Operator: Thank you for standing by. This is the conference operator. Welcome to Aritzia's Fourth Quarter 2025 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] We will now turn the conference over to Beth Reed, Vice President, Investor Relations. Please go ahead.
Beth Reed: Thank you, operator. And thanks for joining Aritzia fourth quarter fiscal 2025 earnings call. On the call today, I'm joined by Jennifer Wong, our Chief Executive Officer; and Todd Ingledew, our Chief Financial Officer. As a reminder, please note that remarks on this call may include our expectations, future plans and intentions that may constitute forward-looking information. Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, general economic and geopolitical conditions, as well as the competitive environment. Actual results may differ materially from the conclusions, forecasts, or projections expressed by the forward-looking information. We would refer you to our most recently filed management discussion and analysis and our annual information form, which include a summary of the material assumptions, as well as risks and factors that could affect our future performance and our ability to deliver on the forward-looking information. Our earnings release, the related financial statements, and the MD&A are available on SEDAR+, as well as the Investor Relations section of our website. I'll now turn the call over to Jennifer.
Jennifer Wong: Thanks, Beth. Good afternoon, everyone, and thank you for joining us today. Our results for the fourth quarter and full year of fiscal 2025 underscore the strength of our business model and growing affinity for the Aritzia brand. Underpinned by our assortment of beautiful products, our optimized inventory position, and our strategic marketing investments, we fueled accelerated momentum in the United States and in Canada, both online and in our boutique. On the heels of our strong fourth quarter performance and the continued momentum we're seeing in the new fiscal year, I'm confident we'll successfully navigate the current external uncertainty, including tariffs and the potential impact on our consumer. Our successful 40 plus year track record demonstrates our resilience across varying economic conditions. We are in a position of strength, which will help us adapt to evolving macro developments and execute our growth strategy. Turning to our fourth quarter highlights, we delivered double digit top line growth in each month, resulting in a 38% increase in Q4 net revenue, excluding the impact of last year's extra week. Comparable sales grew an outstanding 26% as all channels and all geographies comped positively. Strength in the United States continued to drive our results. Exceptional client response to our winter and spring products and our investments in marketing propelled further acceleration in e-commerce growth and generated strong double digit comparable sales growth in our existing boutiques. We also added to our portfolio a premier real estate location. All of this fueled an increase of 56% in net revenue in the United States, excluding last year's extra week. In addition, our base of active clients in the U.S. increased by more than 40%, illustrating the strength of our brand, increased awareness, and growing appreciation for our everyday luxury offering. We're also extremely pleased with our accelerated momentum in Canada. Strong client response to our products, supported by our investments in marketing, drove a 16% increase in fourth quarter net revenue, excluding last year's extra week. In retail, we achieved an unprecedented expansion of our physical presence, opening 12 new and three repositioned boutiques in the last 12 months, our most openings ever in a single year. In Q4, we opened four new boutiques across the United States, including two in Florida and one in each of California and Pennsylvania. We also opened our repositioned iconic Fifth Avenue flagship near Rockefeller Center in Manhattan. This helped drive a 31% Q4 increase in our retail channel, excluding last year's extra week. In addition, strong demand for our products, supported by our investments in marketing, fueled double-digit comparable sales growth in our existing boutiques. In fiscal 2026, we remained focused on our winning real estate strategy, which continues to prove itself over and over again. We plan to open a minimum of 12 new boutiques and five boutique repositions, increasing our presence in existing markets, as well as broadening our reach across the United States. We plan to open in five new markets this year, including Cincinnati, Pittsburgh, Raleigh, Salt Lake City, and Scottsdale. In e-commerce, we improved our performance for a fourth consecutive quarter. Net revenue in Q4 increased 48%, excluding the extra week last year. This was driven by robust demand for our assortment of high-quality, beautiful products and our optimized inventory position. In addition, our focus on full-funnel marketing fueled an increase in traffic of more than 50% in the U.S. We continue to drive growth in new, existing, and reactivated clients, further illustrating our investment in digital is paying off. We also saw a 25% increase in omnichannel clients, our most profitable client segment. During the quarter, we launched our new and improved Aritzia.com, which features an elevated client experience, including greater personalization and enhanced product discovery. This new platform will allow us to be much more agile, creating more competitive, innovative experiences that support our growth strategy. This, in turn, will boost customer engagement and drive incremental sales through higher conversion. We're thrilled with the e-commerce momentum we