Annual Report 2021
2 |
Aritzia is a vertically-
integrated, innovative
design house and
boutique.
We believe in high-quality, beautifully designed product.
We believe in aspirational environments and experiences.
We believe in personalized and engaging client service.
And we believe that all of this should be attainable.
We call this Everyday Luxury.
Fiscal 2021 Annual Report | 3
From our Founder,
Chief Executive Officer
& Chairman
FISCAL 2021 HIGHLIGHTS
While Fiscal 2021 was without question the most
challenging year in Aritzia’s history, I’m proud
of how our team has navigated the sustained
uncertainty and in light of that, the exceptional
results we delivered. It was a year we will
remember for not only what we accomplished,
but how we accomplished it. Throughout the
pandemic, we protected the health and financial
well-being of our people as we continued to offer
our much-loved Everyday Luxury experience
through engaging service, beautiful product,
aspirational environments and captivating
communications to our clients. Our results are a
testament to the strength of our multi-channel
business and the growing affinity for our brand.
Despite recurring temporary boutique closures,
as well as significant occupancy restrictions and
reduced boutique operating hours, net revenue
decreased just 12.6% from the prior year, as we
successfully pivoted our product assortment and
optimized our inventory and marketing initiatives
to align with our clients’ stay-at-home lifestyle.
Retail revenue decreased 42.4% from $747.7 to
$430.7 million, partially offset by meaningful
eCommerce revenue growth of 88.3% from
$226.6 to $425.9 million. Importantly, eCommerce
penetration surged to 50% of total net revenue,
more than doubling the penetration of 23% in
fiscal 2020. We continued to add new digital
features and functions enhancing our client’s
experience. From a real estate perspective, we
opened seven new boutiques and repositioned
4 |
three existing boutiques in premier real estate
locations, surpassing the 100-boutique milestone.
And, we generated free cash flow and improved
our strong liquidity position, enabling us to
continue to invest in infrastructure and talent to
support our future growth and positioning us to
take advantage of the boundless opportunities
ahead. At the end of fiscal 2021 our cash position
was $149.2 million, compared to $117.8 million in
the prior year.
ARITZIA COMMUNITY™ | SOCIAL AND
ENVIRONMENT RESPONSIBILITY
COVID-19’s impact made it more important than
ever that we uphold our commitments to our
people and planet. We are committed to driving
responsible practices across every aspect of our
operations and accelerating the positive impact
we have on the wider value chain.
Throughout the pandemic, we prioritized the
health and safety of our people, clients and
communities through industry leading health
and safety protocols while ensuring income
continuity to all employees impacted by
boutique closures. We paid $25 million in total
from our Aritzia Community™ Relief Fund, and in
doing so, deepened the loyalty of our people and
created brand equity with prospective hires – we
did not lay off or furlough any of our employees
due to the pandemic.
We conducted our inaugural Diversity, Equity
& Inclusion (DE&I) employee survey this past
year, committing $1 million to advance our DE&I
program to cultivate and celebrate diversity
and inclusivity at all levels of our organization.
To fulfill our commitments to our communities,
we gifted 120,000 COVID-19 frontline health care
heroes with custom clothing packages through
the Aritzia Community™ Care Program, and
supported women and girls in need through a
donation of Super Puffs and the full proceeds from
our incredibly successful, first ever International
Women’s Day capsule collection.
We also meaningfully advanced our Community™
objectives in our supply chain and products. In
fiscal 2021, we continued to uphold a positive
impact on our supply chain, assessing and
supporting all our tier one suppliers through our
auditing program. In addition, we adopted more
sustainable fabrics across a full 40% of our Spring/
Summer 2021 collection, and made it easier for
our clients to shop our product by their organic,
recycled, and responsible forestry content by
adding searchable sustainability attributes on
aritzia.com.
We became operationally carbon neutral through
renewable energy credits and certified offsets,
covering both our scope 1 and scope 2 emissions.
And, Aritzia became a participant of the United
Nations Global Compact, demonstrating our
commitment to meet fundamental responsibilities
across human rights, labour, environment and
anti-corruption.
Moving forward, we will continue to develop and
evolve our ESG strategies and share our progress
with you.
GROWTH PLAN
While the uncertainty of the pandemic remains
and economic conditions vary widely, we are
well-positioned. Our eCommerce business is
continuing to surge and our U.S. business is
flourishing. We are optimistic that with the vaccine
rollout accelerating, we will see similar business
recovery in retail Canada in due course. As such,
we are, more than ever, putting the pedal down
on investing in our four strategic growth levers
that drove our growth pre-pandemic, ensured
our success mid-pandemic, and will fuel our
growth post-pandemic. We are confident in our
ability to grow our client base and deepen our
existing clients’ affinity to our brand, by continuing
to deliver our much-loved Everyday Luxury
experience.
Accelerated eCommerce Growth
% Revenue YoY
125%
82%
78%
81%
FY2021 +88%
1Q21
2Q21
3Q21
4Q21
% of Boutiques Impacted by Closures1
Maximum During Period
100%
69%
39%
4Q21
18%
3Q21
1Q21
2Q21
1 Government mandated temporary boutique closures related to COVID-19
Boutique Productivity During the Pandemic
% LY revenue in opened Boutiques
77%
70%
81%
80%
1Q21
2Q21
3Q21
4Q21
Fiscal 2021 Annual Report | 5
This coming fiscal year, we have prioritized a
number of initiatives to support our strategic
growth levers:
eCommerce and Omni Innovation
Capitalizing on our accelerated, multi-channel
client relationship, we have brought forward our
omni capabilities project and expect to start
rolling out throughout the year store inventory
visibility, buy online ship from store, and buy
online pick up in store. We will also continue
to invest in new digital capabilities both
online and in our boutiques, including ongoing
personalization developments, enhancements
to our international site, and the continued
rollout of our digital selling tools.
Geographic Expansion
We will continue to grow our boutique network
across North America, with a focus on the
United States, capitalizing on the availability of
premier real estate locations. In Fiscal 2022 we
plan to open six to eight new boutiques in the
United States along with six expansions, with
four locations in Canada and two in the United
States.
Product Expansion
We will continue to expand beautiful and multi-
dimensional product lines from new categories
(swim and intimates) to extended depth (colour,
length and inclusive sizing), and breadth (warm
& hot weather, denim, and Super World). All of
this contributes to our on-track five year plan to
double our style count.
FY21
+88% y/y
eComm
revenue
growth
FY21
50%
eComm
penetration
FY16–FY20
+36%
eComm
revenue
CAGR
FY20
23%
eComm
penetration
6 |
Brand Awareness and Customer Expansion
We have a comprehensive strategy in development
to further capitalize on our exciting growth
opportunities in the United States, complementing
our boutique opening and expansion plans. In doing
so, we expect to significantly increase our brand
awareness, while also growing our bench strength
in digital marketing in this flourishing market.
To support these four growth drivers, we will, as
always, continue to invest in infrastructure. This
includes adding to our high performance team,
consistently enhancing the efficiency of our
processes, enriching our technology suite, and
thoughtfully expanding our Distribution Centre
network to support our future growth.
We reflect on this past year as a time of determined
resolve, resilience and accomplishment. Through
the hard work of our team and the resilience
and adaptability of our operations, we are in
an extremely exciting position. With our surging
eCommerce and United States businesses, we
are investing strategically, capitalizing on the
boundless opportunities ahead and elevating our
clients’ much-loved Everyday Luxury experience.
I would like to thank our investors and our almost
5,000 extraordinary team members. I am humbled
and privileged to continue to lead our dedicated
team - and Aritzia - out of the pandemic and into
our bright future ahead.
Sincerely,
Brian Hill
Chief Executive Officer
Fiscal 2021 Annual Report | 7
Brands and Products
Aritzia is an innovative design house and boutique. We
conceive, create, develop and retail fashion brands
with a depth of design and quality that provides
compelling value. Each of our exclusive brands has
its own vision and distinct aesthetic point of view. As
a group, they are united by an effortless appeal, a
focus on fit and an of-the-moment point of view. Our
expansive range of fashion apparel and multi-brand
strategy enables us to appeal to our clients across
multiple aspects of their lifestyles and life stages,
producing strong and enduring client loyalty. Exclusive
brands currently represent 95% of Aritzia’s net revenue.
Tna
8 |
Destinations
We connect our clients to the energy of our culture
through the products we sell and the environments
we create. We sell our products through our boutiques
and aritzia.com, giving us complete control of the
presentation of our brand and the relationships with our
clients.
We carefully consider each Aritzia destination –
physical and digital – individually, taking care to provide
our clients with aspirational shopping experiences and
exceptional service at every interaction.
We believe there are synergies between our boutiques
and aritzia.com, with the success of each channel
benefiting the other through increased brand
awareness and affinity. We continue to build out omni-
channel capabilities to seamlessly provide an Everyday
Luxury experience for our clients to shop wherever,
whenever and however.
3
Edmonton
Whistler
2
Victoria
1
13
Vancouver
7
Calgary
1
Saskatoon
2
Seattle
1
Portland
1
Winnipeg
Minneapolis
1
1 Denver
2
San Francisco
San Jose
1
3 Los Angeles
1
San Diego
1
Halifax
1 Quebec City
5
Montreal
Ottawa
2
31
Toronto
1
Boston
Troy
1
Chicago
3
King of Prussia
2
1
Suburban New York
5
3
Manhattan
New Jersey
1 Washington DC
1
Dallas
Austin
1
1
Houston
Canada
68
1
Honolulu
United States
33
101
boutiques
Fiscal 2021 Annual Report | 9
Future Growth
We have a thoughtful approach to growth that is
focused on profitability over the long-term. Supported
by accelerating trends, we continue to make
strategic investments across our people, processes
and technology to capitalize on the unprecedented
opportunities.
1. eCommerce and Omni Innovation
Our eCommerce business was launched in fiscal 2013,
quickly surpassing our growth expectations. Annual
increases in online traffic drove eCommerce revenue
growth of more than 36% on a compounded annual
basis from fiscal 2016 to 2020. Our eCommerce
business surged 88% in fiscal 2021 to comprise 50% of
net revenues, more than doubling the penetration of
23% in the prior year. Going forward, we will continue
to invest in digital capabilities to provide a seamless
Everyday Luxury experience for our clients to drive
accelerated eCommerce and omni-channel growth.
2. Geographic Expansion
Operating as our most effective yet profitable
marketing tool, boutique openings are a key pillar
of Aritzia’s growth strategy. Our boutiques drive
sales, build brand awareness, propel significant
client acquisition, and fuel our eCommerce
channel. Payback on our new boutiques continue to
accelerate, trending between 18 to 24 months.
As many businesses across North America
shutter their doors, we are seeing unprecedented
opportunities for us to acquire prime real estate.
We believe that we have a meaningful opportunity
to expand our boutique network, particularly
in the United States, where we have identified
approximately 100 locations that meet our exacting
criteria. We will continue to take a disciplined
approach to boutique openings, with a fastidious
focus on location selectivity.
10 |
3. Product Expansion
Product innovation is a core competency for us and
has been critical to our success. We always look
beyond what ‘is’ to what ‘could be’ by continuously
monitoring the evolving fashion landscape, our brand
portfolio, our product mix and our client base to
identify opportunities for innovation and growth. With
the accelerated shift to digital and as our eCommerce
channel reaches critical mass, our product strategy
can now be based on the unlimited opportunities that
online provides. We see meaningful potential to double
our product offering by fiscal 2025 through:
— Depth (sizes, lengths, colours)
— Breadth (new style development)
— New categories (including swim and intimates)
We believe our innovation strategy drives traffic to our
boutiques and aritzia.com and increases brand loyalty
by guiding our mix of brands and products to meet our
clients’ needs. It also allows us to reinforce the appeal
of our brands across a broader range of fashion
needs, increasing our addressable market and ‘share
of our client’s closet’.
4. Brand Awareness and Customer Expansion
Increased brand awareness is driven through real
estate and marketing strategies designed to attract
new clients and deepen loyalty of existing clients. Our
premier real estate locations, aspirational boutique
designs and high-touch service, highlight unique
ethos and aesthetic of our exclusive brands and
Aritzia’s overall dedication to delivering Everyday
Luxury. We extend this experience online, through
digital marketing, reaching beyond our retail footprint
to acquire customers in relevant segments and
keep them engaged with digitally native content
experiences.
Fiscal 2021 Annual Report | 11
ENVIRONMENT, SOCIAL & GOVERNANCE
Our Philosophy
Our Priorities
Aritzia recognizes that Environmental, Social, and
Governance (ESG) factors are integral to our long-
term success. As a leader in the industry, we have a
responsibility to people and the planet. Our business
model has always been centred around delivering
quality products that endure well beyond one or two
seasons ― however, we can do more. In order to deliver
Everyday Luxury, today and tomorrow, our goal is to
continue strengthening our environmental and social
contributions to accelerate the positive impact Aritzia
is making across our operations and wider value chain.
We recognize the important responsibility we have
as a global corporate citizen. We’re committed to
supporting all the people our business touches while
protecting the planet that our community and our
business rely on.
Aritzia is committed to driving responsible business
practices through our own operations in addition to
upholding human rights and environmental stewardship
in both our operations and across our supply chain.
We are focusing our strategy on the priorities below to
mitigate our material impacts:
1. Attract, develop and retain a high performing team
of world class talent
2. Deliver positive social impact through our products
and supply chain
3. Drive sustainable practices and solutions across the
product lifecycle
4. Build sustainable and efficient infrastructure across
our boutiques, cafes, offices, DCs and logistics
Our Approach
Aritzia’s material ESG risks and priorities are distributed
across our value chain from raw material sourcing,
third party manufacturing suppliers, product use and
end-of-life impact, and across our operations from
boutiques and offices to our distribution centres. ESG
priorities are embedded throughout our organization
with leadership shared across multiple departments,
including Sustainability, People and Culture, Employee
Experience and Corporate Giving. To ignite meaningful
change, we’ve taken an evidence-based approach with
a focus on driving long-term impact. To inform our ESG
strategy, we’ve taken the following steps:
1. Conducted a materiality analysis across our value
chain, using frameworks such as SASB’s Apparel,
Accessories and Footwear Standard, UN Sustainable
Development Goals, UN Global Compact, TCFD and
others, to understand our impact.
2. Identified ongoing opportunities for improvements,
both long and short term, through a detailed
Environmental Organizational Life Cycle Assessment
(O-LCA), a labour rights assessment of our global
supply chain and regular ‘Aritzia Asks’ engagement
surveys for our employees, among other
approaches.
3. Action positive and meaningful change based on
identified risks and our priorities.
4. Built a roadmap for the future that addresses our
impact and aligns with our business.
12 |
ESG Achievements in Fiscal 2021
Disclosure and Reporting
— Evaluated all our tier 1 suppliers against Aritzia’s
social and environmental criteria through our social
impact monitoring program and the Higg Facilities
Environment Module to ensure alignment with
business requirements;
— Adopted more sustainable fabrics across 40%
of our Spring/Summer 2021 collection, including
organic and recycled cotton, recycled polyester
and nylon, amongst others;
— Became operationally carbon neutral through
the purchase of renewable energy credits for our
electricity usage and Verified Carbon Standard
certified offsets for our fleet vehicle gas and
natural gas consumption, accounting for our scope
1 and 2 greenhouse gas emissions;
— Completed our first CDP Climate Change
submission (TCFD-aligned);
— Ensured financial continuity for our people
impacted by boutique closures through the
COVID-19 pandemic, paid $25 million through the
Aritzia Community™ Relief Fund;
— Conducted Aritzia’s inaugural diversity, equity
& inclusion (DE&I) focused employee survey
and committed a $1 million investment in the
development of our DE&I strategy, including the
formation of an Executive Diversity & Inclusion
Committee led by our President and Chief
Operating Officer;
— Delivered the Aritzia Community™ Care Program to
support our COVID-19 frontline health care heroes
in Canada and the United States.
We’ve begun to increase our ESG disclosure through
the completion of Aritzia’s first CDP Climate Change
report and by joining the UN Global Compact. As an
industry leader, we can make a difference and are
committed to accelerating our ESG commitments
and performance. We will always seek to do the right
thing for our people and the planet as this is sound
management and a strategic opportunity for our
organization. We’ll continue to transparently share
information as we continue this journey.
For further details, please visit:
https://www.aritzia.com/en/aritzia/
corporateresponsibility/sustainability.html
Fiscal 2021 Annual Report | 13
Proven Results
Net Revenue ($ millions)
Comparable Sales (%)
,4
16%
CAGR
Pre-COVID
$743
$667
$981
$874
$857
¹
QQ11
QQ22
QQ33
QQ44
AAnnnnuuaall
FY2016
26.0%
20.9%
15.5%
9.3%
16.8%
$542
eCommerce
FY2017
12.8%
16.4%
15.1%
12.3%
14.1%
FY2018
9.3%
5.4%
6.3%
6.0%
6.6%
Retail
FY2019
10.9%
11.5%
12.9%
5.5%
9.8%
FY20203
7.9%
8.4%
5.1%
8.9%
7.6%
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
Adjusted EBITDA2,3
($ millions)
Adjusted Net Income ($ millions)
19%
CAGR
Pre-COVID
$173
$161
$133
$118
$85
25%
CAGR
Pre-COVID
$76
$65
$95
$97
$77
$40
$26
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
MMaarrggiinn
15.7%
17.6%
17.9%
18.4%
17.6%
9.0%
MMaarrggiinn
7.4%
9.7%
10.2%
10.8%
9.9%
3.0%
1 Our comparable sales growth calculation excludes the impact of foreign currency fluctuations by applying the prior year’s average quarterly exchange rate to both current year and prior year comparable sales
Figures adjusted to exclude stock-based compensation, unrealized (gains) losses on equity derivatives and forward contracts, a one-time lease exit cost and offering transaction costs recoveries
3 We adopted IFRS 16 Leases, replacing IAS 17, for the annual reporting period beginning on March 4, 2019. For analysis purposes only, all figures are shown as if we continued to report under IAS 17 and did not adopt IFRS 16.
