price, right? And so this is all part of a very deliberate and strategic evolution of the brand. And at the end of the day, if you look at our 6-year stock of numbers, it's continuous improvement in every single metric. And quite frankly, I like it. I like this idea of running a more science-based engineered business that has greater predictability and resiliency. Sorry about that.

No, that's [indiscernible]. I mean I was kind of curious if you've seen yet that age difference at Sudbury...

Okay. And then...

Sorry, Stacie.

She was just agreeing...

It was intentional. Yes, it was targeted.

That customer has aged up roughly about years and it's a much bigger addressable market and that's strategically why we chose to go there.

Yes. Yes. Okay, follow-up, just in terms of the retail sales per store, I see the runway and growth in the U.S., but they look to be double or more of that in Canada, 40% or so is currency, and I understand the optimized real estate footprint. Can you provide to us what the average size four walls in the U.S. or average size square foot U.S. is relative to Canada?

I'm afraid, no, I'm afraid we won't go into these details, Brian, but I can say that certainly, U.S. stores versus Canadian stores are on average are far more profitable. And when we look at new store openings these days, they're also accretive to the chain average, and those are in U.S. dollars. So certainly, we noticed the impact of those openings in the U.S. market.

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