generated in fiscal 2025, accelerating digital quarter after quarter, even with key initiatives still underway that our clients have yet to experience. These include an enhanced international e-commerce site that will be rolled out in the first half of the fiscal year, and a mobile app which we expect to launch by the end of the fiscal year. Turning now to product, our work to optimize the depth and breadth of our inventory enabled us to capitalize on the robust, broad-based demand for our product. This is reflected in our outstanding fourth quarter net revenue growth, which included a record performance over the holiday season. In February, spring was off to a strong start with positive client response to our most beloved franchises, as well as exciting new styles in seasonal fabrics. Earlier receipts of our spring inventory this year enabled us to maximize the transition from winter. We featured transitional seasonal products in a relevant and timely way, allowing our clients to refresh their wardrobe for spring as soon as the weather warmed. Our optimized inventory position and strong full-price sell-through resulted in a lower mix of markdown sales compared to the fourth quarter last year. This helped drive continued gross margin improvement. We continue to see great success with our strategic investment in digital marketing, both online and in our boutiques. Our performance resulted in Aritzia being recognized by Google in Q4 as the fastest growing search term for U.S. women's apparel. We continue to build on our learnings with a focus on growing awareness and acquiring new clients, particularly in the U.S. In brand marketing, we curated an exciting opening weekend to celebrate our newest flagship on Fifth Avenue in Manhattan. The event garnered significant media coverage, adding to the tremendous amount of buzz around the Aritzia brand and driving Aritzia's industry position as a leading fashion brand. To help grow awareness and strengthen our positioning as an everyday luxury retailer, we continue to refine our full-funnel marketing strategy, increasing the integration of marketing across the business and creating a halo effect on all of the boutiques in our portfolio. As I reflect on fiscal 2025, I recognize that we have so much to be proud of. We've had an excellent year with impressive financial results. Our performance in the fourth quarter underscores the progress we made throughout the year across key areas of our business. This includes optimizing our inventory, increasing our marketing investment, opening a record number of boutiques, and unveiling our enhanced website. And all of these helped contribute to delivering a 550 basis point improvement in our adjusted EBITDA margin. This resulted in a record annual earnings per share of $1.98 for fiscal 2025, more than double the prior year. Looking ahead, our momentum has continued into the first quarter of fiscal 2026, fueled by a positive client response to our spring and summer product and our optimized inventory position. We remain focused on delivering our vision of everyday luxury with another exciting pipeline of boutiques planned for this fiscal year. We also have initiatives underway to support ongoing e-commerce momentum in the years ahead. And finally, our new boutiques and investment in marketing are multi-year levers to help grow brand awareness in the United States, where we continue to have a long runway for growth. Recent macro uncertainty, including U.S. tariffs and concern about the health of the consumer poses unique challenges for us and our entire industry. However, the strength of our brand has never been greater. We have an exceptionally loyal client base. Our financial position is extremely healthy, and we have an agile global supply chain which is built upon longstanding partnerships with trusted manufacturers. Additionally, at this time, 40% of our revenue is generated outside the United States, and we have already on hand almost half of the inventory we anticipate needing for this fiscal year. We're currently engaged in opportunities to mitigate the impact of tariffs and protect our margins. These include partnering with our suppliers to ensure continued resilience and commitment to our everyday luxury quality standards, and fiercely protecting our margins while maintaining our commitment to providing everyday luxury value for our clients, as well as further diversifying our supply chain and realizing cost reductions across the business. Adaptability and executing with excellence are built into our DNA. With a world-class team like ours, adversity highlights our resilience and becomes a catalyst for growth and another building block to future successes. In closing, the strength of our brand, the quality of our assortment, and our everyday luxury client experience are all resonating exceptionally well with our clients. This gives us confidence in our ability to execute and capitalize on the opportunities that lie ahead. We are focused on our fundamentals, our solid foundation, and our resourcefulness. Our healthy balance sheet, combined with the momentum in our business, puts us in a position of strength to successfully navigate the rapidly evolving landscape while remaining steadfast in advancing our key growth levers. I'm incredibly proud to lead our team and grateful to our people for the perseverance and hard work required to generate the outstanding momentum we're seeing in our business. We remain committed to excellence as we build on our momentum, prudently managing our business for the near term and the long term. This concludes my prepared remarks for today, and I'll now turn the call over to Todd to discuss the details of our financial plan.