²
See Disclaimer – Non-IFRS Measures including Retail Industry Metrics
4As temporary boutique closures from COVID-19 have resulted in all boutiques being removed from our comparable store base, comparable sales growth is not currently representative of the underlying trends of our
business. We do not believe this metric is currently useful to investors in understanding performance and therefore have not reported this metric since Q1 2021.
14 |
Operational and
Financial Summary
(in thousands of Canadian dollars,
unless otherwise noted)
FFiinnaanncciiaall SSuummmmaarryy::
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA
Adjusted Net Income
Adjusted Net Income per Diluted Share
Weighted average number of diluted
shares outstanding (thousands)
Cash and cash equivalents
Capital expenditures (net of proceeds
from leasehold inducements)
Free cash flow
PPeerrcceennttaaggee ooff NNeett RReevveennuuee::
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA
Adjusted Net Income
OOtthheerr PPeerrffoorrmmaannccee MMeettrriiccss::
Year-over-year net revenue (decline)
growth
Comparable sales growth(2)
BBoouuttiiqquueess::
Number of boutiques, end of period
New boutiques
Boutiques repositioned into a
flagship boutique
Boutique closed due to
mall redevelopment
Boutiques expanded or repositioned
FFiissccaall 22002211
5522 WWeeeekkss
(IFRS 16) ((11))
FFiissccaall 22002200
5522 WWeeeekkss
(IFRS 16) ((11))
FFiissccaall 22001199
5533 WWeeeekkss
(IAS 17)
FFiissccaall 22001188
5522 WWeeeekkss
(IAS 17)
FFiissccaall 22001177
5522 WWeeeekkss
(IAS 17)
$
857,323
544,818
$
980,589
577,165
$
874,296
531,383
$
743,267
447,776
$
667,181
401,658
312,505
403,424
342,913
295,491
265,523
$
$
$
$
$
$
$
250,726
10,691
51,088
28,420
(3,534)
243,362
7,790
152,272
28,319
(2,185)
$
$
$
$
$
$
$
26,202
6,975
19,227
76,812
26,028
0.23
112,844
149,147
42,529
36,306
100.0%
63.5%
36.5%
29.2%
1.2%
6.0%
3.3%
(0.4%)
3.1%
0.8%
2.2%
9.0%
3.0%
(12.6%)
n/a
101
7
(1)
(1)
3
$
$
$
$
$
$
$
126,138
35,544
90,594
172,572
97,388
0.87
112,128
117,750
36,253
117,246
100.0%
58.9%
41.1%
24.8%
0.8%
15.5%
2.9%
(0.2%)
12.9%
3.6%
9.2%
17.6%
9.9%
12.2%
7.6%
96
5
-
-
3
$
$
$
$
$
$
$
215,297
11,540
116,076
4,821
(395)
111,650
32,922
78,728
161,045
94,543
0.81
117,358
100,897
49,862
38,874
100.0%
60.8%
39.2%
24.6%
1.3%
13.3%
0.6%
(0.0%)
12.8%
3.8%
9.0%
18.4%
10.8%
183,857
17,240
94,394
5,221
1,890
87,283
30,190
57,093
132,716
75,934
0.65
116,280
112,475
59,253
44,342
100.0%
60.2%
39.8%
24.7%
2.3%
12.7%
0.7%
0.3%
11.7%
4.1%
7.7%
17.9%
10.2%
$
$
$
$
$
$
$
178,773
103,044
(16,294)
10,455
(1,362)
(25,387)
30,722
(56,109)
117,664
64,627
0.62
104,787
79,527
23,072
87,924
100.0%
60.2%
39.8%
26.8%
15.4%
(2.4%)
1.6%
(0.2%)
(3.8%)
4.6%
(8.4%)
17.6%
9.7%
17.6%
9.8%
11.4%
6.6%
23.0%
14.1%
91
7
(1)
-
4
85
6
-
-
7
79
5
-
-
5
(1) We adopted IFRS 16, Leases (“IFRS 16”), replacing IAS 17, Leases (“IAS 17”) and related interpretations, using the modified retrospective
approach, effective for the annual reporting period beginning on March 4, 2019. As a result, our results for Fiscal 2021 and Fiscal 2020
reflect lease accounting under IFRS 16. Comparative figures for Fiscal 2019, Fiscal 2018 and Fiscal 2017 have not been restated and
continue to be reported under IAS 17.
Fiscal 2021 Annual Report | 15
Management’s Discussion
& Analysis
Aritzia Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fiscal Year Ended February 28, 2021
May 11, 2021
The following Management’s Discussion and Analysis (“MD&A”) dated May 11, 2021 is intended to assist readers in
understanding the business environment, strategies and performance and risk factors of Aritzia Inc. (together with its
consolidated subsidiaries, referred to herein as “Aritzia”, the “Company”, “we”, “us” or “our”). This MD&A provides the
reader with a view and analysis, from the perspective of management, of the Company’s financial results for the
fourth quarter and fiscal year ended February 28, 2021. This MD&A should be read in conjunction with the Company’s
audited annual consolidated financial statements and accompanying notes for Fiscal 2021 (as hereinafter defined).
FORWARD-LOOKING INFORMATION
Certain statements made in this MD&A may constitute forward-looking information under applicable securities laws.
These statements may relate to our future financial outlook and anticipated events or results and include, our ability
to sustain momentum in our eCommerce business, the impact of health and safety measures including capacity
restrictions and mandated closures on retail performance and labour and operating expenses, our ability to drive
digital innovation of eCommerce and Omni, geographic expansion, product development, and brand awareness, our
ability to weather further uncertainty, achieve meaningful growth and take advantage of opportunities, our ability to
invest in critical infrastructure across our people, processes and technology, our outlook for net revenue growth in
the first quarter of fiscal 2022. Particularly, information regarding our expectations of future results, targets,
performance achievements, prospects or opportunities is forward-looking information. As the context requires, this
may include certain targets as disclosed in the prospectus for our initial public offering, which are based on the factors
and assumptions, and subject to the risks, as set out therein and herein. Often but not always, forward-looking
statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “believe”,
“estimate”, “plan”, “could”, “should”, “would”, “outlook”, “forecast”, “anticipate”, “foresee”, “continue” or the negative of
these terms or variations of them or similar terminology.
Implicit in forward-looking statements in respect of the Company's expectations for net revenue growth of
approximately 110% (approximately $234M) for the first quarter of fiscal 2022 as compared to last year, are certain
current assumptions including the continued acceleration of sales in the United States both in retail and eCommerce
channels as well as continued momentum of the Company’s eCommerce business in Canada. The Company’s
forward-looking information is also based upon assumptions regarding the overall retail environment, the COVID-19
pandemic and related health and safety protocols and currency exchange rates for fiscal 2022. Specifically, we have
assumed the following exchange rates for fiscal 2022: USD:CAD = 1:1.25.
Given this unprecedented period of uncertainty, there can be no assurances regarding: (a) the limitations or
restrictions that may be placed on servicing our clients in reopened boutiques or potential re-closing of boutiques; (b)
the COVID-19-related impacts on our business, operations, supply chain performance and growth strategies, (c) our
ability to mitigate such impacts, including ongoing measures to enhance short-term liquidity, contain costs and
safeguard the business; (d) general economic conditions related to COVID-19 and impacts to consumer discretionary
spending and shopping habits; (e) credit, market, currency, interest rates, operational, and liquidity risks generally;
and (f) other risks inherent to our business and/or factors beyond our control which could have a material adverse
effect on the Company.
Many factors could cause our actual results, level of activity, performance or achievements or future events or
developments to differ materially from those expressed or implied by the forward-looking statements, including,
without limitation, the factors discussed in the “Risk Factors” section of this MD&A and in the Company’s annual
information form dated May 11, 2021 for Fiscal 2021 (the “AIF”). A copy of the AIF and the Company’s other publicly
filed documents can be accessed under the Company’s profile on the System for Electronic Document Analysis and
Retrieval (“SEDAR”) at www.sedar.com.
18 |
The Company cautions that the list of risk factors and uncertainties described in the AIF is not exhaustive and other
factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions
carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such
information. The forward-looking information contained in this MD&A represents our expectations as of the date of
this MD&A (or as the date they are otherwise stated to be made), and are subject to change after such date. However,
we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as
a result of new information, future events or otherwise, except as required under applicable securities laws.
BASIS OF PRESENTATION
Our audited annual consolidated financial statements and unaudited condensed interim consolidated financial
statements (together, the “consolidated financial statements”) have been prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), using
the accounting policies described therein. All amounts are presented in thousands of Canadian dollars unless
otherwise indicated. We manage our business on the basis of one operating and reportable segment.
All references in this MD&A to “Q4 2021” are to our 13-week period ended February 28, 2021, to “Q4 2020” are to
our 13-week period ended March 1, 2020 and to “Q1 2022” are to our 13-week period ending May 30, 2021. All
references in this MD&A to “Fiscal 2021” are to our 52-week period ended February 28, 2021, to “Fiscal 2020” are to
our 52-week period ended March 1, 2020, to “Fiscal 2019” are to our 53-week period ended March 3, 2019 and to
“Fiscal 2022” are to our 52-week period ending February 27, 2022.
The audited annual consolidated financial statements and accompanying notes for Fiscal 2021 and this MD&A were
authorized for issue by the Company’s Board of Directors.
OVERVIEW
Our vision is to be the most relevant and loved fashion destination for women all over the world. We believe in fashion
that inspires and is both beautiful and beautifully made. We create aspirational environments and experiences, offer
personalized and engaging service that delights, and engage through captivating communications. We call this
Everyday Luxury.
Aritzia is an innovative design house and fashion boutique. We conceive, create, develop and retail fashion brands,
each with its own vision and distinct aesthetic point of view, and all with a depth of design and quality that provide
compelling value. As a group, they are united by an effortless appeal, a focus on fit and an of-the-moment point of
view.
Founded in Vancouver in 1984, Aritzia has more than 100 locations in select cities across North America, including
Vancouver, Toronto, Montreal, New York, Los Angeles, San Francisco and Chicago. We pride ourselves on creating
immersive, human and highly personal shopping experiences, both in our boutiques and on aritzia.com — with a
focus on delivering Everyday Luxury.
We connect our clients to the energy of our culture through the products we sell and the environments we create. As
of the date of this MD&A, we operate 68 boutiques in Canada and 33 boutiques in the United States, averaging
approximately 6,000 square feet, all of which are in premier locations within top-tier shopping destinations. We sell
our products through our boutiques and aritzia.com, giving us complete control of the presentation of our brand and
the relationships with our clients. This strategy allows us to present our brand in a consistent manner, including
pricing, marketing and product merchandising. We carefully consider each Aritzia destination – physical and digital –
individually, taking care to provide our clients with aspirational shopping experiences and exceptional service at every
interaction.
COVID-19 PANDEMIC
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a worldwide pandemic. Since
the outbreak, Aritzia’s priorities have been the well-being of our people, clients and supporting the community while
safeguarding the long-term financial strength of our business. In order to ensure the health and safety of our people,
clients and communities, we implemented stringent protocols across our boutiques, distribution centre and support
offices.
Fiscal 2021 Annual Report | 19
First quarter Fiscal 2021
Aritzia experienced a significant decline in sales during the first two weeks of March 2020, leading up to the temporary
closure of all our 96 retail boutiques in Canada and the United States. We immediately focused our efforts on driving
revenue through aritzia.com and took swift action to manage expenditures, enhance short-term liquidity and protect
our cash position.
During the initial temporary closures period, Aritzia saw favourable response to our beautifully designed
Spring/Summer product and strategic online sales events, resulting in eCommerce revenue growth in excess of 125%
through to the end of the first quarter compared to last year. Operating under stringent health and safety protocols
and the support of nearly 575 retail and support office employees, our Distribution Centres and Concierge teams
effectively managed the surge in eCommerce volumes while maintaining delivery times to meet or exceed client
expectations. By immediately calibrating existing inventory and planned deliveries during the initial temporary
closures period, we successfully capitalized on the shift in client demand for product relevant to stay-at-home
measures while minimizing our inventory exposure.
Aritzia formed a COVID-19 Business Continuity Committee (the “Continuity Committee”) to manage the provisions of
our COVID-19 business continuity protocols. The Continuity Committee designed tools and standards to assure the
effective and on-time management of emerging health and safety incidents; implemented a contact tracing program
in accordance with World Health Organization and local government guidelines to manage emerging COVID-19
cases and exposures; and, proactively established workplace closing/reopening protocols to enhance our
responsiveness to government mandated closures. The Continuity Committee’s ensures that we remain focused on
our operations and the safety of our people, clients, and communities.
Following a brief period of delay related to investment activities, Aritzia recommenced capital expenditures on
boutique construction in the second half of the first quarter.
Second quarter Fiscal 2021
At the start of the second quarter, 31% of Aritzia’s boutiques were reopened, with 96% of boutiques reopened by the
end of the quarter. Operating under occupancy restrictions and reduced operating hours, sales for our reopened
boutiques trended on average at 70% of last year’s productivity levels for the quarter. The strength of our eCommerce
business continued, delivering 82% revenue growth compared to the second quarter last year. The ongoing recovery
of Aritzia’s business, coupled with highly effective inventory management, resulted in the successful sell through of
the majority of our Spring/Summer inventory while maintaining markdown levels consistent with the prior year.
Importantly, this enabled us to enter the Fall/Winter season with the appropriate levels of inventory and a balanced
product assortment.
Third quarter Fiscal 2021
At the start of the third quarter, 96% of Aritzia’s boutiques were reopened. The resurgence of COVID-19 led to the
government-mandated reclosure of 18 boutiques on November 23, 2020. As a result, 82% of our boutiques were
open at the end of the third quarter. Third quarter sales for our reopened boutiques trended on average at 81% of
last year's productivity levels despite significant occupancy restrictions and limited operating hours. Clients’
enthusiastic response to our Fall/Winter product assortment drove continued accelerated momentum of our
eCommerce channel, which delivered 79% revenue growth compared to last year.
Fourth quarter Fiscal 2021
At the start of the fourth quarter, 18 boutiques were temporarily closed, and during the fourth quarter, 39 of Aritzia’s
boutiques were temporarily closed due to government-mandated closures in Ontario and Quebec. At the end of the
fourth quarter 18 of our boutiques remained temporarily closed. During the fourth quarter, enthusiastic client
response to our product assortment saw opened boutiques perform at 80% of last year’s sales productivity despite
ongoing capacity restrictions while continued momentum delivered 81% eCommerce revenue growth.
Since the onset of the COVID-19 pandemic, we undertook prudent measures to enhance our short-term liquidity and
protect our cash position throughout this pandemic. Our efforts include:
Optimizing inventory and planned deliveries to capitalize on the shift in demand while minimizing our inventory
exposure;
Continuing to leverage applicable government business support programs, when qualified, for COVID-19;
Driving additional cost reductions by minimizing non-essential operating costs and ongoing negotiations with
suppliers and landlords for concessions; and
Extending payment terms where possible.
20 |
In addition, we undertook several initiatives in support of our people and communities:
Paid $25 million through the Aritzia CommunityTM Relief Fund to ensure financial continuity for our people during
boutique closures and to enable seamless boutique reopenings;
Gifted 110,000 Aritzia CommunityTM clothing packages to frontline healthcare heroes in Canada and the United
States;
Committed $1 million towards internal Diversity and Inclusion initiatives; and
Donated $100,000 to Black Lives Matter and the NAACP.
While the continuing impact of the pandemic on the Company’s business remains unclear, we believe that our
increasing revenue combined with our cost management will partially mitigate these risks. The extent of the impact
of COVID-19 on future periods will depend on future developments, including the duration or resurgence of the
pandemic, the related government responses and any resulting health and safety measures or directives put in place
by public health authorities, which are uncertain and cannot be predicted. Aritzia believes its eCommerce business
is well-positioned to moderate these impacts.
See also the “Forward-Looking Information” and “Risk Factors” sections of this MD&A and in our AIF.
FINANCIAL HIGHLIGHTS
We refer the reader to the section entitled “How We Assess the Performance of Our Business” of this MD&A for the
definition of the items discussed below and, when applicable, to the table entitled “Selected Consolidated Financial
Information” for reconciliations of non-IFRS measures with the most directly comparable IFRS measure.
Fourth Quarter
Net revenue decreased 2.9% to $267.5 million from Q4 last year, despite the reclosure of 39 of 101 boutiques
for the majority of the quarter
eCommerce revenue growth of 81.1% compared to Q4 last year
Sales productivity of reopened boutiques trended on average at 79.6% of last year's levels despite severe
occupancy restrictions and limited operating hours
Gross profit margin(1) increased to 38.5% from 37.3% in Q4 last year
Adjusted EBITDA(1) decreased to $35.2 million from $42.4 million in Q4 last year
Adjusted Net Income(1) of $0.16 per diluted share, compared to $0.21 per diluted share in Q4 last year
Strategic Accomplishments for Fiscal 2021
Successfully navigated COVID-19 to-date, prioritizing the health and safety of our people, clients and
communities while taking swift action to position Aritzia to take advantage of the unprecedented opportunities
ahead
Accelerated momentum drove eCommerce revenue growth of 88.3% to comprise 49.7% of net revenues
Drove revenue by pivoting product assortment and optimizing inventory to align with stay-at-home lifestyle
Opened seven new boutiques and repositioned three existing boutiques in premier real estate locations
Launched the Clientele App, Product Lifecycle Management system, Fit Analytics, Afterpay and other digital
capabilities as we accelerated investments across infrastructure and talent to support future growth
Advanced strategic initiatives to support Aritzia’s communities, cultivate diversity and enhance sustainability
(1) See the sections below entitled “How We Assess the Performance of our Business” and “Selected Consolidated Financial Information” for further
details concerning gross profit margin, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per diluted share and for a reconciliation to the
most comparable IFRS measure.