Todd Ingledew: Thanks, Jennifer, and good afternoon, everyone. I want to emphasize that we are navigating this period of uncertainty from a position of strength, as evidenced by our exceptional fourth quarter performance and our strong momentum in the first quarter. First, let me walk you through our fourth quarter results, where we delivered net revenue that exceeded our outlook, meaningful gross profit margin expansion, as well as SG&A expense leverage. This resulted in our fourth consecutive quarter of substantial year-over-year improvement in adjusted EBITDA. Turning to the details of our performance, in the fourth quarter of fiscal 2025, we generated net revenue of $895 million. This represents a 31% increase from last year. Excluding the extra week last year, net revenue increased 38%. Comparable sales grew 26%, as all channels and all geographies comp positively. This accelerated performance was driven by four factors. First, we enjoyed an extremely positive response to our winter and spring product. Second, we supported that response with our optimized inventory position. Third, we made strategic investments in digital and brand marketing. And finally, we benefited from 12 new and three repositioned boutiques in fiscal 2025. Our performance continues to be driven by the strength of our business in the United States, where net revenue was $548 million, an increase of 48%. Excluding the extra week last year, net revenue in the United States increased 56%. Our U.S. e-commerce business was driven by meaningful traffic growth. In our U.S. retail channel, performance was driven by our new and repositioned boutiques opened in the fiscal year, which combined added 50% to our square footage in the United States. This included three brand-propelling flagship locations, two in Manhattan and one in Chicago. Finally, strong double-digit cost growth in our existing boutiques also contributed to the outstanding performance in the United States. In Canada, net revenue was $347 million, an increase of 11%. Excluding the extra week last year, net revenue in Canada increased 16%, driven by accelerated momentum in both our e-commerce and retail channels. Turning to our sales channels, net revenue in our retail channel was $517 million, an increase of 24%. Excluding the extra week last year, retail net revenue increased 31%. This was driven by double-digit comp growth in our existing boutiques in both Canada and the United States, as well as the strong performance of our new and repositioned boutiques. In e-commerce, net revenue was $378 million, an increase of 42%. Excluding the extra week last year, e-commerce net revenue increased 48%. This was driven by strong traffic growth, fueled by the four factors I mentioned earlier. We delivered gross profit of $380 million, an increase of 45% compared to the fourth quarter last year. Gross profit margin expanded 420 basis points, to 42.5%. Our ongoing actions to further drive margin expansion generated benefits from IMU improvements, lower markdowns, lower warehousing costs, and tailwinds from store occupancy costs. These benefits were partially offset by higher freight costs. SG&A expenses for the quarter were $246 million, leveraging 140 basis points as a percentage net revenue to 27.5%. The improvement was driven by fixed cost leverage and savings from our smart spending initiative. Adjusted EBITDA in the fourth quarter was $161 million, an increase of 122% from last year. Adjusted EBITDA as a percent of net revenue expanded 740 basis points to 18%. This was driven by our ongoing efforts to deliver multiyear margin expansion, SG&A expense leverage, and benefit from other income. As we have communicated, the improvements we delivered in each quarter of fiscal 2025 represent a key step on our path back to achieving our historic EBITDA margin levels in the high teens. Turning to the balance sheet, inventory was $379 million at the end of the fourth quarter, up 12% from last year. Importantly, prior to the implementation of reciprocal tariffs by the United States, we had already received the vast majority of inventory required to satisfy demand for our spring-summer season. During the quarter, we generated $66 million in free cash flow. Our liquidity position is strong with $286 million in cash, no debt, and zero drawn on our $300 million revolving credit facility at the end of the fourth quarter. I will now shift to our outlook for the first quarter and fiscal year 2026. We continue to see strong momentum in our business in the first quarter, fueled by a positive client response to our spring-summer product and our optimized inventory position. Given quarter-to-date trends, we expect net revenue in the first quarter of fiscal 2026 to be in the range of $620 million to $640 million, representing growth of 24% to 28%. Our net revenue outlook for the first quarter is based on continued performance in the United States and our ongoing momentum in Canada, both driven by our boutique openings, comparable sales growth in our existing boutiques, and strength in our e-commerce business. We expect gross profit margin in the first quarter to increase approximately 200 basis points compared to the first quarter of fiscal 2025. This improvement is driven by leverage on rent, lower distribution costs, and continued IMU improvements. We forecast SG&A leverage of approximately 100 basis points in the first quarter. This is primarily driven by cost leverage due to the increased revenue growth and our ongoing smart spending initiative. Turning to the full fiscal year, we are forecasting net revenue in the range of $3.05 billion to $3.25 billion, representing growth of 11% to 19% from fiscal 2025. While our momentum across channels and geographies remains strong year-to-date, due to the dynamic macro environment, our outlook accommodates for a range of scenarios. Our fiscal 2026 net revenue outlook is underpinned by our boutique openings both this year and last. We plan to open a minimum of 12 new boutiques and reposition five boutiques, including the reposition of our Flatiron flagship in Manhattan. The openings this year will deliver total square footage growth in the mid to high teens, on top of 25% square footage growth last year. Turning to tariff impacts, the tariffs currently being imposed by the United States result in just over 400 basis points of gross margin pressure in fiscal 2026. To offset this pressure and work to maintain our margins, we are focused on the following. Shifting production into countries with lower tariffs. Partnering with our suppliers to help absorb the added costs, realizing cost reductions from across the business, and continuing our focus on our multi-year IMU opportunities. With this in mind, adjusted EBITDA as a percent of net revenue is expected to be approximately 14% to 15% in fiscal 2026, compared to 14.8% in fiscal 2025. We expect depreciation and amortization in fiscal 2026 of approximately $110 million compared to $84 million in fiscal 2025. We expect capital expenditures for fiscal 2026 of approximately $180 million. This includes $110 million related to investments in new and repositioned boutiques for fiscal 2026 and the start of construction for boutiques opening in early fiscal 2027. We continue to see our most recent new boutiques tracking the payback in approximately one year or less, exceeding our target of 12 to 18 months. Our CapEx spend also includes $70 million, primarily related to the expansion of our distribution center network, including our new facility in the Vancouver area. We plan to renew our NCIB this month and throughout fiscal 2026, we expect to purchase shares opportunistically to offset the dilution of option exercises. In closing, while the recent U.S. tariffs pose a significant challenge for our industry, the strength of our business model, our 40-year proven track record, the strong momentum in our business, and our healthy liquidity position give us confidence in our path forward. We are well positioned to successfully navigate the continually evolving macro environment as we remain focused on delivering our everyday luxury experience to our clients and advancing our key strategic levers to drive long-term profitable growth for our stakeholders. Thank you.
Beth Reed: With that, operator, let's please open up the line for questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Luke Hannan with Canaccord Genuity. Please go ahead.
Luke Hannan: I wanted to start on the topic of production. You mentioned that you're diversifying the supply chain that you have right now. Can you give us a sense of the sourcing breakdown as of today and then what you envision it looking like perhaps six months or 12 months from now? Again, assuming that things stay where they are, I realize it's probably a big assumption at this point, just given the fluidity of everything going on, but maybe just for the breakdown on how you envision your production base looking like down the road. Thanks.
Jennifer Wong: Thanks, Luke, for that question. I want to start off by saying that quality is paramount for us at Aritzia. When we're thinking about our sourcing, ensuring that we maintain the integrity of our product and the quality of our product is a top, top priority. At this point in time, the majority of our production is in three countries. That would be China, Vietnam, and Cambodia. The remainder of our production is spread over 10 countries. Effectively, we are in a total of 13 countries across four continents. Obviously, where tariffs are most impacted is in China. And we've reduced our production already from 25% to 20% for fall-winter. We are working to further diversify that. We see that being mid-single-digit percentage for spring of next year, which is less than a year away. And so, the good news with some of this acceleration in our existing strategy of diversifying is that the quality will at least remain consistent with where it is today. If not, I think in some cases, we'll even improve the quality with some of these shifts.
Operator: The next question comes from Mark Petrie with CIBC. Please go ahead.
Mark Petrie: I wanted to ask about the thought process around openness to price increases. I know this is a multi-year journey around IMU, but I think in the past this has been something that there's been some reluctance to take and at the risk of disrupting the momentum with consumers even when competitors were taking price. I'm just hoping you could talk about the current mindset, particularly in light of the tariffs. I guess specific to fiscal '26, I know as you mentioned a bunch of the product has already landed, but what would be the timing on that decision if they would be in place to offset whatever tariff impact is actually felt?