Fiscal 2021 Annual Report | 21
OUTLOOK
The first quarter of fiscal 2022 is off to a strong start. Aritzia is on-track to deliver net revenue growth of approximately
110% in the first quarter compared to last year, implying a target of approximately $234 million. This reflects a
previously unseen acceleration of sales in the United States in both its retail and eCommerce channels, as well as,
continued momentum of the Company’s eCommerce business in Canada. This revenue target for the first quarter is
in spite of 50% or 34 of the Company’s boutiques in Canada mandated to reclose starting on April 8, 2021 and
expected to remain closed for the remainder of the quarter.
SELECTED FINANCIAL INFORMATION
The following table summarizes our recent results of operations for the periods indicated. The selected consolidated
financial information set out below has been derived from our audited annual consolidated financial statements and
related notes. The selected consolidated financial information set out below for Q4 2021 and Q4 2020 is unaudited.
22 |
Selected Consolidated Financial Information
(in thousands of Canadian dollars, unless otherwise noted)
Financial Summary:
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA(2)
Adjusted Net Income(2)
Adjusted Net Income per Diluted Share(2)
Weighted average number of diluted shares outstanding
(thousands)
Cash and cash equivalents
Capital cash expenditures (net of proceeds from leasehold
inducements)
Free cash flow(2)
Percentage of Net Revenue:
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA(2)
Adjusted Net Income(2)
Other Performance Metrics:
Year-over-year net revenue (decline) growth
Comparable sales growth(2)
Boutiques:
Number of boutiques, end of period
New boutiques
Repositioned to a flagship boutique
Boutique temporarily closed due to mall redevelopment
Boutiques expanded or repositioned
Q4 2021
13 Weeks
Q4 2020
13 Weeks
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
$
267,525
164,600
$
275,430
172,589
$
857,323
544,818
$
980,589
577,165
102,925
102,841
312,505
403,424
72,357
4,193
26,375
6,464
(2,129)
22,040
5,970
16,070
35,205
17,678
0.16
$
$
$
$
64,331
2,411
36,099
6,914
(1,354)
30,539
8,824
21,715
42,375
23,428
0.21
114,052
113,120
149,147
$
117,750
9,415
$
(24,936) $
9,732
20,656
$
$
$
$
$
$
$
250,726
10,691
51,088
28,420
(3,534)
26,202
6,975
19,227
76,812
26,028
0.23
112,844
149,147
42,529
36,306
$
$
$
$
$
$
$
243,362
7,790
152,272
28,319
(2,185)
126,138
35,544
90,594
172,572
97,388
0.87
112,128
117,750
36,253
117,246
$
$
$
$
$
$
$
100.0%
61.5%
100.0%
62.7%
100.0%
63.5%
100.0%
58.9%
38.5%
37.3%
36.5%
41.1%
27.0%
1.6%
9.9%
2.4%
(0.8%)
8.2%
2.2%
6.0%
13.2%
6.6%
(2.9%)
n/a
101
1
-
-
-
23.4%
0.9%
13.1%
2.5%
(0.5%)
11.1%
3.2%
7.9%
15.4%
8.5%
29.2%
1.2%
6.0%
3.3%
(0.4%)
3.1%
0.8%
2.2%
9.0%
3.0%
6.3%
8.9%
(12.6%)
n/a
96
2
-
-
-
101
7
(1)
(1)
3
24.8%
0.8%
15.5%
2.9%
(0.2%)
12.9%
3.6%
9.2%
17.6%
9.9%
12.2%
7.6%
96
5
-
-
3
(2) Please see “How We Assess the Performance of Our Business” section of this MD&A for further details on these financial and operating
measures.
Fiscal 2021 Annual Report | 23
The following table provides a reconciliation of net income to EBITDA, Adjusted EBITDA and Adjusted Net Income,
Adjusted Net Income per Diluted Share and Comparable Sales to Net Revenue for the periods indicated.
Reconciliation to Non-IFRS Measures
(in thousands of Canadian dollars, unless otherwise noted)
Reconciliation of Net Income to EBITDA and Adjusted
EBITDA:
Net income
Depreciation and amortization
Finance expense
Income tax expense
EBITDA
Q4 2021
13 Weeks
Q4 2020
13 Weeks
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
$
16,070 $
27,133
6,464
5,970
21,715 $
24,134
6,914
8,824
19,227 $
105,149
28,420
6,975
90,594
93,502
28,319
35,544
55,637
61,587
159,771
247,959
Adjustments to EBITDA:
Stock-based compensation expense
Rent impact from IFRS 16, Leases(3)
Unrealized gain on equity derivative contracts
4,193
(21,985)
(2,640)
2,411
(20,973)
(650)
10,691
(89,949)
(3,701)
7,790
(82,527)
(650)
Adjusted EBITDA
$
35,205 $
42,375 $
76,812 $
172,572
Adjusted EBITDA as a Percentage of Net Revenue
13.2%
15.4%
9.0%
17.6%
Reconciliation of Net Income to Adjusted Net Income:
Net income
Adjustments to net income:
Stock-based compensation expense
Unrealized gain on equity derivatives contracts
Related tax effects
$
16,070 $
21,715 $
19,227 $
90,594
4,193
(2,640)
55
2,411
(650)
(48)
10,691
(3,701)
(189)
7,790
(650)
(346)
Adjusted Net Income
Adjusted Net Income as a Percentage of Net Revenue
$
17,678 $
23,428 $
6.6%
8.5%
26,028 $
3.0%
97,388
9.9%
Weighted Average Number of Diluted Shares
Outstanding (thousands)
Adjusted Net Income per Diluted Share
Note (3) Rent Impact from IFRS 16, Leases
114,052
113,120
112,844
$
0.16 $
0.21 $
0.23 $
112,128
0.87
Depreciation and amortization of right-of-use assets
Finance expense, related to leases
Rent impact from IFRS 16, Leases
$
$
(in thousands of Canadian dollars)
Reconciliation of Comparable Sales to Net Revenue:
Comparable sales(4)
Non-comparable sales
Net revenue
Q4 2021
13 Weeks
Q4 2020
13 Weeks
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
(16,410)
(5,575)
$
(15,117) $
(5,856)
(66,278) $
(23,671)
(59,080)
(23,447)
(21,985)
$
(20,973) $
(89,949) $
(82,527)
Q4 2021
13 Weeks
Q4 2020
13 Weeks
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
(not
applicable)(5) $
245,636
29,794
(not
applicable)(5)
$
850,108
130,481
$
275,430
$
980,589
Comparable sales growth is a retail industry metric used to explain our combined revenue growth in eCommerce and established boutiques.
This information is provided to give context for comparable sales in such given period as compared to net revenue reported in our financial
statements. For more details, please see the “Comparable Sales Growth” subsection of the “How We Assess the Performance of Our
Business” section of this MD&A.
Please see the “Comparable Sales Growth” section of this MD&A for more details.
24 |
The following table reconciles net cash generated from operating activities to free cash flow for the periods indicated.
(in thousands of Canadian dollars)
Reconciliation of Net Cash Generated from Operating
Activities to Free Cash Flow:
Net cash generated from operating activities
Interest paid
Net cash used in investing activities
Repayments of principal on lease liabilities
Q4 2021
13 Weeks
Q4 2020
13 Weeks
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
$
$
7,391
890
(11,368)
(21,849)
47,898
971
(12,167)
(16,046)
$
$
133,947
4,651
(50,848)
(51,444)
222,076
4,429
(47,790)
(61,469)
Free cash flow
$
(24,936) $
20,656
$
36,306
$
117,246
The following tables provide selected consolidated financial information for the three most recently completed fiscal
years.
Selected Consolidated Financial Information by Fiscal Year
(in thousands of Canadian dollars, unless otherwise noted)
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
Fiscal 2019
53 Weeks
Net revenue
Net income
Net income per share
Basic
Diluted
$
857,323 $
19,227
980,589 $
90,594
874,296
78,728
0.18
0.17
0.84
0.81
0.70
0.67
Selected Consolidated Financial Position Data by Fiscal Year
(in thousands of Canadian dollars)
Total assets(6)
Total non-current liabilities(6)
As at
February 28, 2021
As at
March 1, 2020
As at
March 3, 2019
$
1,140,737 $
531,279
1,036,715 $
550,807
629,374
164,454
(6) The impact of IFRS 16 on the Fiscal 2021 and Fiscal 2020 Consolidated Financial Position figures includes an increase to total assets
resulting from right-of-use assets recognized as well as an increase to non-current liabilities resulting from lease liabilities recognized.
No dividends have been paid on the Company’s shares during the past three fiscal years.
SUMMARY OF FACTORS AFFECTING PERFORMANCE
Since the outbreak of COVID-19 and the resulting emergency measures put in place by federal, provincial, state and
local governments across North America, we have seen, and expect to continue to see, a direct, material adverse
impact to many of the factors affecting our performance. The extent of the impact of such emergency measures, will
depend on future developments, including the duration and severity of COVID-19 in the local markets in which we
operate, which are uncertain and cannot be predicted.
We generally believe that our performance and future success depend on a number of factors that present significant
opportunities for us. These factors are also subject to a number of inherent risks and challenges, some of which are
discussed below. See also the “Risk Factors” section of this MD&A and in our AIF.
Our Brand and Products
We are an innovative design house of exclusive fashion brands that offers a strategic mix of exclusive brands that
have been thoughtfully conceived, created, and developed. We believe that a key area of differentiation for us is that
we design apparel and accessories for our collection of exclusive brands. Our multi-brand strategy gives us control
over our products and provides us with the flexibility to optimize our brand mix as needed to address changes in
client demand and fashion preferences, which has been critical to our growth while also reducing risk.
Our exclusive brands are supported by in-house design teams focused on creating beautiful, quality products that
align with the unique positioning, look and feel of each brand. Each of our exclusive brands has its own vision and
distinct aesthetic point of view. As a group, they are united by an unwavering commitment to superior fabrics,
meticulous construction and relevant, effortless design.
Fiscal 2021 Annual Report | 25
Our broad product assortment includes t-shirts, blouses, sweaters, jackets, coats, pants, shorts, skirts, dresses,
denim, intimates and accessories for each season. We maintain a flexible mix of historically successful items and
new seasonal styles. Our changing product mix is a blended reflection of client demands and fashion trends. This
strategic mix helps us to drive client conversion by delivering fashion must-haves, while still generating a meaningful
proportion of revenue from our fashion essentials. We complement our exclusive product mix with a strategically
chosen selection of premium denim, accessories and footwear from leading contemporary third-party brands. Our
expansive and diverse range of women’s fashion apparel and accessories addresses a broad range of style
preferences and lifestyle requirements for women of all ages, producing strong and enduring client loyalty.
We see meaningful potential to double our product offering by fiscal 2025 through:
Depth (sizes, lengths, colours)
Breadth (new style development)
New categories (including swim and intimates)
Product Strategy
We control the design, merchandise planning, sourcing, production and retail functions of our exclusive brands and
complement this with third-party brands as appropriate. This strategy allows us to ensure that we have the right
product, at the right time, at the right price, in the right quantity and in the right place. Product design and quality are
meticulously evaluated and controlled by us, from fabrics to trims, and styling to fit. In Fiscal 2021 we implemented
our Product Lifecycle Management system to further support our product strategy and processes. This system
consolidates and manages all of our product development data and tools into a single place to improve our focus on
innovation and product quality, increase speed to market where appropriate, and ultimately optimize manufacturing
costs.
Creative Development
We have talented teams of in-house designers who focus on creating products featuring high quality fabrics,
considered detailing, sophisticated construction and superior fit. Our product design and development process builds
on proven sellers while taking new fashion trends into account with the goal of creating fashion must-haves each
season. Our in-house technical team ensures all products are executed in a manner that is consistent with our design
and delivers superior fit and sophisticated construction in the production of our exclusive brands. We partner with
best in class mills and suppliers to create and sample garments, which are fit-tested twice before production. We
ensure that the quality of our raw materials and the finished product are all held to our high standards and the
expectations of our clients.
Merchandise Planning
Our demand-driven merchandise planning, buying and inventory strategies have been developed and refined for
more than three decades, and are designed to ensure that we have the right product, at the right time, at the right
price, in the right quantity and in the right place.
Each year we develop product in two or four seasonal collections for our exclusive brands. We generate a meaningful
proportion of revenue from our proven sellers while driving excitement through new seasonal product assortment.
We buy in initial quantities that allow us to gauge client demand and follow up with larger orders when proven
successful to maximize revenue. We analyze sales data in order to make inventory adjustments and to respond to
the latest trends. Our inventory management processes and systems provide us with the ability to optimize inventory
across our channels to ensure that each boutique and aritzia.com is merchandised with products that resonate with
local preferences. By actively monitoring sell-through rates and managing the mix of product categories in our
boutiques and aritzia.com, we are able to respond to emerging trends in a timely manner, minimize our dependence
on any particular category, style or fabrication and preserve a balanced, coordinated presentation of merchandise
within each boutique while being able to offer our client the entire assortment online. We believe that our disciplined
merchandise planning strategy allows us to optimize inventory levels and maximize full-price sales.
Sourcing and Production
We contract and maintain direct relationships with a diversified base of independent suppliers and manufacturers for
our exclusive brands who provide us with the flexibility to source high quality materials and products at competitive
costs. We believe that our approach of sourcing a majority of our raw materials and working directly with suppliers
and manufacturers enhances our ability to create beautiful and high-quality products in a timely manner.
26 |
We source the majority of our raw materials directly from mills, trim suppliers and manufacturers, located primarily in
China, Japan, Italy, South Korea, and Taiwan which we believe to be best in class that uphold our standards for
quality, lead time and cost. Our finished goods are sourced from manufacturers located primarily in China, Vietnam,
Cambodia, Sri Lanka, and Peru. We continue to monitor and diversify our supplier base, taking into consideration the
geo-political and economic environment to mitigate risk. Capacity planning with our manufacturers is done at the
beginning of the season to ensure flexibility. We engage third parties to inspect our manufacturers’ factories to ensure
quality control and engage independent expert service providers to conduct factory audits for compliance with local
laws and regulations and global standards.
Boutiques
We have developed our boutique network in a measured and disciplined manner. We have a portfolio of boutiques
situated in premier real estate locations in high performing retail malls and high streets in North America. Our strong
boutique sales productivity continues to make us a sought-after tenant for top quality locations in premier shopping
destinations. In addition to opening new Aritzia and exclusive brand boutiques (e.g. Wilfred, Babaton and TNA), we
generate attractive returns on capital by enhancing elements of our existing boutiques (including footprint, layout and
assortment) through carefully considered boutique expansions and repositions. We believe that we have a meaningful
opportunity to expand our boutique network, particularly in the United States.
See also the “COVID-19 Pandemic” section of this MD&A.
The following table summarizes the change in our boutique count for the periods indicated.
Q4 2021
Q4 2020
Fiscal 2021
Fiscal 2020
Number of boutiques, beginning of period
New boutiques
Repositioned to a flagship boutique
Boutique temporarily closed due to mall redevelopment
Number of boutiques, end of period
Boutiques expanded or repositioned
eCommerce and Omni-Channel Innovation
101
1
(1)
-
101
-
94
2
-
-
96
-
96
7
(1)
(1)
101
3
91
5
-
-
96
3
Launched in fiscal 2013, our eCommerce business quickly surpassed our growth expectations and has continued to
experience growth year over year in online traffic. We continue to invest in our digital capabilities to support our
eCommerce business:
Drive our omni-channel growth and capabilities – Our clients shop both online and in our boutiques, and we believe
there are synergies between our boutique network and aritzia.com, with the success of each channel benefiting the
other through increased brand awareness and affinity. We launched digital selling tools in our boutiques as well as
new Aritzia Concierge capabilities that will enhance client interactions. We will seek to integrate these capabilities
with the aritzia.com experience.
Capitalize on digital marketing channels to drive client acquisition and retention – We are directing resources with a
renewed focus on digital marketing, including programs centred on search engine optimization enhancements,
refinement of our email marketing, and further leveraging our social media. We made numerous technical
enhancements to improve our search engine optimization results, including navigation bread crumbs, improved
product descriptions, and data driven category naming. We are pleased with the positive impact this has had on
new client visits.
Deliver personalized experiences – We are in the early phases of leveraging advanced business intelligence and
behaviour analytics to further enhance our understanding of our clients. This includes optimizing our online
operations to enhance personalization which we believe will drive higher conversion and client loyalty. Our goal is to
use personalization techniques to customize product and content recommendations to clients based on where they
are and how they shop.
Improve the digital experience to enhance the shopping experience online – Aritzia is focused on improving the
digital experience across all devices (e.g., desktop, mobile, tablet) to work towards making shopping frictionless.
We continue to implement a number of core optimizations including user reviews and fit guides, enhancing site
search functionality, landing page templates, and numerous checkout improvements to reduce client friction. The
core areas of our client’s digital journey including content, evaluating, discovery and purchase are continuously
improved resulting in increased conversion rate and average order value.
Fiscal 2021 Annual Report | 27
Distribution Facilities
Our current distribution network consists of three distribution centres, two in Canada and one in the United States,
that are well positioned to service our boutiques and eCommerce business. We operate our distribution centre located
in New Westminster, British Columbia, while the distribution centres located in Mississauga, Ontario and Columbus,
Ohio are operated by third-party logistics providers. Our inventory is centrally managed, and shared amongst our
boutiques and eCommerce business.
Our distribution centre in New Westminster, British Columbia is a 223,000 square foot facility. We continue to upgrade
our warehouse management system to enhance our supply chain system flexibility and scalability. During Fiscal
2020, we completed expansions at both of our third-party distribution centres in Mississauga, Ontario and Columbus,
Ohio, from 75,000 square feet to 150,000 square feet and from 138,000 to 240,000 square feet, respectively. In total,
we added 177,000 square feet of space, representing an approximately 80% increase in size for these facilities.
These expansions support both our retail and eCommerce businesses with added capacity to handle higher levels
of throughput. Our current facilities are set up to flexibly manage multi-channel and omni-channel demands, as our
business continues to grow.