Jennifer Wong: Hi, Mark. That's a very compounded question there. I'm going to start with pricing. It's really important that we get across that the customer is at the center of all of this, right? Ensuring that we stay committed to our everyday luxury value proposition, and providing value to our clients is first and foremost, a priority along with the quality of our product. And we're fiercely committed to protecting our margins, but at the same time, just as committed to providing the value to our clients. And in the number of strategies that we've listed to mitigate the tariffs, we believe that, and after looking at the business quite carefully, we believe that all of the things that we've listed will confidently mitigate the tariffs as we know them today. And obviously, the situation is fluid. So we'll continue to do what we've been doing now for decades, for four decades, for 40 years. We do evaluate our pricing on a seasonal basis. We want to make sure that value to our customer is first and foremost. Given these other mitigation strategies that we've listed, particularly with diversification and the cost management initiatives, we, at this time, do not see that we need to commit to increasing prices as a result of tariffs. That said, we will continue with our IMU improvements. As you know that includes evaluating our prices, but the majority of that is driven on the cost side. So if we execute as we are setting out on all four of those mitigation strategies, pricing is not a primary lever at this point in time.
Operator: The next question comes from Irene Nattel with RBC Capital Markets. Please go ahead.
Irene Nattel: Great quarter. And it sounds as though the momentum is continuing into Q1. So can you walk us through how you're thinking about the evolution of the year from a demand perspective and then also from a margin perspective? Because if half of your product is onshore and was prior to the tariffs, then that must mean that we should be sort of thinking about the first half being strong and the second half being more challenging.
Todd Ingledew: Yeah, thanks, Irene. I'll take that one. Starting with the revenue side of things, we are, as you said, we're continuing to see strong momentum in both countries and in both channels year-to-date, which is very encouraging. Our outlook does accommodate for a range of scenarios due to all the uncertainties with the broader macro environment, including the potential in the back half for a consumer slowdown. So the top end of our range assumes effectively business as usual. And then the bottom of our range assumes a meaningful deceleration. And that's why we've broadened the range for the year. From a cadence perspective, the Q1 guidance assumes total comp growth in the mid to high teens. And then for the remainder of the year, our guidance assumes trend moderate each quarter. So getting further and further pressured as we go through the year. And that's because obviously we're annualizing on extremely strong top line growth in the back half of FY' 25. But also the potential for a slowdown is increasing through the back part of the year. And so bottom line from a revenue perspective, we're extremely pleased with the strength that we're seeing today. And we're executing the mitigate on our tariff impact. But we're going to continue to deliver on all of our growth levers as we work through the year and are obviously charging for the top part of our range. From a SG&A and a gross profit perspective, we've guided to 200 basis points of gross profit margin expansion in the first quarter. And then we expect that we'll start to see slight impact from the tariffs in Q2. The end of Q2 is the launch of our fall season in August. And then to see the full impact of the tariffs in the back half of the year. And then from an SG&A perspective, we've guided to 100 basis points of SG&A leverage in Q1. And then we expect slight improvement for the balance of the year. And, of course, all of this is based on what we know today. So taking into account the current environment.
Operator: The next question comes from Michael Glen with Raymond James. Please go ahead.
Michael Glen: Thanks for getting me in. Just on inventory, we're reading a lot about dropping shipments in the news. I'm just wondering if you have any concerns about your ability to actually get the inventory you need or how you're taking steps to ensure you get the inventory you need for the fall season.
Jennifer Wong: We're not seeing anything. Hi, Michael. Thank you for the question. We're not seeing anything right now in our supply chain. Again, we're very proud of our agile and global partnership. So, at this point in time, we, again, fluid situation. But at this time, we're not seeing any risks.
Michael Glen: And then are you able to give us some granularity at all in terms of how your cost of goods sold breaks down across different buckets, supply chain, freight, apparel, and product? Just different broad buckets, how to think about the breakdown of cost of goods sold.
Todd Ingledew: Yeah. Michael, we don't provide that breakdown.
Operator: The next question comes from Mauricio Serna with UBS. Please go ahead.
Mauricio Serna: I guess I just wanted to get a better sense. So, is it fair to assume you mentioned the 400 basis points impact from the tariff? I mean, how are you thinking about full year, like the gross margin contraction? I assume there's a contraction net. So, how much of a gross margin contraction would you be expecting for full year? And just to confirm, that's assuming 145% in China, 10% elsewhere. Is that a fair way to think about the underlying assumptions there?
Todd Ingledew: Yeah. Thanks for the question. Let me walk you through that. We've only guided to adjusted EBITDA, so we're not going to break down the specifics between gross profit and SG&A for the guidance beyond what I just said related to the cadence. However, from an adjusted EBITDA perspective, we are, as you noted, guiding between 14% and 15%, which is roughly flat with what we achieved last year in FY '25. And that includes the just over 400 basis points of pressure from the reciprocal tariff. And obviously, the situation is evolving. But I'll give you some context as you revise it around the assumptions and then our current mitigation plans. From an assumption perspective, we're using what's currently in place. So, reciprocal tariffs of 145% in China, 10% for the rest of the world, the elimination of China from the de minimis, which actually takes effect tomorrow. And then for fall-winter, we've assumed approximately 20% of our production will come from China. So, those are kind of the key assumptions that you need to understand how we've built out the just over 400 basis points of pressure. And then from a mitigation perspective, we have, first off, approximately 50% or half of the impact is going to be mitigated by margin improvement that we had previously anticipated for FY '26. So, that covers half of it. And then the other half, the remaining 50%, is offset by cost reductions, the acceleration of diversification out of China that Jennifer already mentioned, going from 25% to 20% for fall-winter, this coming fall-winter, and then the sharing of costs with vendors. So, those three things are the remaining 50%. And I guess the bottom line is that under the current set of assumptions, we're working to ensure that, at a minimum, we maintain margins with the levels we achieved last year.
Mauricio Serna: And then quick follow-up. As you mentioned something about the guidance for sales implies in both situations that there's like a deceleration in the comm sales throughout the year, depending on whether it's like a weaker consumer outlook, it could be faster. So, just thinking about, like, in the downside scenario, what kind of comp sales are you baking in like by 4Q?
Todd Ingledew: In the downside, by the fourth quarter, the comms in certain scenarios could be negative. [Indiscernible] talking about for the fourth quarter?
Mauricio Serna: Yeah.
Todd Ingledew: Because we had, as we just reported, extremely strong performance in the fourth quarter last year. And then if there's a downturn in effect, the comps could be meaningfully pressured. And that's what the downside contemplates.
Mauricio Serna: Very last one. Depreciation, you said $110 million for the year. How much of that is, like, the depreciation that is not related to rent?
Todd Ingledew: That's the non-rent amortization. Like, that's pure depreciation.
Mauricio Serna: Yeah, yeah. But then there's, like out of that, some of that is rent, some of that is not rent. Like, what is the part that is not rent?
Todd Ingledew: We'll follow up with you on that.
Operator: [Operator Instructions] The next question comes from Martin Landry with Stifel. Please go ahead.
Martin Landry: Hi, good afternoon, and congrats on your great results. Todd, I would want to continue on the discussion you just provided on the 400 BPS pressure coming from tariffs on your EBITDA line. You do mention that 50% is going to be abated by mitigating measures that you're taking, and 50% feels like you're eating it up right now. Obviously, these tariffs are going to have an impact, as you mentioned previously, half of the year. So how do we think about this, and the spillover effect into next year? I know it may be a little early, but is there going to be a spillover effect that we should take into account? Or do you expect mitigation measures to accelerate towards the end of the year so that tariffs may have a very, very small impact into next year?
Jennifer Wong: Hi, Martin. I'm going to take that question because it's a longer range view. And I think clearly and obviously, the situation continues to evolve. And it is -- if there's one thing we're certain about, it's very uncertain. I'm sure you heard that already before. And so our guidance that we're sharing today contemplates what we see for this fiscal year. And we are very confident and clear in the plan as we know the situation today. But we will continue to evaluate things very closely. The situation is very fluid. I don't think it helps anybody to get into hypotheticals at this point in time. The team, we have a task force here that is planning for various scenarios. My thought is, and this is the collective thought of the team, is we are being proactive. We are being extremely proactive. I like the fact that we've been proactive. We have to remain flexible, agile. We're remaining flexible and agile. We're monitoring constantly. I think we have to be responsive and prepared for the various scenarios. And I'm really proud that we are in that mode. We're ruthlessly prioritizing all of the things that we're doing and what we're spending money on. We're immensely focused on the customer, our product, and our everyday legislative experience. If there's one thing that we will prioritize and keep at the forefront, it's that. And, as you know, we have to balance the short term with the long term. And that's kind of the name of the game, I think, for everybody in our situation. And what we must do is we must execute. We must execute on our business model. We must execute on the plan that we have in front of us for this fiscal year. We are focused on getting those 12 new boutiques open, those five new repositions. And we're focused on servicing the customer with an everyday luxury value proposition. And I think if we execute with excellence, that is putting us in our best position of strength to deal with the uncertainty.