Systems and Infrastructure
Our focus on building our digital infrastructure impacts everything we do. In our view, digital is about more than just
our technology and eCommerce operations, it runs through the business all the way from design to the service we
deliver in boutiques. We use best-in-class information systems to support the major functional aspects of our
business. Ongoing upgrades and investments are expected to increase our efficiency and support our growth.
Clients
The Customer Program, a multi-year initiative comprised of four SAP projects, builds on our world-class client
experience by providing a seamless, consistent and personalized approach towards how we engage and service our
clients. Through advanced business intelligence and behavior analytics, our aim is to tailor unique shopping
experiences both in our boutiques and eCommerce while driving revenues and client loyalty:
Customer 360 – Launched in Fiscal 2020, this tool enables us to store, view and edit client information from all of
our front-end systems. This gives us an enhanced, real-time view of our clients including their attributes, past
purchases and preferences.
Marketing Communications Platform – This platform builds on Customer 360’s data repository, enabling us to
personalize our communications by creating campaigns that cater to our clients’ attributes and preferences, thereby
enhancing our top-line growth. The first phase of the project was completed in Fiscal 2020.
Concierge – Launched in Fiscal 2020, this integrated solution enhances our client experience throughout the
lifecycle of their purchase. It is also a revenue generating opportunity as we personalize each client interaction
through our client care centre. This platform was instrumental in supporting the significant increase in client care
engagements during Fiscal 2021 as a direct result of the surge in eCommerce volumes.
Digital Selling Tools – Also known as the Clientele App, the tool allows our style advisors to offer highly
personalized service to our clients and drive traffic and sales to aritzia.com. In the form of a mobile app, the initial
launch featured functionalities such as the ability to view client profiles and purchase history, product catalog and
inventory data, the means to interact by call, text, or e-mail, and the ability to curate looks and share styles with
clients.
We are also directing resources with a renewed focus on digital marketing and increasing the use of data analytics
to improve online conversion and client loyalty through increased personalization.
eCommerce
aritzia.com is powered by Salesforce Commerce Cloud since its launch in Fiscal 2013. With our eCommerce business
growing, we continue to invest in our digital capabilities. In Fiscal 2021, we implemented a number of initiatives on
aritzia.com to enhance our clients' shopping experience. This included the launch of Fit Analytics to provide highly
personalized size recommendations to our clients on aritzia.com. Based on the measurement data and preferences
that our client provides, this AI tool leverages machine learning algorithms to generate precise fit guidance based on
past purchases and its exceptional knowledge of our products.
Going forward, we expect to develop enhanced omni-channel capabilities to further elevate our clients’ shopping
experience, to provide a centralized view of inventory and unlock order fulfillment capabilities to improve cross
channel activities such as store inventory visibility, buy online, ship from store and buy online, pickup in store.
See also the “COVID-19 Pandemic” section of this MD&A.
28 |
Consumer Trends
The women’s apparel industry is subject to shifts in consumer trends, preferences and consumer spending and our
revenue and operating results depend, in part, on our ability to respond to such changes in a timely manner. Our
differentiated multi-brand strategy gives us control over our products and provides us with the flexibility to optimize
our brand mix as needed to address changes in consumer demand and fashion preferences, which has been a critical
driver of the consistency of our growth. Our diversified mix of exclusive brands satisfies a broad range of fashion
needs, which allows us to attract a wide client base and increases our addressable market. Our revenue is also
impacted by discretionary spending by consumers, which is affected by many factors that are beyond our control,
including, but not limited to, general economic conditions, consumer disposable income levels, consumer confidence
levels, consumer debt, the cost of basic necessities and other goods and the effects of weather, natural disasters or
global pandemics. We believe that our track record demonstrates the success of our exclusive brand strategy at
responding to changes in fashion demands through all stages of economic cycles.
Seasonality
Our business is seasonal, with a higher proportion of net revenue and operating cash flows historically generated
during the second half of the fiscal year, which includes the back-to-school and holiday seasons. We also have higher
working capital requirements in the periods preceding the launch of new seasons as we receive and pay for new
inventory. We manage our working capital needs through cash flow from operations and our revolving credit facility
(“Revolving Credit Facility”).
Average quarterly share of annual net revenue over the last three completed fiscal years is as follows:
First fiscal quarter
Second fiscal quarter
Third fiscal quarter
Fourth fiscal quarter
Yearly total
17%
24%
29%
30%
100%
Weather
Extreme weather conditions in the areas in which our boutiques are located could adversely affect our business and
financial results. For example, frequent or unusually heavy snowfall, ice storms, rainstorms or other extreme weather
conditions over a prolonged period could make it difficult for our clients to travel to our boutiques and thereby reduce
our revenue and profitability. This is potentially mitigated by our clients’ ability to buy our products through aritzia.com.
Our business is also susceptible to unseasonable weather conditions. For example, extended periods of
unseasonably warm temperatures during the winter season or cool weather during the summer season could render
a portion of our inventory incompatible with those unseasonable conditions, which could adversely affect sales of
these seasonal items.
Competition
We operate in the women’s apparel industry, primarily within the North American market. We are strategically
positioned in the global fashion landscape between fast fashion and luxury. We compete with a diverse group of
specialty apparel retailers, department stores, fast fashion retailers, athletic retailers and other manufacturers and
retailers of branded apparel. Market participants compete on the basis of, among other things, the location of
boutiques, the breadth, style, quality, price and availability of merchandise, the level of client service and brand
recognition. We believe that we successfully compete on the basis of several factors that include our strategic mix of
exclusive brands, offering of a combination of high quality products at an attainable price point, our refined and proven
merchandise planning strategy, our focus on providing an aspirational shopping experience and exceptional client
service, our premier real estate portfolio and our market positioning, collectively resulting in a fashion brand loved by
women all over the world.
Foreign Exchange
The majority of our net revenue is derived in Canadian dollars while the vast majority of our cost of goods sold is
denominated in U.S. dollars. Fluctuations in the exchange rate of the Canadian dollar versus the U.S. dollar could
materially affect our gross profit margins and operating results. From time to time, we use foreign currency forward
contracts to mitigate risks associated with forecasted U.S. dollar merchandise purchases sold in Canada, but there
Fiscal 2021 Annual Report | 29
can be no assurances that such strategies will prove to be successful. See “Financial Instruments” and “Risk Factors”
sections of this MD&A.
HOW WE ASSESS THE PERFORMANCE OF OUR BUSINESS
In assessing the performance of our business, we consider a variety of financial and operating measures that affect
our operating results.
Net revenue reflects our sale of merchandise, less returns and discounts. Retail revenue at point-of-sale is measured
at the fair value of the consideration received at the time the sale is made to the customer, net of discounts and
estimated allowance for returns. For merchandise that is ordered and paid in a boutique and subsequently picked up
by or delivered to the customer, revenue is deferred until control of the merchandise has been transferred to the
customer. eCommerce revenue is recognized at the date of estimated delivery to the customer, and measured at the
fair value of consideration received, net of discounts and an estimated allowance for returns. Revenues are reported
net of sales taxes collected for various governmental agencies.
Comparable sales growth is a retail industry metric used to explain our combined revenue growth in eCommerce
and established boutiques. Comparable sales from established boutiques is calculated based on revenue from
boutiques that have been opened for at least 56 weeks, and excludes boutiques that were expanded or repositioned,
boutiques in centres where we opened a new additional boutique and boutiques significantly impacted by nearby
construction and other similar disruptions during this period. Our comparable sales growth calculation excludes the
impact of foreign currency fluctuations. We apply the prior year’s average quarterly exchange rate to both current
year and prior year comparable sales to achieve a consistent basis for comparison (i.e. on a constant currency basis).
Comparable sales growth is typically a useful operating metric in assessing the performance of our business.
However, as the temporary boutique closures from COVID-19 have resulted in boutiques being removed from our
comparable store base, we believe comparable sales growth is not currently representative of our business and
therefore we have not reported figures on this metric in this MD&A.
Gross profit reflects our net revenue less cost of goods sold. Cost of goods sold includes inventory and product-
related costs, variable lease payments and other occupancy-related expenses, as well as depreciation expense for
our boutique and distribution centre assets. Our cost of goods sold may include different costs compared to other
retailers. Gross profit margin is impacted by the components of cost of goods sold, product mix and markdowns. We
define gross profit margin as our gross profit divided by our net revenue.
Selling, general and administrative (“SG&A”) expenses consists of selling expenses that are generally variable
with net revenue and general and administrative operating expenses that are primarily fixed. Our SG&A expenses
also include depreciation and amortization expenses for all support office assets and intangible assets. We expect
our SG&A expenses to increase as we continue to open new boutiques, grow our eCommerce business, increase
brand awareness and invest in our infrastructure and people.
SG&A expenses as a percentage of net revenue, excluding strategic investments in technology and infrastructure,
are usually higher in the lower-volume first and second quarters, and lower in the higher-volume third and fourth
quarters because a portion of these costs are relatively fixed. Our SG&A expenses may include different expenses
compared to other retailers.
EBITDA is defined as consolidated net income before depreciation and amortization, finance expense and income
tax expense.
30 |
Adjusted EBITDA is a useful measure of operating performance, as we believe it provides a more relevant picture
of operating results in that it excludes the effects of financing and investing activities by removing the effects of
interest, depreciation and amortization expenses that are not reflective of underlying business performance and other
one-time or non-recurring expenses. We use Adjusted EBITDA to facilitate a comparison of our operating
performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors
and trends affecting our business. We define Adjusted EBITDA as consolidated net income before depreciation and
amortization, finance expense and income tax expense, adjusted for the impact of certain items, including non-cash
items such as stock-based compensation expense, unrealized gains or losses on equity derivative and forward
contracts, a deduction of interest expense and depreciation relating to our leases to reflect an estimate of rent
expense and other items we consider non-recurring and not representative of our ongoing operating performance.
Because Adjusted EBITDA excludes certain non-cash items, we believe that it is less susceptible to variances in
actual performance resulting from depreciation and amortization and other non-cash charges.
Adjusted Net Income (per Diluted Share) is a useful measure of performance, as we believe it provides a more
relevant picture of results by excluding the effects of expenses that are not reflective of underlying business
performance and other one-time or non-recurring expenses. We use Adjusted Net Income to facilitate a comparison
of our performance on a consistent basis from period-to-period and to provide for a more complete understanding of
factors and trends affecting our business. We define Adjusted Net Income as consolidated net income, adjusted for
the impact of certain items, including non-cash items such as stock-based compensation expense, unrealized gains
or losses on equity derivative and forward contracts and other items we consider non-recurring and not representative
of our ongoing operating performance, net of related tax effects. We define Adjusted Net Income per diluted share
by dividing Adjusted Net Income by the weighted average number of diluted shares outstanding.
Free cash flow is an important metric because it is an indicator of how much cash is available for re-investment in
the Company, debt repayment, share repurchases and other financing activities. Our sustained ability to generate
free cash flow is an indicator of the financial strength of our business, as we require regular capital expenditures to
build and maintain boutiques and purchase new equipment to improve our business and infrastructure. We define
free cash flow as net cash generated from operating activities excluding interest paid, less net cash used in
investing activities and repayments of principal on lease liabilities.
NON-IFRS MEASURES INCLUDING RETAIL INDUSTRY METRICS
This MD&A makes reference to certain non-IFRS measures including certain retail industry metrics. These
measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and
are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these
measures are provided as additional information to complement those IFRS measures by providing further
understanding of our results of operations from management’s perspective. Accordingly, these measures should
not be considered in isolation or as a substitute for analysis of our financial information reported under IFRS. We
use non-IFRS measures including “EBITDA”, “Adjusted EBITDA”, “Adjusted Net Income”, “Adjusted Net Income per
diluted share”, “free cash flow” and “gross profit margin”. This MD&A also makes reference to “comparable sales
growth”, which is a commonly used operating metric in the retail industry but may be calculated differently
compared to other retailers. Our comparable sales growth calculation excludes the impact of foreign currency
fluctuations. These non-IFRS measures, including retail industry metrics, are used to provide investors with
supplemental measures of our operating performance and thus highlight trends in our core business that may not
otherwise be apparent when relying solely on IFRS measures. We believe that securities analysts, investors and
other interested parties frequently use non-IFRS measures, including retail industry metrics, in the evaluation of
issuers. Our management also uses non-IFRS measures, including retail industry metrics, in order to facilitate
operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and
to determine components of management compensation. For definitions and reconciliations of these non-IFRS
measures to the relevant reported measures, please see the “How We Assess the Performance of Our Business”
and “Selected Consolidated Financial Information” sections of this MD&A.
Fiscal 2021 Annual Report | 31
RESULTS OF OPERATIONS
Analysis of Results for Fourth Quarter Fiscal 2021
Consolidated Statements of Operations
(in thousands of Canadian dollars, unless
otherwise noted)
Q4 2021
Q4 2020
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA
Adjusted Net Income
Adjusted Net Income per Diluted Share
$
267,525
164,600
100.0% $
61.5%
275,430
172,589
100.0%
62.7%
102,925
38.5%
102,841
37.3%
72,357
4,193
26,375
6,464
(2,129)
22,040
5,970
16,070
35,205
17,678
0.16
27.0%
1.6%
9.9%
2.4%
(0.8%)
8.2%
2.2%
64,331
2,411
36,099
6,914
(1,354)
30,539
8,824
6.0% $
21,715
13.2%
6.6%
$
42,375
23,428
0.21
$
$
23.4%
0.9%
13.1%
2.5%
(0.5%)
11.1%
3.2%
7.9%
15.4%
8.5%
Net revenue decreased by 2.9% to $267.5 million, compared to $275.4 million in Q4 2020.The decrease in net
revenue was primarily driven by a decline of $57 million in retail revenue due to 39 government-mandated boutique
reclosures and $18 million related to occupancy restrictions and reduced operating hours in its open boutiques, offset
by revenue from new boutiques. This was almost completely offset by a $67 million increase in revenue associated
with the continued accelerated momentum in the Company’s eCommerce business, which grew by 81.1% from Q4
2020.
Gross profit increased by 0.1% to $102.9 million, compared to $102.8 million in Q4 2020. Gross profit margin was
38.5%, compared to 37.3% in Q4 2020.The increase in gross profit margin was primarily due to lower markdowns
and $1.5 million in rent abatements and $1.5 in million government rent and payroll subsidies recognized during the
quarter, partially offset by the deleverage from reduced retail revenue and higher warehousing and distribution centre
costs driven by the growth in the Company’s eCommerce business.
SG&A expenses increased by 12.5% to $72.4 million, compared to $64.3 million in Q4 2020. SG&A expenses were
27.0% of net revenue, compared to 23.4% of net revenue in Q4 2020. The increase in SG&A expenses was primarily
due to the continued investment in talent and COVID-19 related health and safety measures.
Other income was $2.1 million, compared to $1.4 million in Q4 2020.
Other income of $2.1 million in Q4 2021 primarily relates to:
unrealized gains on equity derivatives of $2.6 million,
interest income of $0.1 million, partially offset by
unrealized and realized operational foreign exchange losses of $1.1 million.
Other income of $1.4 million in Q4 2020 primarily related to:
unrealized gains on equity derivatives of $0.7 million,
unrealized and realized operational foreign exchange gains of $0.1 million.
interest income of $0.5 million, and
32 |
Adjusted EBITDA was $35.2 million, or 13.2% of net revenue, compared to $42.4 million, or 15.4% of net revenue
in Q4 2020. The decrease in Adjusted EBITDA was primarily due to our continued investment in talent and COVID-
19 related health and safety measures.
Stock-based compensation expense was $4.2 million, compared to $2.4 million in Q4 2020.
Included in Q4 2021 is $2.5 million in expenses related to the accounting for our deferred and restricted share units,
$1.6 million in expenses primarily related to the accounting for options under our new option plan and $0.1 million in
expenses related to the accounting for options under our legacy option plan.
Included in Q4 2020 is $1.4 million in expenses related to the accounting for options under our new option plan, $0.7
million in expenses related to the accounting for our deferred and restricted share units and $0.3 million in expenses
related to the accounting for options under our legacy option plan.
Finance expense decreased by $0.4 million to $6.5 million, compared to $6.9 million in Q4 2020. The decrease in
finance expense was primarily due to a lower average interest rate compared to Q4 2020.
Depreciation and amortization increased by $3.0 million to $27.1 million, compared to $24.1 million in Q4 2020.
The following table provides the depreciation and amortization expense for the periods indicated.
(in thousands of Canadian dollars)
Q4 2021
Q4 2020
Depreciation and amortization
Depreciation on right-of-use-assets
Total depreciation and amortization
$
$
10,723 $
16,410
27,133 $
9,017
15,117
24,134
Income tax expense is recognized based on management’s best estimate of the weighted average annual income
tax rate expected for the full fiscal year. To the extent that forecasts differ from actual results, adjustments are
recognized in subsequent periods. The statutory income tax rates for Q4 2021 and Q4 2020 were 26.7% and 26.8%,
respectively.
Income tax expense was $6.0 million, compared to $8.8 million in Q4 2020 and the effective tax rates for Q4 2021
and Q4 2020 were 27.1% and 28.9%, respectively.
Net income was $16.1 million, compared to $21.7 million in Q4 2020. The decrease in net income was primarily due
to our continued investment in talent and COVID-19 related health and safety measures.
Adjusted Net Income was $17.7 million, compared to $23.4 million in Q4 2020, primarily due to the factors discussed
above.
Adjusted Net Income per Diluted Share was $0.16, compared to $0.21 in Q4 2020, primarily due to the factors
discussed above.
Cash and cash equivalents at the end of Q4 2021 totaled $149.1 million, compared to $117.8 million at the end of
Q4 2020.
Inventory at end of Q4 2021 was $171.8 million, compared to $94.0 million at the end of Q4 2020. This intentional
increase was to fuel the acceleration of sales in the United States and continued growth in its eCommerce
business. The Company is very pleased with this decision and it is seeing the results in its first quarter sales. The
Company is confident in its inventory position and has made the decision to cancel its Spring sale and pushed back
the launch of its Summer sales event in the United States by four weeks to align with the Canadian event. The
Company expects to finish the season with a clean inventory position, as usual.
Capital cash expenditures (net of proceeds from leasehold inducements) decreased by $0.3 million to $9.4
million in Q4 2021, compared to $9.7 million in Q4 2020.
Fiscal 2021 Annual Report | 33
The following table provides the capital cash expenditures (net of proceeds from leasehold inducements) for the
periods indicated.
(in thousands of Canadian dollars)
Q4 2021
Q4 2020
Cash used in investing activities
Proceeds from deferred tenant inducement allowances
Capital cash expenditures (net of proceeds from leasehold inducements)
$
$
11,368 $
(1,953)
9,415 $
12,167
(2,435)
9,732
Analysis of Results for Fiscal 2021
Consolidated Statements of Operations
(in thousands of Canadian dollars, unless
otherwise noted)
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA
Adjusted Net Income
Adjusted Net Income per Diluted Share
Fiscal 2021
Fiscal 2020
$
857,323
544,818
100.0% $
63.5%
980,589
577,165
100.0%
58.9%
312,505
36.5%
403,424
41.1%
250,726
10,691
51,088
28,420
(3,534)
26,202
6,975
19,227
76,812
26,028
0.23
$
$
29.2%
1.2%
6.0%
3.3%
(0.4%)
3.1%
0.8%
243,362
7,790
152,272
28,319
(2,185)
126,138
35,544
2.2% $
90,594
9.0%
3.0%
$
172,572
97,388
0.87
24.8%
0.8%
15.5%
2.9%
(0.2%)
12.9%
3.6%
9.2%
17.6%
9.9%
Net revenue decreased by 12.6% to $857.3 million, compared to $980.6 million in Fiscal 2020. The decrease in net
revenue was primarily due to the impact of COVID-19 and the associated temporary boutique closures, as well as
ongoing severe occupancy restrictions and reduced boutique operating hours, partially offset by meaningful
eCommerce revenue growth throughout the year.
eCommerce revenue increased by 88.3% to $425.9 million, or 49.7% of net revenue, compared to $226.2 million
or 23.1% of net revenue in Fiscal 2020, driven by higher traffic and conversion
Retail revenue decreased by 42.8% to $431.4 million, compared to $754.4 million in Fiscal 2020
Store count at the end of Fiscal 2021 totaled 101 compared to 96 boutiques last year. During the year, the
Company opened 7 new boutiques (5 in the United States and 2 in Canada) and repositioned three boutiques (1 in
the United States and 2 in Canada)
Gross profit decreased by 22.5% to $312.5 million, compared to $403.4 million in Fiscal 2020. Gross profit margin
was 36.5%, compared to 41.1% in Fiscal 2020. The decrease in gross profit margin was primarily due to higher
warehousing and distribution centre costs driven by the growth in the Company’s eCommerce business and
deleverage from reduced retail revenue, partially offset by $17.2 million in rent abatements and $7.1 million in
government subsidies primarily related to product, warehousing and distribution labour recognized during the year.
SG&A expenses increased by 3.0% to $250.7 million, compared to $243.4 million in Fiscal 2020. SG&A expenses
in Fiscal 2021 were 29.2% of net revenue, compared to 24.8% of net revenue in Fiscal 2020. Deleverage in SG&A
expenses this year was primarily due to the continued investment in talent, loss of retail revenue and the
implementation of additional health and safety measures, partially offset by $26.6 million in government payroll
subsidies related to retail and support office labour recognized during the year.
34 |
Other income was $3.5 million, compared to $2.2 million in Fiscal 2020.
Other income of $3.5 million in Fiscal 2021 primarily relates to:
unrealized gains on equity derivative contracts of $3.7 million,
unrealized and realized operational foreign exchange losses of $1.8 million.
interest income of $0.9 million, partially offset by
interest income of $0.9 million,
Other income of $2.2 million in Fiscal 2020 primarily related to:
unrealized gains on equity derivative contracts of $0.7 million, and
unrealized and realized operational foreign exchange gains of $0.4 million.
Adjusted EBITDA was $76.8 million, or 9.0% of net revenue, compared to $172.6 million, or 17.6% of net revenue
in Fiscal 2020, primarily due to the factors discussed above. The decrease in Adjusted EBITDA was primarily due to
the loss of net revenue from the impacts of COVID-19.
Stock-based compensation expense was $10.7 million, compared to $7.8 million in Fiscal 2020.
Included in Fiscal 2021 is $5.5 million in expenses primarily related to the accounting for options under our new option
plan, $4.7 million in expenses related to the accounting for our deferred and restricted share units and $0.5 million in
expenses related to the accounting for options under our legacy option plan.
Included in Fiscal 2020 is $4.8 million in expenses primarily related to the accounting for options under our new option
plan, $1.9 million in expenses related to the accounting for our deferred and restricted share units and $1.1 million in
expenses related to the accounting for options under our legacy option plan.
Finance expense increased by $0.1 million to $28.4 million, compared to $28.3 million in Fiscal 2020.
Income tax expense is recognized based on management’s best estimate of the weighted average annual income
tax rate expected for the full fiscal year. To the extent that forecasts differ from actual results, adjustments are
recognized in subsequent periods. The statutory income tax rates for Fiscal 2021 and Fiscal 2020 were 26.7% and
26.8%, respectively.
Income tax expense was $7.0 million, compared to $35.5 million in Fiscal 2020 and the effective tax rates for Fiscal
2021 and Fiscal 2020 were 26.6% and 28.2%, respectively. The decrease in the effective tax rate compared to Fiscal
2020 is due to a decrease in the amount of stock-based compensation expense.
Depreciation and amortization increased by $11.6 million to $105.1 million, compared to $93.5 million in Fiscal
2020.
The following table provides the depreciation and amortization expense for the periods indicated.
(in thousands of Canadian dollars)
Fiscal 2021
Fiscal 2020
Depreciation and amortization
Depreciation on right-of-use assets
Total depreciation and amortization
$
$
38,871 $
66,278
105,149 $
34,422
59,080
93,502
Fiscal 2021 Annual Report | 35
Net income decreased by 78.8% to $19.2 million, compared to $90.6 million in Fiscal 2020. The decrease in net
income was primarily due to the loss of net revenue from the impacts of COVID-19.
Adjusted Net Income was $26.0 million, compared to $97.4 million in Fiscal 2020, primarily due to the factors
discussed above.
Adjusted Net Income per Diluted Share was $0.23, compared to $0.87 in Fiscal 2020, primarily due to the factors
discussed above.
Capital cash expenditures (net of proceeds from leasehold inducements) increased by $6.3 million to $42.5
million, compared to $36.3 million in Fiscal 2020.
The following table provides the capital cash expenditures (net of proceeds from leasehold inducements) for the
periods indicated.
(in thousands of Canadian dollars)
Fiscal 2021
Fiscal 2020
Cash used in investing activities
Proceeds from deferred tenant inducement allowances
Capital cash expenditures (net of proceeds from leasehold inducements)
$
$
50,848 $
(8,319)
42,529 $
47,790
(11,537)
36,253
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal uses of funds are for operating expenses, capital expenditures and debt service requirements. We
believe that cash generated from operations, together with amounts available under our Credit Facilities (as
hereinafter defined), are expected to be sufficient to meet our future operating expenses, capital expenditures, debt
service requirements and return to shareholders (share buybacks). Our ability to fund future operating expenses,
capital expenditures, debt service requirements and return to shareholders (share buybacks) will depend on, among
other things, our future operating performance, which will be affected by general economic, financial and other factors,
including factors beyond our control. See “Summary of Factors Affecting Performance” and “Risk Factors” of this
MD&A for additional information. We review investment opportunities in the normal course of our business and may
make select investments to implement our business strategy when suitable opportunities arise. Historically, the
funding for any such investments has come from cash flows from operating activities and/or our Credit Facilities.
Credit Facilities
We have a term loan (“Term Loan”) and Revolving Credit Facility (collectively the “Credit Facilities”) with our syndicate
of lenders.
As at February 28, 2021, the aggregate amount outstanding under our Term Loan was $75.0 million. The Term Loan
matures on May 22, 2022 and has no scheduled principal repayments prior to maturity. The Term Loan requires
mandatory loan prepayments by us of principal and interest if certain events occur.
A $100.0 million Revolving Credit Facility is also available as part of the Credit Facilities. During Fiscal 2021, $100.0
million of our Revolving Credit Facility was drawn and subsequently repaid. No amounts were drawn on the Revolving
Credit Facility as at February 28, 2021. See “Contractual Obligations – Off-Balance Sheet Arrangements and
Commitments” for letters of credit issued. See “COVID-19 Update” for more information.
In addition, we also have letters of credit facilities of $75.0 million, secured pari passu with the Credit Facilities. The
interest rate for the letters of credit is between 1.00% and 2.50%.
The credit agreement contains restrictive covenants customary for credit facilities of this nature, including restrictions
on us and each credit facility guarantor, subject to certain exceptions, to incur indebtedness, grant liens, merge,
amalgamate or consolidate with other companies, transfer, lease or otherwise dispose of all or substantially all of its
assets, liquidate or dissolve, engage in any material business other than the fashion retail business, make
investments, acquisitions, loans, advances or guarantees, make any restricted payments, enter into transactions with
affiliates, repay indebtedness, enter into restrictive agreements, enter into sale-leaseback transactions, ensure
pension plan compliance, sell or discount receivables, enter into agreements with unconditional purchase obligations,
issue shares, create or acquire a subsidiary or make any hostile acquisitions.
36 |
Cash Flows
The following table presents cash flows for the periods indicated.
(in thousands of Canadian dollars)
Q4 2021
Q4 2020
Fiscal 2021
Fiscal 2020
Net cash generated from operating activities
Net cash used in financing activities
Net cash used in investing activities
Effect of exchange rate changes on cash and cash
equivalents
$
7,391 $
(19,922)
(11,368)
47,898 $
(13,614)
(12,167)
133,947 $
(48,905)
(50,848)
222,076
(157,402)
(47,790)
(990)
(33)
(2,797)
(31)
(Decrease) increase in cash and cash equivalents
$
(24,889) $
22,084 $
31,397 $
16,853
Analysis of Cash Flows for the Fourth Quarter and Fiscal 2021
Cash Flows Generated from Operating Activities
For Q4 2021, cash flows generated from operating activities totaled $7.4 million, compared to $47.9 million in Q4
2020. This change was primarily attributable to a decrease in income from operations and higher use of working
capital due to the timing of payments, partially offset by a reduction in income taxes paid.
For Fiscal 2021, cash flows generated from operating activities totaled $133.9 million, compared to $222.1 million in
Fiscal 2020. This change was primarily attributable to a decrease in income from operations and higher use of working
capital due to the timing of payments and collection of receivables, partially offset by a reduction in income taxes
paid.
Cash Flows Used in Financing Activities
For Q4 2021, cash flows used in financing activities totaled $19.9 million, compared to $13.6 million in Q4 2020.
Financing activities in Q4 2021 and Q4 2020 primarily relate to the repayment of principal on lease liabilities, partially
offset by proceeds received from options exercised.
For Fiscal 2021, cash flows used in financing activities totaled $48.9 million, compared to $157.4 million used in
Fiscal 2020. Financing activities in Fiscal 2021 primarily relate to the repayment of principal on lease liabilities and
include the drawdown and subsequent repayment of $100.0 million of the Revolving Credit Facility, partially offset by
proceeds received from options exercised. Financing activities in Fiscal 2020 primarily relate to our repurchase of
subordinate voting shares for cancellation for $107.0 million and the repayment of principal on lease liabilities,
partially offset by proceeds received from options exercised. Financing activities in Fiscal 2020 also include the
drawdown and subsequent repayment of $25.0 million of the Revolving Credit Facility
Cash Flows Used in Investing Activities
For Q4 2021, cash flows used in investing activities totaled $11.4 million, compared to $12.2 million in Q4 2020.
Investing activities in Q4 2021 relate to new boutiques and boutique expansions and repositions.
For Fiscal 2021, cash flows used in investing activities totaled $50.8 million, compared to $47.8 million in Fiscal 2020.
Investing activities in Fiscal 2021 relate to new boutiques and boutique expansions and repositions, as well as
investments in our Product Lifecycle Management system.
Fiscal 2021 Annual Report | 37
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant undiscounted maturities of our contractual obligations and
commitments as at February 28, 2021.
(in thousands of Canadian dollars)
Accounts payable and accrued liabilities
Assumed interest on Term Loan(7)
Lease liabilities
Minimum lease commitments with future
commencement dates
Term Loan(8)
Less than
1 year
1 to
5 years
More than
5 years
$
131,893 $
1,649
95,367
2,474
-
-
379
335,436
24,239
75,000
$
- $
-
148,494
26,760
-
Total
131,893
2,028
579,297
53,473
75,000
Total contractual obligations and commitments
___________________________
Notes:
(7) Based on interest rate in effect as at February 28, 2021, and assuming no unscheduled principal payments are made prior to maturity.
(8)
The Credit Facilities require mandatory loan prepayments by the Company of principal and interest if certain events occur. The Credit
Facilities mature on May 22, 2022 and have no scheduled principal payments prior to maturity.
231,383 $
175,254 $
841,691
435,054
$
$
OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS
Our third party manufacturers purchase raw materials on our behalf to be used for future production. As at February
28, 2021, we had purchase obligations of $69.8 million, which represent commitments for fabric to be used during
upcoming seasons, made in the normal course of business.
We enter into trade letters of credit to facilitate the international purchase of inventory. We also enter into standby
letters of credit to secure certain of our obligations, including leases and duties related to import purchases. As at
February 28, 2021, letters of credit totaling $41.3 million have been issued.
Other than those items disclosed here and elsewhere in this MD&A and our consolidated financial statements, we do
not have any material off-balance sheet arrangements or commitments as at February 28, 2021.
FINANCIAL INSTRUMENTS
From time to time, we use foreign currency forward contracts to manage our exposure to fluctuations with respect to
the U.S. dollar for U.S. dollar merchandise purchases sold in Canada. The fair value of the forward contracts is
included in prepaid expenses and other current assets or in accounts payable and accrued liabilities, depending on
whether they represent assets or liabilities to us. Changes in the fair value of foreign currency forward contracts are
recorded in net income. As at February 28, 2021, we did not have any outstanding foreign currency forward contracts.
The Company has equity derivative contracts to hedge the share price exposure on its cash-settled DSUs and RSUs.
These contracts are not designated as hedging instruments for accounting purposes. Changes in the fair value of
equity derivative contracts are recorded in net income. As at February 28, 2021, the equity derivative contracts had
a positive fair value of $4.4 million which is recorded in prepaid expenses and other current assets.
RELATED PARTY TRANSACTIONS
During the year ended February 28, 2021, we made payments of $4.2 million (March 1, 2020 - $4.0 million) for lease
of premises and management services and $0.7 million (March 1, 2020 - $0.6 million) for the use of an asset wholly
or partially owned by companies that are owned by a director and officer of the Company. As at February 28, 2021,
the outstanding balance of lease liabilities owed to these companies was $11.6 million (March 1, 2020 - $12.6 million).
As at February 28, 2021, $0.2 million was included in accounts payable and accrued liabilities (March 1, 2020 - $0.2
million). These transactions were measured at the amount of consideration established at market terms.
38 |
Transactions with Key Management
Key management includes our directors and executive team. Compensation awarded to key management includes:
(in thousands of Canadian dollars)
Q4 2021
Q4 2020
Fiscal 2021
Fiscal 2020
Salaries, directors’ fees and short-term
benefits
Stock-based compensation expense
$
555 $
1,827
802 $
919
3,860 $
4,135
$
2,382 $
1,721 $
7,995 $
3,981
3,111
7,092
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of consolidated financial statements in accordance with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Estimates and assumptions are continuously evaluated and are based on
management’s best judgments and experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods affected. Actual results may differ from these estimates.
The following discusses the most significant accounting judgments and estimates made by management in
preparation of the consolidated financial statements:
Gift Card Breakage
Recognition of gift card breakage requires the use of judgment involving the estimation of our average gift card
breakage rate, based on historical redemption rates. The resulting revenue from breakage is recognized in proportion
to actual gift card redemptions.
Return Allowances
Recognizing provisions for sales return allowances requires judgement in estimating the return rate of merchandise
based on historical patterns of returns.
Valuation of Finished Goods Inventory
Inventory, consisting of finished goods, is stated at the lower of cost and net realizable value. Cost is determined
using weighted average costs. Cost of inventories includes the cost of merchandise and all costs incurred to deliver
the inventory to our distribution centres including freight and duty.
We periodically review our inventories and make provisions as necessary to appropriately value obsolete or damaged
goods. In addition, as part of inventory valuations, we accrue for inventory shrinkage for lost or stolen items based
on historical trends from actual physical inventory counts.
Impairment of Assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested
annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired.
Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. The
recoverable value is determined using discounted future cash flow models, which incorporate assumptions regarding
future events, specifically future cash flows, growth rates and discount rates.
For the purposes of assessing impairment, assets are grouped at the lowest levels where there are separately
identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets
(“cash-generating unit”). Non-financial assets, other than goodwill, that suffered an impairment are reviewed for
possible reversal of the impairment at the end of each reporting period.
Fiscal 2021 Annual Report | 39
Leases
We use the lessee’s incremental borrowing rate when determining the carrying amount of right-of-use assets and
lease liabilities, as the interest rates implicit in the lease agreements are not readily available. We determine the
incremental borrowing rate of each leased asset as the rate of interest that we would have to pay to borrow, over a
similar term with a similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in
a similar economic environment.
We exercise judgment in determining the appropriate lease term on a lease by lease basis and consider all facts and
circumstances that create an economic incentive to exercise a renewal or termination option. The periods covered
by renewal options are included in the lease term only if we are reasonably certain we will exercise such renewal
options.
In May 2020, the IASB issued guidance in relation to accounting for rent concessions resulting from COVID-19. We
have elected to apply the issued guidance for Fiscal 2021.