Operator: The next question comes from Stephen MacLeod with BMO Capital Markets. Please go ahead.
Stephen MacLeod: I'm just going to shift gears a little bit. Just wanted to get some specific, just sort of dig in a little bit on the supply chain. You talked about diversifying your supply away from China to 20% and then down to the mid-single-digit range. I'm just curious, where does that incremental supply come from? Is it in existing markets or are you seeking out new markets? And are you having to seek out new suppliers at the same time? Just trying to get a sense of how easy it is, and maybe easy is not a fair word, to make that shift.
Jennifer Wong: Hi, Stephen, yes, all of the above. All of the above. We are taking the word diversification right down to the very epitome of what diversification means. And so the good news is, is we have lots of established longstanding partnerships who are diversifying themselves. And it literally means all of that. Existing countries, exploring new countries, it does mean diversifying our supplier base. And that's where I think that's somewhat of the exciting part, where I think we're getting into facilities and with suppliers that can improve upon our product. And so, again, this has been part of our existing strategy to diversify now for nearly a decade. We've been at it for nearly a decade. And it just means that we've accelerated on that.
Operator: The next question comes from Corey Tarlowe with Jefferies. Please go ahead.
Corey Tarlowe: First question is just, as the weather has gotten a little bit warmer, is there any color that you can provide on products and trends that are working at the moment? And then secondarily, Todd, in your remarks, I think you used or you referenced really strong traffic several times. So what I wanted to ask as a follow-up to that is how do you think about traffic versus ticket in the guide as we look ahead?
Jennifer Wong: Hi, Chris. Thank you for your questions. On the product side, when business is as good as we're seeing it in Q4 and going into Q1, it's pretty broad-based. So everything is working well, all the categories, styles, fabrics, colors. We were able to transition into spring and February quite nicely with lighter-weight fabrics. We've got great colors. I love the colors that I'm seeing in our assortment this season. And we continue to be performing very well in our existing franchises. So really, super pleased that everything is resonating with the customer. And we couldn't be more pleased with our inventory position at the same time because it's meeting the demand when the customer is coming in and wanting to buy these things. As it relates to traffic, our trends are driven by traffic. Again, we're seeing no real change, no material change, no change at all, really. It's consistent in terms of the average basket size, the units per transaction, the average dollar. All of that remains consistent. Really, this is a story about increased traffic growth across both channels and both geographies.
Corey Tarlowe: And then just as an additional question, is there anything that you could share on April, on recent April trends?
Jennifer Wong: I think it's safe to say that when we say we've entered into Q1 with momentum and that spring is off to a strong start, that would apply to April.
Operator: The next question comes from Brian Morrison with TD Cowen. Please go ahead.
Brian Morrison: Sorry to beat this question again, but is that 400 basis points represent tariffs for the year or half the year, or is that an annual impact? And I understand your net impact with mitigating factors. Is that 200 basis points like X tariffs? Would it be even closer to the 16.5% range? And I respect quality, but can you mitigate 321 by allocating your client favorites to outside China in a rapid manner?
Todd Ingledew: Thanks, Brian. I'll take that. Yes. First off, from a margin perspective, we would have been in the 16% to 17% range had we not had the impact of tariffs. And the 400 basis points, or just over 400 basis points, is for this fiscal year. That's not an annualized number. However, I don't actually think it's pertinent to look at an annualized number, because by the time we get to spring, we'll be in a different situation, regardless of what's going on with the reciprocal tariffs. So, yeah, it's a FY '26 number. And then from a supply chain perspective, it can take up to six months to move from one supplier to another. But as Jennifer said over and over again, we are not going to sacrifice quality through this process, and we'll be willing to take the impact of that.
Operator: We have a follow-up question from Mark Petrie with CIBC. Please go ahead.