Stock-Based Compensation Expense
Stock-based compensation expense requires the use of estimates in the Black-Scholes option pricing model,
including risk-free interest rate, stock price volatility, forfeiture rate and the expected life of options.
Income Tax Expense
Income tax expense requires judgment to determine when tax losses, credits and provisions are recognized based
on tax rules in various jurisdictions.
SIGNIFICANT NEW ACCOUNTING STANDARDS RECENTLY ADOPTED
COVID-19-Related Rent Concessions (Amendments to IFRS 16)
In May 2020, IASB published COVID-19-Related Rent Concessions, which amends IFRS 16, Leases, to provide
lessees with a practical expedient that relieves lessees from assessing whether a COVID-19-related rent
concession is a lease modification. The amendment became effective for annual reporting periods beginning on or
after June 1, 2020. Earlier application was permitted. The Company adopted the amendment effective for the
annual period ended February 28, 2021 and has elected to apply the provided practical expedient. The Company
accounts for any change in lease payments resulting from a COVID-19-related rent concession the same way it
would account for the change if the change were not a lease modification.
Standards Issued But Not Yet Adopted
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, IASB issued Classification of Liabilities as Current or Non-Current, which amends IAS 1 –
Presentation of Financial Statements. The narrow scope amendments affect only the presentation of liabilities in
the statement of financial position and not the amount or timing of its recognition. It clarifies that the classification of
liabilities as current or non-current is based on rights that are in existence at the end of the reporting period and
specifies that classification is unaffected by expectations about whether an entity will exercise its right to defer
settlement of a liability. It also introduces a definition of ‘settlement’ to make clear that settlement refers to the
transfer to the counterparty of cash, equity instruments, other assets or services. The amendments are effective for
annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company does
not plan to early adopt the amendments to IAS 1. The implementation of this amendment is not expected to have a
significant impact on the Company.
RISK FACTORS
For a detailed description of risk factors associated with the Company, including COVID-19 risks, refer to the “Risk
Factors” section of the Company’s AIF, which is available on SEDAR at www.sedar.com.
In addition, we are exposed to a variety of financial risks in the normal course of operations including foreign
exchange, interest rate, credit, liquidity and equity price risk, as summarized below. Our overall risk management
40 |
program and business practices seek to minimize any potential adverse effects on our consolidated financial
performance.
Risk management is carried out under practices approved by our Audit Committee. This includes reviewing and
making recommendations to the Board of Directors on the adequacy of our risk management policies and procedures
with regard to identifying the Company’s principal risks and implementing appropriate systems and controls to
manage these risks. Risk management covers many areas of risk including, but not limited to, foreign exchange risk,
interest rate risk, credit risk, liquidity risk and equity price risk.
Foreign Exchange Risk
We source the majority of our raw materials and merchandise from various suppliers in Asia and Europe with the
vast majority of purchases denominated in U.S. dollars. Our foreign exchange risk is primarily with respect to the U.S.
dollar but we have limited exposure to other currencies as well. We may use foreign exchange forward contracts to
mitigate risks associated with forecasted U.S. dollar merchandise purchases sold in Canada.
Interest Rate Risk
We are exposed to changes in interest rates on our cash and cash equivalents, and debt. Debt issued at variable
rates exposes us to cash flow interest rate risk. Debt issued at fixed rates exposes us to fair value interest rate risk.
During the year, we had only variable interest rate debt.
Credit Risk
Credit risk refers to the possibility that we can suffer financial losses due to the failure of our counterparties to meet
their payment obligations. We are exposed to minimal credit risk. We do not extend credit to clients, but do have
some receivable exposure in relation to tenant improvement allowances. To reduce this risk, we enter into leases
with landlords with established credit history, and for certain leases, we may offset rent payments until accounts
receivable are fully satisfied. We deposit our cash and cash equivalents with major financial institutions that have
been assigned high credit ratings by internationally recognized credit rating agencies. We only enter into derivative
contracts with major financial institutions, as described above, for the purchase of foreign currency forward contracts.
Liquidity Risk
Liquidity risk is the risk that we cannot meet a demand for cash or fund our obligations as they come due. We manage
liquidity risk by continuously monitoring actual and projected cash flows, taking into account the seasonality of our
revenue, income and working capital needs. The Revolving Credit Facility is used to maintain liquidity.
Equity Price Risk
We are exposed to risk arising from the cash settlement of our deferred and restricted share units, as an appreciating
subordinate voting share price increases the potential cash outflow. We record a liability for the potential future
settlement of our deferred and restricted share units by reference to the fair value of the liability. We may use equity
derivative contracts to offset our cash flow variability of the expected payment associated with our deferred and
restricted share units. We only enter into equity derivative contracts with major financial institutions.
DISCLOSURE CONTROLS AND PROCEDURES
Management is responsible for establishing and maintaining a system of disclosure controls and procedures over the
public disclosure of financial and non-financial information regarding the Company. Such controls and procedures
are designed to provide reasonable assurance that all relevant information is gathered and reported to senior
management on a timely basis, including the CEO and the CFO, so that they can make appropriate and timely
decisions regarding public disclosure, including information contained in annual and interim filings, including the
consolidated financial statements, MD&A, AIF, and other documents and external communications.
As required by CSA National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings
(“NI 52-109”), an evaluation of the adequacy of the design (quarterly) and effective operation (annually) of the
Company’s disclosure controls and procedures was conducted under the supervision of management, including the
CEO and CFO, as at February 28, 2021. Based on that evaluation, the CEO and the CFO have concluded that the
design and operation of the system of disclosure controls and procedures were effective as at February 28, 2021.
Although the Company’s disclosure controls and procedures were operating effectively as of February 28, 2021,
there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures
Fiscal 2021 Annual Report | 41
of persons within the Company to disclose material information otherwise required to be set forth in the Company’s
regulatory filings.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports
for external purposes in accordance with IFRS. The Company’s internal controls over financial reporting include, but
are not limited to, detailed policies and procedures relating to financial accounting and reporting, and controls over
systems that process and summarize transactions. The Company’s procedures for financial reporting also include
the active involvement of qualified financial professionals, senior management and its Audit Committee.
As also required by NI 52-109, management, including the CEO and CFO, evaluated the adequacy of the design
(quarterly) and the effective operation (annually) of the Company’s internal control over financial reporting as defined
in NI 52-109, as at February 28, 2021. In making this assessment, management, including the CEO and CFO, used
the framework set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, the CEO and the CFO have concluded that
the design and operation of the Company’s internal control over financial reporting, as defined by NI 52-109, were
effective as at February 28, 2021.
In designing such controls, it should be recognized that due to inherent limitations, any control, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may
not prevent or detect misstatements. Additionally, management is required to use judgment in evaluating controls
and procedures. Therefore, even when determined to be designed effectively, disclosure controls and internal control
over financial reporting can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter and year ended February
28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
CURRENT SHARE INFORMATION
As of May 10, 2021, an aggregate of 85,522,257 subordinate voting shares, 24,537,349 multiple voting shares and
no preferred shares are issued and outstanding. All of the issued and outstanding multiple voting shares are, directly
or indirectly, held or controlled by the principal shareholders. As of May 10, 2021, an aggregate of 8,156,809 options
to acquire subordinate voting shares are outstanding.
ADDITIONAL INFORMATION
Additional information relating to the Company, including the Company’s AIF, is available on SEDAR at
www.sedar.com. The Company’s subordinate voting shares are listed for trading on the Toronto Stock Exchange
(“TSX”) under the symbol “ATZ”.
42 |
SUMMARY OF CONSOLIDATED QUARTERLY RESULTS AND CERTAIN PERFORMANCE MEASURES
The following table summarizes the results of our operations for the last eight most recently completed quarters. This
unaudited quarterly information, other than Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income per Diluted
Share, free cash flow and comparable sales growth, has been prepared in accordance with IFRS. Due to seasonality,
the results of operations for any quarter are not necessarily indicative of the results of operations for the fiscal year.
Consolidated Quarterly Results
(in thousands of Canadian
dollars, unless otherwise
noted)
$
$
$
$
$
$
$
$
$
Financial Summary:
Net revenue
Cost of goods sold
Gross profit
SG&A
Income (loss) from operations
Net income (loss)
Net income (loss)
per share
Net income (loss)
per diluted share
Adjusted EBITDA (9)
Adjusted Net Income
(Loss)(10)
Adjusted Net Income (Loss)
per Diluted Share(9)
Weighted average number of
diluted shares
(in thousands)(10)
Cash and cash equivalents
Capital cash expenditures
(net of proceeds from
leasehold inducements)
Free cash flow
Percentage of Net Revenue:
Net revenue
Cost of goods sold
Gross profit
SG&A
Income (loss) from operations
Net income (loss)
Other Performance Metrics:
Net revenue growth
Comparable sales growth(9)
Boutiques:
Number of boutiques,
beginning of period
New boutiques added
Repositioned to a flagship
boutique
Boutique temporarily closed
due to mall redevelopment
Number of boutiques, end
of period
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Fiscal 2021
Fiscal 2020
267,525 $
164,600
102,925
72,357
26,375
16,070
278,254 $
152,171
126,083
74,707
48,004
30,502
200,155 $
129,719
70,436
60,151
8,138
(874)
111,389 $
98,328
13,061
43,511
(31,429)
(26,471)
0.15 $
0.28 $
(0.01) $
(0.24) $
0.14 $
0.27 $
(0.01) $
(0.24) $
275,430 $
172,589
102,841
64,331
36,099
21,715
0.20 $
0.19 $
267,282 $
147,687
119,595
64,035
54,497
34,803
0.32 $
0.31 $
241,178 $
145,751
95,427
60,567
32,918
17,920
0.17 $
0.16 $
196,699
111,138
85,561
54,429
28,758
16,156
0.15
0.14
35,205 $
54,565 $
12,274 $
(25,232) $
42,375 $
58,446 $
36,372 $
35,379
17,678 $
32,188 $
1,034 $
(24,872) $
23,428 $
35,719 $
19,757 $
18,484
0.16 $
0.29 $
0.01 $
(0.23) $
0.21 $
0.32 $
0.18 $
0.17
114,052
112,903
112,550
109,353
113,120
111,898
111,537
111,851
149,147 $
174,036 $
207,254 $
224,313 $
117,750 $
95,666 $
29,986 $
35,757
9,415 $
(24,936) $
10,383 $
68,387 $
10,586 $
(15,200) $
12,145 $
8,055 $
9,732 $
20,656 $
11,194 $
80,810 $
6,426 $
(1,137) $
8,901
16,917
100.0%
61.5%
38.5%
27.0%
9.9%
6.0%
100.0%
54.7%
45.3%
26.8%
17.3%
11.0%
100.0%
64.8%
35.2%
30.1%
4.1%
(0.4%)
100.0%
88.3%
11.7%
39.1%
(28.2%)
(23.8%)
(22.7%)
(22.3%)
100.0%
62.7%
37.3%
23.4%
13.1%
7.9%
15.4%
8.5%
100.0%
55.3%
44.7%
24.0%
20.4%
13.0%
21.9%
13.4%
100.0%
60.4%
39.6%
25.1%
13.6%
7.4%
15.1%
8.2%
100.0%
56.5%
43.5%
27.7%
14.6%
8.2%
18.0%
9.4%
Adjusted EBITDA (9)
Adjusted Net Income (Loss)(9)
13.2%
6.6%
19.6%
11.6%
6.1%
0.5%
(2.9%)
n/a
4.1%
n/a
(17.0%)
n/a
(43.4%)
n/a
6.3%
8.9%
10.0%
5.1%
17.4%
8.4%
17.8%
7.9%
101
1
(1)
-
101
97
5
-
(1)
101
97
-
-
-
97
96
1
-
-
97
94
2
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-
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1
Boutiques expanded or
repositioned
___________________________
Notes:
(9) See “How We Assess the Performance of Our Business” for definitions of Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net
2
1
2
-
-
-
-
Income (Loss) per Diluted Share and comparable sales growth, which are non-IFRS measures including Retail Industry Metrics. See also
“Non-IFRS Measures”.
(10) Weighted average number of diluted shares is provided for purposes of calculating Adjusted Net Income (Loss) per Diluted Share.
Fiscal 2021 Annual Report | 43
Financial
Statements
Aritzia Inc.
Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars)
46 |
Independent auditor’s report
To the Shareholders of Aritzia Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Aritzia Inc. and its subsidiaries (together, the Company) as at February 28, 2021
and March 1, 2020, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
●
●
●
●
●
●
the consolidated statements of financial position as at February 28, 2021 and March 1, 2020;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended February 28, 2021. These matters were
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Fiscal 2021 Annual Report | 47
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Inventory
Refer to note 2 – Summary of significant
accounting policies, note 4 – Critical accounting
estimates and judgments and note 5 – Inventory to
the consolidated financial statements.
As at February 28, 2021, the Company held
inventory of $171.8 million including finished goods
in transit of $48.9 million. Inventory is carried at the
lower of cost and net realizable value. Cost is
determined using weighted average costs. Cost of
inventory includes the cost of merchandise and all
costs incurred to deliver inventory to the
Company’s distribution centres, including freight
and duty.
Management periodically reviews inventory and
makes provisions to value obsolete or damaged
goods.
We considered this a key audit matter due to the
number of inventory locations at which inventory
was held, the audit effort involved in testing the
inventory in transit balance, and the judgment
applied by management in estimating the inventory
provisions.
How our audit addressed the key audit matter
Our approach to addressing the matter included the
following procedures, among others:
Tested the operating effectiveness of relevant
controls relating to the accounting for
inventory, including the mathematical accuracy
of the weighted average cost method.
Tested a sample of inventory items to
purchase invoices.
Observed the inventory count process for all
distribution centres and for a sample of stores
near year-end and performed independent test
counts.
Tested on a sample basis, the finished goods
in transit at year-end by agreeing to third party
shipment documents, inventory receipts to
distribution centres, and purchase invoices.
Tested on a sample basis, inventory received
post year-end to shipping documents to assess
whether inventory was recorded appropriately
at year end.
Tested how management estimated the
inventory provisions in determining net
realizable value, which included the following:
Tested a sample of inventory items to the
most recent retail prices of the inventory
items.
Tested the underlying data used in the
inventory provisions for obsolete or
damaged goods, and evaluated the
reasonableness of the percentage of write-
down applied to the obsolete or damaged
goods inventory by considering the
historical write-downs and performing a
sensitivity analysis.
48 |
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the Annual
Report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the Annual Report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Fiscal 2021 Annual Report | 49
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
● Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
50 |
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Robert Coard.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
May 11, 2021
Fiscal 2021 Annual Report | 51
Aritzia Inc.
Consolidated Statements of Financial Position
As at February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars)
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Income taxes recoverable
Inventory
Prepaid expenses and other current assets
Total current assets
--
Property and equipment
Intangible assets
Goodwill
Right-of-use assets
Other assets
Deferred tax assets
Total assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Current portion of lease liabilities
Deferred revenue
Total current liabilities
Lease liabilities
Other non-current liabilities
Deferred tax liabilities
Long-term debt
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
Note
February 28,
2021
March 1,
2020
$
18
5
1,12
1,6
1,7
1,7
1,8.
149,147 $
6,202
4,719
171,821
23,452
355,341
189,568
62,049
151,682
363,417
2,886
117,750
6,555
2,157
94,034
10,880
231,376
184,637
63,867
151,682
380,360
4,315
18
$
15,794
1,140,737 $
20,478
1,036,715
9 $
18
8
8
10
18
11,12
$
13 $
$
131,893 $
8,287
71,452
37,563
249,195
423,380
15,059
17,985
74,855
780,474 $
57,715
3,198
63,440
29,490
153,843
447,087
9,451
19,529
74,740
704,650
228,665 $
56,606
75,216
(224)
360,263
1,140,737 $
219,050
57,221
56,476
(682)
332,065
1,036,715
Commitments and contingencies (notes 8 and 20)
Approved by the Board of Directors
______Brian Hill Director ______John Currie Director
The accompanying notes are an integral part of these consolidated financial statements.
52 |
Aritzia Inc.
Consolidated Statements of Operations
For the years ended February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, except number of shares and per share amounts)
Net revenue
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative
Stock-based compensation expense
Income from operations
Finance expense
Other income
Income before income taxes
Income tax expense
Net income
Net income per share
Basic
Diluted
Weighted average number of shares outstanding
(thousands)
Basic
Diluted
Note
February 28,
2021
March 1,
2020
1, 16, 19 $
857,323 $
980,589
1, 17
1
14, 17
8,17
17
18
544,818
312,505
250,726
10,691
51,088
28,420
(3,534)
26,202
6,975
$
19,227 $
577,165
403,424
243,362
7,790
152,272
28,319
(2,185)
126,138
35,544
90,594
15 $
15
0.18 $
0.17
0.84
0.81
15
15
109,487
112,844
108,411
112,128
The accompanying notes are an integral part of these consolidated financial statements.
Fiscal 2021 Annual Report | 53
Aritzia Inc.
Consolidated Statements of Comprehensive Income
For the years ended February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars)
Net income
February 28,
2021
March 1,
2020
$
19,227 $
90,594
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to net income:
Foreign currency translation adjustment
458
(329)
Comprehensive income
$
19,685 $
90,265
The accompanying notes are an integral part of these consolidated financial statements.
54 |
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Fiscal 2021 Annual Report | 55
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Aritzia Inc.