Mark Petrie: I wanted to ask about your customer mix, and specifically at the flagships, how the mix of new versus existing customers compares to other stores? And then what you see on those new customers that might have been visiting, repurchasing back in their home markets, either in-store or online? And I guess related to that, if you also have a sense of the halo effect from the new non-flagship stores, if that's evolved at all from what you've called out previously?
Jennifer Wong: Great question on customer. The halo effect on opening new stores and new markets continues to show that we get a 70% halo effect in e-commerce for that first year. So super pleased to see that. Our flagship performance, we expected our flagships to be fantastic, and it is. They are fantastic. It's more than a financial payback for us. It's about a brand-propelling marketing vehicle that showcases everyday luxury and offers the broadest product assortment. Feeling really great about all of those things as it relates to the flagships. Certainly, we're seeing new client growth in all of our new stores, and that is, of course, includes the flagships. I think what happens is a lot of customers, particularly international visitors who have heard about our brand, they come and see our stores on those very popular streets, whether it be in SoHo, Fifth Avenue, or Michigan. And if our U.S. customer growth at over 40% is any indication about the client acquisition vehicle that these new stores are, particularly the flagships, I think it's more than meeting our expectations.
Operator: Next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.
Luke Hannan: Just a quick follow-up for me on the new CapEx guidance. You took it up to $750 million for between fiscal 2024 and 2027. That was at $500 million previously. Can you help us think through how much of that is attributed to some of the square footage acceleration that you would have seen in the past versus maybe what you've had planned going forward? I recognize there's a currency aspect to this as well, but I guess what I'm trying to get at also is you've talked about higher square footage growth for this year. Should we be thinking about this being the case for fiscal '27 as well?
Todd Ingledew: Yes, 100%. And you have kind of answered the question in your question. But as we've talked about, we've been tracking ahead of our initial expectations for really over a year and a half now that we had initially laid out during our Investor Day. And that's because we've increased the cadence of the new store openings and because we've increased the average size of those new stores. Obviously, the stores are paying back in less than 12 months, and the growth that they represent is creating a fantastic foundation for our annual growth each year. So, it's extremely well-deployed capital, but that is the bulk of the additional CapEx. And there are inflationary increases as well, increases across the projects. But the majority is from the additional stores as well as the additional square feet. And then the impact of FX, obviously, because the majority of the capital is being deployed in the United States with all the new stores there. And so, the guidance originally was done at 1.3, and obviously, we've been close to 1.4 as of late. So, those are the main puts and takes.
Operator: The next question comes from Stephen MacLeod with BMO Capital Markets. Please go ahead.
Stephen MacLeod: I was going to ask about the CapEx, so I've already got the color. Thank you.
Operator: The next question comes from Mauricio Serna with UBS. Please go ahead.
Mauricio Serna: I just have a couple of follow-ups. I got a little bit confused about that comment that without tariffs, margins would have been 16%, 17%. Because the comment was, like, it was like the impact of the tariff was 400 basis points. I just wanted to understand that better. And the other follow-up is I wanted to ask if you have seen in your Canadian business any sort of, like, benefit or, yeah, type of tailwind from what we're hearing. It's like more consumers in Canada are turning more towards actually, domestic brands, just given the dynamic that is happening in the U.S.
Todd Ingledew: I'll take the first part, and then Jen can take the second part. So, yeah, just to reiterate, of the mitigation of the 400 basis points, 50% is coming from margin improvement that we were previously anticipating effectively for FY '26. Those are -- that's from, like, the ongoing IMU improvements we've been talking about, the freight tailwinds, rent, smart spending. All of that was already anticipated, and that would have gotten us to that 16% to 17% range. And then the other half of the mitigation, the other 400 basis points or 200 basis points is from the cost reductions, the accelerated diversification of our sourcing, and then the sharing of costs with vendors. But it's that initial part of the margin improvement that is what would have gotten us back.
Jennifer Wong: And on Canada, just an overall statement. I know a couple of quarters ago, we had shared that we were starting to see softness in Canada, probably going back to Q2 of last year. What we're really pleased to see is that Canada has strengthened. Clearly, it's strengthened in Q3, Q4, and that has carried over into Q1. So, Canada has definitely strengthened for us, the customers responding well to our product assortment, et cetera, and pleased to see that that continues for us into spring. Despite what we're hearing in the media or what you're hearing in the media about by Canadian, I would say there's nothing in our data that is showing that. We continue to be strong in both countries, Canada and the U.S., and very pleased to see that.
Operator: 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.