Consolidated Statements of Cash Flows
For the years ended February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars)
Operating activities
Net income for the period
Adjustments for:
Depreciation and amortization
Depreciation on right-of-use-assets
Finance expense
Stock-based compensation expense
Amortization of deferred lease inducements
Unrealized gain on equity derivative contracts
Income tax expense
Rent concessions relating to lease liabilities
Proceeds from lease incentives
Cash generated before non-cash working capital balances
and interest and income taxes
Net change in non-cash working capital balances
Cash generated before interest and income taxes
Interest paid
Interest paid on lease liabilities
Income taxes paid
Net cash generated from operating activities
Financing activities
Proceeds from revolving credit facility
Repayment of revolving credit facility
Repayment of principal on lease liabilities
Proceeds from options exercised
Shares repurchased for cancellation
Net cash used in financing activities
Investing activities
Purchase of property and equipment
Purchase of intangible assets
Net cash used in investing activities
Effect of exchange rate changes on cash and
cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents - Beginning of year
Cash and cash equivalents - End of year
Supplemental cash flow information (note 22)
Note
February 28,
2021
March 1,
2020
$
19,227 $
6, 7, 17
8, 17
17
14, 17
12
18
1, 8
22
11
11
8
14
13
6
7
38,871
66,278
28,420
10,691
(934)
(3,701)
6,975
(13,903)
8,319
160,243
3,913
164,156
(4,651)
(22,887)
(2,671)
133,947
100,000
(100,000)
(51,444)
3,062
(523)
(48,905)
(50,255)
(593)
(50,848)
(2,797)
31,397
117,750
$
149,147 $
90,594
34,422
59,080
28,319
7,790
(689)
(650)
35,544
-
11,537
265,947
18,625
284,572
(4,429)
(23,763)
(34,304)
222,076
25,000
(25,000)
(61,469)
11,627
(107,560)
(157,402)
(45,591)
(2,199)
(47,790)
(31)
16,853
100,897
117,750
The accompanying notes are an integral part of these consolidated financial statements.
56 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
1 Nature of operations and basis of presentation
Nature of operations
Aritzia Inc. and its subsidiaries (collectively referred to as the “Company”) are an innovative design house and
fashion boutique. The Company conceives, creates, develops and retails fashion brands in its boutiques and
online. Each of the Company’s exclusive brands has its own vision and distinct aesthetic point of view. As at
February 28, 2021, the Company had 101 retail boutiques (March 1, 2020 – 96 retail boutiques).
Aritzia Inc. is a corporation governed by the Business Corporations Act (British Columbia). The address of its
registered office is 666 Burrard Street, Suite 1700, Vancouver, B.C., Canada, V6C 2X8.
On March 8, 2019, the Company completed a secondary offering (the “March 2019 Secondary Offering”) on a
bought deal basis of its subordinate voting shares through a secondary sale of shares by certain shareholders.
The March 2019 Secondary Offering of 19,505,000 subordinate voting shares raised gross proceeds of $329.6
million for the selling shareholders, at a price of $16.90 per subordinate voting share (the “March 2019 Offering
Price”). The Company did not receive any proceeds from the March 2019 Secondary Offering. Underwriting
fees were paid by the selling shareholders.
Concurrent with the completion of the March 2019 Secondary Offering, on March 8, 2019, the Company also
completed its repurchase of 6,333,653 subordinate voting shares and multiple voting shares (the “Shares”) for
cancellation from certain shareholders, including an investment vehicle (the “Berkshire Shareholder”) managed
by Berkshire Partners LLC (“Berkshire”) (the “Share Repurchase”). The purchase price per Share paid by the
Company under the Share Repurchase was the same as the March 2019 Offering Price and resulted in an
aggregate purchase price of $107.0 million paid to the selling shareholders. Total expenses related to the
March 2019 Secondary Offering and Share Repurchase of $2.5 million were paid by the Company and were
reimbursed by the selling shareholders participating in the Share Repurchase, including the Berkshire
Shareholder.
Upon completion of the March 2019 Secondary Offering and Share Repurchase on March 8, 2019, the
Berkshire Shareholder has no remaining equity interest in the Company.
The Company’s subordinate voting shares are listed on the Toronto Stock Exchange under the stock symbol
“ATZ”.
Basis of presentation
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The
consolidated financial statements have been prepared on a historical cost basis, except for derivative
instruments, deferred share units and restricted share units, as disclosed in the accounting policies set out in
note 2. These consolidated financial statements are presented in Canadian dollars, unless otherwise noted.
Fiscal 2021 Annual Report | 57
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
The Company’s fiscal year-end is the Sunday closest to the last day of February, typically resulting in a 52-
week year, but occasionally giving rise to an additional week, resulting in a 53-week year. All references to
2021 and 2020 represent the fiscal years ended February 28, 2021 and March 1, 2020, respectively.
Seasonality of operations
The Company’s business is affected by the pattern of seasonality common to most retail apparel businesses.
Historically, the Company has recognized a significant portion of its operating profit in the third and fourth
quarters of each fiscal year as a result of increased net revenue during the back-to-school and holiday
seasons.
These consolidated financial statements were authorized for issue on May 11, 2021 by the Company’s Board of
Directors.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a worldwide pandemic.
On March 16, 2020, in line with recommendations by public health officials and guidance from local government
authorities, the Company temporarily closed all of its retail boutiques in Canada and the United States. The
Company’s distribution centers remained opened under stringent health and safety protocols as the Company
continued with its eCommerce business. On May 7, 2020, the Company began a phased reopening of its retail
boutiques. As part of the reopening plan, the Company implemented extensive health and safety measures
designed to protect its people and clients and communities. As of September 9, 2020, all of the Company’s
boutiques had reopened. Beginning November 23, 2020 and through the fourth quarter, as a result of the
resurgence of COVID-19 and in in line with government regulations, the Company temporarily reclosed 39 of its
boutiques primarily located in Ontario and Quebec. As at February 28, 2021, 18 of these boutiques remained
temporarily closed.
In response to the negative economic impact of COVID-19, various government programs have been
announced to provide financial relief to affected businesses. The Company determined that it qualified for the
Canada Emergency Wage Subsidy and Emergency Rent Subsidy programs under the COVID-19 Economic
Response Plan in Canada and for the Employee Retention Credit under the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”) in the United States. During the year ended February 28, 2021, the
Company recognized payroll subsidies of $32.6 million and $1.1 million of rent subsidies under the above
mentioned programs. The payroll subsidies were recorded as a reduction in the associated eligible salaries and
wage costs, recognized in cost of goods sold and selling, general and administrative expenses in the
consolidated statements of operations. The rent subsidies were recorded as a reduction in store occupancy
costs in cost of goods sold in the consolidated statements of operations. As at February 28, 2021, the
Company had $5.0 million of payroll subsidies and $1.1 million of rent subsidies receivable recorded in prepaid
expenses and other current assets.
In May 2020, the IASB issued guidance in relation to accounting for rent concessions resulting from COVID-19.
The Company has elected to apply the issued guidance for the annual period ended February 28, 2021 (note
3). For the year ended February 28, 2021, the Company recognized $17.5 million of rent and occupancy
58 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
concessions in cost of goods sold and selling, general and administrative expenses in the consolidated
statements of operations.
Net revenue is reported net of an estimated allowance for returns. As a result of its temporary boutique
closures, the Company extended its return policies for purchases made in these boutiques.
The CARES Act in the United States further allows the immediate expensing of qualified leasehold
improvement property purchased after December 31, 2017 and the carry back of net operating losses to prior
years. These two measures resulted in the Company recognizing an income taxes receivable of $5.6 million, to
be applied to income taxes payable in prior periods, and a decrease to total income tax expense of $2.0 million
for the year ended February 28, 2021.
The Company’s operations were significantly impacted by the COVID-19 pandemic during Fiscal 2021. The
extent of the impact of COVID-19 on future periods will depend on future developments, including the duration
or resurgence of the pandemic and related government responses, which are uncertain and cannot be
predicted. Further or prolonged closures of the Company’s boutiques could result in the reassessment of
impairment of property and equipment, definite and indefinite life intangible assets, right-of-use assets and
goodwill, and a provision to the net realizable value of the Company’s inventories.
2 Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries,
including Aritzia LP, domiciled in Canada, and United States of Aritzia Inc., domiciled in the U.S. All
intercompany transactions and balances are eliminated on consolidation, and consistent accounting policies
are applied across the Company.
Functional and presentation currency
The functional currency for each entity included in these consolidated financial statements is the currency of the
primary economic environment in which the entity operates. These consolidated financial statements are
presented in Canadian dollars, which is the Company’s functional currency.
Translation of other foreign currency transactions and balances
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the
functional currencies at the exchange rate at that date. Other consolidated statement of financial position items
denominated in foreign currencies are translated into the functional currencies at the exchange rate prevailing
at the respective transaction dates. Revenues and expenses denominated in foreign currencies are translated
into the functional currencies at average exchange rates during the period. The resulting gains or losses on
translation are included in the determination of net income.
Fiscal 2021 Annual Report | 59
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
U.S. operations
Assets and liabilities of the Company’s U.S. operations have a functional currency of U.S. dollars and are
translated into Canadian dollars at the exchange rate in effect at the reporting date. Revenues and expenses
are translated into Canadian dollars at average exchange rates during the reporting period. The resulting
unrealized translation gains or losses are included in other comprehensive income.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and investments in money market instruments with an
original maturity of less than three months. As at February 28, 2021, the Company had no investments held in
money market instruments classified as cash equivalents (March 1, 2020 - $92.9 million).
Prepaid expenses and other current assets
Prepaid expenses and other current assets comprise of prepaid expenses, deposits and packaging supplies.
As at February 28, 2021, the Company had $5.0 million of government payroll subsidies and $1.1 million of
government rent subsidies receivable recorded in prepaid expenses and other current assets.
Inventory
Inventory, consisting of finished goods, is carried at the lower of cost and net realizable value. Cost is
determined using weighted average costs. Cost of inventories includes the cost of merchandise and all costs
incurred to deliver inventory to the Company’s distribution centres including freight and duty.
The Company periodically reviews its inventories and makes provisions as necessary to appropriately value
obsolete or damaged goods. In addition, as part of inventory valuations, the Company accrues for inventory
shrinkage for lost or stolen items based on historical trends.
Property and equipment
Property and equipment are measured at cost less accumulated depreciation and accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset, including any
costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software
that is integral to the functionality of the related equipment is capitalized as part of that equipment.
The Company capitalizes borrowing costs incurred as part of the financing of the acquisition and construction of
property and equipment. Maintenance and repairs are expensed as incurred. Cost and related accumulated
depreciation for property and equipment are removed from the accounts upon their sale or disposition and the
resulting gain or loss is reflected in the results of operations.
60 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Depreciation is recognized in net income on a straight-line basis over the estimated useful lives of each
component of an item of property and equipment, commencing when the assets are ready for use, as follows:
Computer hardware and software
Furniture and equipment
Leasehold improvements
3 - 10 years
3 - 10 years
shorter of lease term and
estimated useful life
Estimates of useful lives, residual values and methods of depreciation are reviewed annually. Any changes are
accounted for prospectively as a change in accounting estimate. Depreciation expense is recorded in the
consolidated statements of operations in cost of goods sold and selling, general and administrative expenses.
Intangible assets
Intangible assets are recorded at cost and include trade names, trademarks, non-competition agreements,
retail leases and internally developed computer software.
Costs to purchase any trademarks from third parties are capitalized and amortized over the useful lives of the
assets. Cost includes all expenditures that are directly attributable to the acquisition or development of the
asset.
The Company capitalizes, in intangible assets, direct costs incurred during the application and infrastructure
development stages of developing computer software for internal use. All costs incurred during the preliminary
project stage, including project scoping, identification and testing of alternatives, are expensed as incurred.
The Aritzia trade name has been determined to have an indefinite life and is not amortized. The remaining
intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
Other trade names and trademarks
Computer software
term of registration or up to a
maximum of 20 years
3 - 7 years
Estimates of useful lives, residual values and methods of amortization are reviewed annually. Any changes are
accounted for prospectively as a change in accounting estimate. Amortization expense is recorded in the
consolidated statements of operations in selling, general and administrative expenses.
Goodwill
Goodwill represents non-identifiable intangible assets acquired on business combinations.
Fiscal 2021 Annual Report | 61
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested
annually for impairment, or more frequently if events or changes in circumstances indicate that they might be
impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of assets (cash-generating unit or “CGU”). Non-
financial assets, other than goodwill, that suffered an impairment are reviewed for possible reversal of the
impairment at the end of each reporting period.
Leases
The Company assesses whether a contract is or contains a lease at the inception of the contract. Leases are
recognized as a right-of-use asset and corresponding lease liability at the lease commencement date. The
lease liability is measured at the present value of the future fixed and in-substance fixed payments and variable
lease payments that depend on an index or rate over the lease term, less any lease incentives receivable,
discounted using the lessee’s incremental borrowing rate, unless the implicit interest rate in the lease can be
easily determined. Lease liabilities are subsequently measured at amortized cost using the effective interest
rate method.
Lease terms applied are the contractual non-cancellable periods of the lease, plus periods covered by renewal
or termination options, if the Company is reasonably certain to exercise those options. Lease liabilities are
remeasured (with a corresponding adjustment to the right-of-use asset) when there is a change in the lease
term, a change in the future lease payments resulting from a change in an index or rate used to determined
those payments, or when the lease contract is modified and the lease modification is not accounted for as a
separate lease.
The right-of-use assets include the initial measurement of the corresponding lease liabilities, lease payments at
or before the commencement date, any initial direct costs, less any lease incentives received before the
commencement date. The right-of-use assets are subsequently measured at cost and are depreciated on a
straight-line basis from the date the underlying asset is available for use over the lease term.
Lease payments for assets that are exempt through the short-term exemption and variable lease payments that
do not depend on an index or rate are not included in the measurement of the lease liabilities and are
recognized in cost of goods sold and selling, general and administrative expenses as incurred. Lease
incentives received for variable payment leases are deferred and amortized as a reduction in recognized
variable rent expenses over the related lease terms.
62 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a
past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is
material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks
specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is
recognized as a finance cost.
An asset retirement obligation is a legal obligation associated with the retirement of tangible long-lived assets
that the Company may be required to settle. The Company’s asset retirement obligations are primarily
associated with leasehold improvements that the Company is contractually obligated to remove at the end of a
lease. At inception of a lease with such conditions, the Company recognizes the best estimate of the fair value
of the liability, with a corresponding increase in the carrying value of the related asset. The liability, recorded in
other non-current liabilities, is estimated based on a number of assumptions requiring management’s judgment,
including store closing costs, cost inflation rates and discount rates, and is accreted to its projected future value
over time. The capitalized asset is depreciated over its useful life. Upon satisfaction of the asset retirement
obligation conditions, differences between the recorded asset retirement obligation liability and the actual
retirement costs incurred are recognized as a gain or loss in the consolidated statements of operations.
Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual
provision of the financial instrument. Financial assets are derecognized when the contractual rights to receive
cash flows from the financial asset expire and financial liabilities are derecognized when obligations under the
contract expire, are discharged or cancelled. The Company’s financial assets, which includes cash and cash
equivalents and accounts receivable, are classified as amortized cost. The Company’s financial liabilities, which
includes accounts payable and accrued liabilities and long term debt, are classified as amortized cost. The
Company’s foreign currency forward contracts and equity derivative contracts, if any, are classified as fair value
through profit or loss (“FVTPL”).
Financial assets are initially measured at fair value and subsequently measured at amortized cost using the
effective interest method if both of the following conditions are met and they are not designated as FVTPL:
(i)
the financial asset is held within a business model whose objective is to hold financial assets to collect
contractual cash flows; and
(ii)
the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely
payments of principal and interest on the principal amount outstanding. All financial assets not
classified as amortized cost as described above are measured at FVTPL.
Financial liabilities are initially measured at fair value, less any directly attributable transaction costs, and
subsequently measured at amortized cost using the effective interest method.
Fiscal 2021 Annual Report | 63
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Changes of the fair value of financial instruments classified as FVTPL are recorded in profit or loss in the period
in which they arise. Gains and losses on financial instruments classified at amortized cost are recognized in
profit or loss when the financial instruments are derecognized, modified or impaired.
Financial assets and financial liabilities are measured at fair value using a valuation hierarchy for disclosure of
fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or
liability depends on the inputs used in the valuation as of the measurement date, notably the extent to which
the inputs are market-based (observable) or internally derived (unobservable). Observable inputs are inputs
that market participants would use in pricing the asset or liability based on market data obtained from
independent sources. Unobservable inputs are inputs based on a company’s own assumptions about market
participant assumptions using the best information available. The hierarchy is broken down into three levels
based on the reliability of inputs as follows:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that a company
has the ability to access at the measurement date.
Level 2 - Valuations based on quoted inputs other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly through corroboration with observable market
data.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements
of financial position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
Share capital
Multiple voting shares and subordinate voting shares are classified as shareholders’ equity. Incremental costs
directly attributable to the issuance of shares are shown in equity as a deduction, net of tax, from the proceeds
of the issuance. When share capital recognized as equity is re-purchased for cancellation, the amount of
consideration paid, which includes directly attributable costs, net of tax, is recognized as a deduction from
equity. The excess of the purchase price over the carrying amount of the shares is charged to retained
earnings.
Revenue recognition
The Company recognizes revenue when control of the goods or services has been transferred to the customer.
Revenue is measured at the fair value of the amount of consideration to which the Company expects to be
entitled to, including variable consideration, if any, to the extent that it is highly probable that a significant
reversal will not occur.
64 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Net revenue reflects the Company’s sale of merchandise, less returns and discounts. Retail revenue at point-
of-sale is measured at the fair value of the consideration received at the time the sale is made to the customer,
net of discounts and estimated allowance for returns. For merchandise that is ordered and paid for in a
boutique and subsequently picked up by or delivered to the customer, revenue is deferred until control of the
merchandise has been transferred to the customer. eCommerce revenue is recognized at the date of estimated
delivery to the customer, and measured at the fair value of the consideration received, net of discounts and an
estimated allowance for returns. Shipping fees charged to customers are recorded as revenue.
Revenues are reported net of sales taxes collected for various governmental agencies.
Receipts from the sale of gift cards are treated as deferred revenue. When gift cards are redeemed for
merchandise, the Company recognizes the related revenue. The Company estimates gift card breakage, to the
extent there is no requirement for remitting card balances to government agencies under unclaimed property
laws, and recognizes revenue in proportion to actual gift card redemptions as a component of net revenue.
Cost of goods sold
Cost of goods sold includes inventory and product-related costs and occupancy costs, as well as depreciation
expense for the Company’s stores and distribution centres.
Selling, general and administrative
Selling, general and administrative expenses consist of selling expenses that are generally variable with
revenues and general and administrative operating expenses that are primarily fixed. Selling, general and
administrative expenses also include depreciation and amortization expense for all support office assets and
intangible assets.
Employee benefits
Short-term employee benefit obligations, which include wages, salaries, compensated absences and bonuses,
are expensed as the related service is provided.
Termination benefits are recognized as an expense when the Company has demonstrated commitment,
without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal
retirement date.
Government grants
The Company recognizes government grants when there is reasonable assurance that the Company has met
the requirements of the grant program, and that the grant will be received. The Company recognizes
government grants as a reduction to the related expense that the grant is intended to offset.
Fiscal 2021 Annual Report | 65
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Income tax expense
Current and deferred income taxes are recognized in the Company’s net income, except to the extent that they
relate to a business combination or items recognized directly in equity or other comprehensive income.
Current taxes are recognized for the estimated taxes payable or receivable on taxable income or loss for the
current year and any adjustment to income taxes payable in respect of previous years. Current income taxes
are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end
date.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from
its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary
differences arising on the initial recognition of an asset or liability in a transaction that is not a business
combination, and at the time of the transaction affects neither accounting nor taxable income or loss. In
addition, deferred tax liabilities are not recognized for taxable temporary differences arising on investments in
subsidiaries, associates and joint ventures where the reversal of the temporary difference can be controlled and
it is probable that the difference will not reverse in the foreseeable future. The amount of deferred tax provided
is based on the expected manner of realization or settlement of the carrying amount of the asset and liability,
using tax rates enacted or substantively enacted at the year-end date.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized. The
carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income
tax levied by the same taxation authority on either the taxable entity or different taxable entities where there is
an intention to settle the balances on a net basis.
66 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Stock-based compensation expense
Stock Option Plans
Prior to the Company’s initial public offering (the “IPO”) the Company had a legacy equity incentive plan (the
“Legacy Plan”) pursuant to which it has granted time-based and performance-based stock options to directors,
employees, consultants and advisors.
Concurrent with the IPO, the Company implemented a new stock option plan (the “Option Plan”), pursuant to
which it can grant time-based stock options to acquire subordinate voting shares to directors, executive officers,
employees and consultants.
For awards with service conditions that are subject to graded vesting, compensation cost is recognized on a
straight-line basis over the requisite service period for each separately vesting portion of the award as if the
award was, in substance, multiple awards. In addition, the total amount of compensation expense to be
recognized is based on the number of awards expected to vest and is adjusted to reflect those awards that do
ultimately vest.
Deferred Share Units and Restricted Share Units
The Company has a Director Deferred Share Unit (“DSU”) Program for non employee board members and a
Restricted Share Unit (“RSU”) Program for employees and consultants. DSUs and RSUs are grants of notional
subordinate voting shares that are redeemable for cash based on the market value of the Company’s shares
and are non-dilutive to shareholders. The cost of the service received as consideration is initially measured
based on the market value of the Company’s shares at the date of grant. The grant-date fair value is
recognized as stock-based compensation expense with a corresponding increase recorded in other liabilities.
DSUs and RSUs are remeasured at each reporting date based on the market value of the Company’s shares
with changes in fair value recognized as stock-based compensation expense for the proportion of the service
that has been rendered at that date.
Net income per share
Basic net income per share is calculated by dividing the net income for the fiscal year attributable to
shareholders of the Company by the weighted average number of multiple voting shares and subordinate
voting shares outstanding during the year.
Diluted net income per share is calculated by dividing the net income for the fiscal year attributable to
shareholders of the Company by the weighted average number of multiple voting shares and subordinate
voting shares outstanding during the year, plus the weighted average number of subordinate voting shares that
would be issued on exercise of dilutive options granted, as calculated under the treasury stock method.
Fiscal 2021 Annual Report | 67
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
3 Significant new accounting standards
Standards early adopted
COVID-19-Related Rent Concessions (Amendments to IFRS 16)
In May 2020, IASB published COVID-19-Related Rent Concessions, which amends IFRS 16, Leases, to
provide lessees with a practical expedient that relieves lessees from assessing whether a COVID-19-related
rent concession is a lease modification. The amendment became effective for annual reporting periods
beginning on or after June 1, 2020. Earlier application was permitted. The Company adopted the amendment
effective for the annual period ended February 28, 2021 and has elected to apply the provided practical
expedient. The Company accounts for any change in lease payments resulting from a COVID-19-related rent
concessions the same way it would account for the change if the change were not a lease modification.
Standards issued but not yet adopted
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, IASB issued Classification of Liabilities as Current or Non-Current, which amends IAS 1 –
Presentation of Financial Statements. The narrow scope amendments affect only the presentation of liabilities
in the statement of financial position and not the amount or timing of its recognition. It clarifies that the
classification of liabilities as current or non-current is based on rights that are in existence at the end of the
reporting period and specifies that classification is unaffected by expectations about whether an entity will
exercise its right to defer settlement of a liability. It also introduces a definition of ‘settlement’ to make clear that
settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The
amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier
application is permitted. The Company does not plan to early adopt the amendments to IAS 1. The
implementation of this amendment is not expected to have a significant impact on the Company.
4 Critical accounting estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions are continuously evaluated
and are based on management’s best judgments and experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates
are recognized in the period in which the estimates are revised and in any future periods affected. Actual
results may differ from these estimates.
Significant judgments and estimates made by management in the process of applying accounting policies and
that have the most significant effect on the amounts recognized in the consolidated financial statements include
the following:
Gift card breakage, which requires the use of judgment involving the estimation of the Company’s average
gift card breakage rate, based on historical redemption rates. The resulting revenue from breakage is
recognized in proportion to actual gift card redemptions.
68 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Return allowances, which require judgement involving the estimation of the return rate of merchandise
based on historical patterns of returns.
The provision recorded to remeasure inventories based on the lower of cost and net realizable value
(note 5), which is a critical estimate.
Property and equipment and right-of-use asset impairment testing, which is influenced by judgment in
defining a CGU and determining the indicators of impairment, and estimates used to measure impairment
losses, if any (note 6). These estimates include future cash flow projections, growth rates and discount
rates.
Goodwill and indefinite life intangible asset impairment testing, which requires management to make
critical estimates in the impairment testing model. On an annual basis, the Company tests whether
goodwill and indefinite life intangible assets are impaired. The recoverable value is determined using
discounted future cash flow models, which incorporate assumptions regarding future events, specifically
future cash flows, growth rates and discount rates (note 7).
Incremental borrowing rate used for calculating lease liabilities and right-of-use-assets. The Company
determines the incremental borrowing rate of each leased asset as the rate of interest that the Company
would have to pay to borrow, over a similar term with a similar security, the funds necessary to obtain an
asset of similar value to the right-of-use asset in a similar economic environment (note 8).
Lease terms, which requires judgement on whether the Company is reasonably certain, at the lease
commencement date, it will exercise available renewal or termination options, and thus include such
options in the lease terms (note 8). The Company considers all facts and circumstances that create an
economic incentive to exercise a renewal or termination option.
Stock-based compensation expense, which requires the use of judgment in determining the most
appropriate inputs, including estimates and assumptions with respect to expected life, risk-free interest
rate, volatility and forfeiture rate (note 14).
Income taxes, which requires judgment to determine when tax losses, credits and provisions are
recognized based on tax rules in various jurisdictions (note 18).
5
Inventory
Finished goods
Finished goods in transit
February 28,
2021
March 1,
2020
$
$
122,933
48,888
$
171,821
$
84,601
9,433
94,034
The Company records a reserve to value inventory to its estimated net realizable value. This resulted in an
expense in cost of goods sold of $4.8 million for the year ended February 28, 2021 (March 1, 2020 - $2.1
million). No inventory write-downs recorded in previous periods were reversed.
All of the Company’s inventory is pledged as security for the Credit Facilities (note 11).
Fiscal 2021 Annual Report | 69
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
6 Property and equipment
Leasehold
improvements
Furniture
and
equipment
Computer
hardware
Computer
software
Construction-
in-
progress
Total
Cost
Balance, March 3, 2019
Additions
Transfers from construction-in-
progress
Dispositions
Foreign exchange
Balance, March 1, 2020
Additions
Transfers from construction-in-
$
progress
Transfer to intangibles
Dispositions
Foreign exchange
207,311
26,723
2,771
(4,696)
990
49,865
6,446
1,308
(1,249)
193
15,447
2,543
332
(319)
36
7,014
338
6
(409)
5
8,281
11,707
287,918
47,757
(4,417)
-
84
-
(6,673)
1,308
233,099 $
24,034
56,563 $
7,851
18,039 $
2,510
6,954 $
225
15,655 $
10,888
330,310
45,508
11,758
-
(10,185)
(5,630)
1,333
-
(4,143)
(1,094)
602
-
(2,595)
(188)
905
(889)
(382)
(17)
(14,598)
-
-
(380)
-
(889)
(17,305)
(7,309)
Balance, February 28, 2021
$
253,076 $
60,510 $
18,368 $
6,796 $
11,565 $
350,315
Accumulated depreciation
Balance, March 3, 2019
Depreciation
Dispositions
Foreign exchange
Balance, March 1, 2020
Depreciation
Dispositions
Foreign exchange
$
82,916 $
21,462
(4,652)
419
100,145 $
23,919
(10,185)
(2,420)
22,878 $
6,055
(1,246)
124
27,811 $
7,584
(4,143)
(583)
9,670 $
3,055
(319)
29
12,435 $
3,225
(2,595)
(139)
4,861 $
826
(409)
4
5,282 $
811
(382)
(18)
- $
-
-
-
- $
-
-
-
120,325
31,398
(6,626)
576
145,673
35,539
(17,305)
(3,160)
Balance, February 28, 2021
$
111,459 $
30,669 $
12,926 $
5,693 $
- $
160,747
Net carrying value
Balance, February 28, 2021
Balance, March 1, 2020
$
$
141,617 $
132,954 $
29,841 $
28,752 $
5,442 $
5,604 $
1,103 $
1,672 $
11,565 $
15,655 $
189,568
184,637
Construction-in-progress includes store build costs for stores not yet opened.
During the year ended February 28, 2021, interest of $87 was capitalized to assets under construction (March
1, 2020 - $165). These interest costs relating to qualifying assets were capitalized at a weighted average rate of
2.53% (March 1, 2020 – 3.49%).
70 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
7 Goodwill and intangible assets
Indefinite life
trade name
Definite life
trade name Trademarks
Computer
software
Other
intangible
assets
Construction-
in-
progress
Total
intangible
assets
Cost
Balance, March 3, 2019
Additions
Transfers from construction-
in-progress
Dispositions
46,092
-
17,175
-
1,919
90
30,714
304
-
-
-
-
-
-
1,198
(7)
3,519
-
-
(3,519)
Balance, March 1, 2020
Additions
Transfers from construction-
in-progress
Transfers from property,
plant
and equipment
Dispositions
$
46,092 $
-
17,175 $
-
2,009 $
-
32,209 $
625
-
-
-
-
-
-
-
-
-
2,070
889
(471)
Balance, February 28, 2021 $
46,092 $
17,175 $
2,009 $
35,322 $
Accumulated amortization
Balance, March 3, 2019
Amortization
Dispositions
Balance, March 1, 2020
Amortization
Dispositions
$
Balance, February 28, 2021 $
Net carrying value
Balance, February 28, 2021 $
$
Balance, March 1, 2020
-
-
-
- $
-
-
- $
10,897
656
-
11,553 $
656
-
1,709
-
-
1,709 $
23
-
20,065
2,368
(7)
22,426 $
2,653
(471)
12,209 $
1,732 $
24,608 $
46,092 $
46,092 $
4,966 $
5,622 $
277 $
300 $
10,714 $
9,783 $
-
-
-
-
-
-
3,519
-
(3,519)
-
-
-
-
-
-
$
$
$
$
$
$
1,198
2,070
(1,198)
-
2,070
-
(2,070)
-
-
-
-
-
-
-
-
-
-
-
2,070
100,617
2,464
-
(3,526)
$
99,555
625
-
889
(471)
$
100,598
36,190
3,024
(3,526)
35,688
3,332
(471)
38,549
62,049
63,867
$
$
$
$
Construction-in-progress includes internally generated computer software not put into use.
Until December 19, 2005, the operations of the Company were owned by a private, closely held Canadian
company. On December 19, 2005, Berkshire purchased the majority of the operations through a newly created
company, Aritzia Capital Corporation (renamed to Aritzia Inc.). The acquisition transaction was treated as a
business combination and the identified assets and liabilities that were acquired were measured at their
acquisition date fair values, including goodwill and the indefinite life trade name. During the years ended
February 28, 2021 and March 1, 2020, there were no additions to goodwill.
Goodwill and the indefinite life trade name are monitored and allocated to the group of CGUs at a country level,
based on the expected future benefits to be derived. The Company allocates goodwill to its Canadian
operations only, while the Company allocates the indefinite life trade name to both Canadian and U.S.
operations.
In assessing goodwill and the indefinite life trade name for impairment, the Company compared the aggregate
recoverable amount of the assets included in each of the CGUs to their respective carrying amounts. The
Fiscal 2021 Annual Report | 71
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
recoverable amounts have been determined based on the higher of the value in use and fair value less costs of
disposal.
The temporary boutique closures as a result of COVID-19 and the associated reduction of revenue during the
13-week period ended May 31, 2020 was considered to be an indicator of impairment. The Company
performed a recoverability assessment in the first quarter of fiscal 2021 for its property and equipment, definite
and indefinite life intangible assets, goodwill and right-of-use assets and determined that there was no
impairment. The Company also performed its annual impairment test of goodwill and the indefinite life trade
name on the first day of the fourth quarter in fiscal 2021 and fiscal 2020.
The recoverable amount of goodwill and the indefinite life trade name was based on value in use, calculated
using discounted cash flows over five years with a terminal value generated from continuing use of the CGUs.
Cash flows were projected based on actual operating results, annual growth assumptions of 2.00% to account
for what management believes approximates inflationary increases, and terminal growth assumption of 2.00%.
A pre-tax discount rate of 9.58% was used in the model. A decrease in the growth assumptions by 1.00%
would not cause the carrying amount to exceed the estimated recoverable amount. A decrease of the pre-tax
discount rate by 1.00% would not cause the carrying amount to exceed the estimated recoverable amount.
As at February 28, 2021 and March 1, 2020, management has determined that there was no impairment of
goodwill or the indefinite life trade name.
8 Leases
The Company has the right to use real estate properties for its boutiques, distribution centers and support
offices under non-cancellable lease agreements, together with periods covered by an option to extend or
terminate, if the Company is reasonably certain it will exercise those options.
72 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
The following table reconciles the change in right-of-use assets for the year ended February 28, 2021:
Cost
Balance, March 1, 2020
Additions, net of lease incentives received
Modifications
Foreign exchange
Balance, February 28, 2021
Accumulated depreciation
Balance, March 1, 2020
Depreciation
Modifications
Foreign exchange
Balance, February 28, 2021
Net carrying value
Balance, March 1, 2020
Balance, February 28, 2021
$
$
$
$
$
$
The following table reconciles the change in lease liabilities for the year ended February 28, 2021:
Balance, March 1, 2020
Additions
Interest expense on lease liabilities (note 17)
Repayment of interest and principal on lease liabilities
Rent concessions applicable to lease liabilities
Modifications
Foreign exchange
Balance, February 28, 2021
Current portion of lease liabilities
Lease liabilities
Right-of-use
assets
439,870
67,171
(7,464)
(15,565)
484,012
59,510
66,278
(1,408)
(3,785)
120,595
380,360
363,417
Lease
liabilities
510,527
73,311
23,671
(74,331)
(13,903)
(6,607)
(17,836)
$
$
494,832
71,452
423,380
$
494,832
During the year ended February 28, 2021, the Company expensed $2.9 million of variable lease payments, which
are not included in the lease liabilities (March 1, 2020 - $5.2 million).
Fiscal 2021 Annual Report | 73
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
During the year ended February 28, 2021, the Company expensed $1.0 million of lease payments relating to short-
term leases for which the recognition exemption was applied and these payments were not included in the lease
liabilities (March 1, 2020 – 1.3 million).
The future undiscounted minimum lease payments for the Company’s leases for its premises, excluding other
occupancy charges and variable lease payments, are as follows:
Less than 1 year
Between 1 and 5 years
More than 5 years
$
95,367
335,436
148,494
$
579,297
As at February 28, 2021, the Company had future undiscounted minimum lease payments of $53.5 million for
leases committed to but not yet commenced.
9 Accounts payable and accrued liabilities
Trade accounts payable
Other non-trade payables
Employee benefits payable
Current portion of Restricted Share Unit Program liability (note 14)
$
$
96,540
11,521
23,040
792
$
131,893
$
36,084
6,856
14,775
-
57,715
February 28,
2021
March 1,
2020
10 Other non-current liabilities
February 28,
2021
March 1,
2020
Deferred lease inducements
Director Deferred Share Unit Program and Restricted Share Unit
$
6,920
$
Program liability (note 14)
Deferred payroll taxes
Asset retirement obligations
6,930
852
357
$
15,059
$
6,029
3,061
-
361
9,451
74 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
11 Bank indebtedness and long-term debt
The Company has a term loan and revolving credit facility (collectively the “Credit Facilities”) with its syndicate
of lenders.
a) Long-term debt
Term loan
Less: Deferred financing fees
Long-term debt
February 28,
2021
$
$
75,000
(145)
$
74,855
$
March 1,
2020
75,000
(260)
74,740
The term loan matures on May 22, 2022 and has no scheduled principal payments prior to maturity.
Interest is paid on a monthly basis. Under the Credit Facilities, the Company has the option to borrow using
Banker’s Acceptance borrowings (“BA”), LIBO rate borrowings (“LIBO”), or Canadian prime rate borrowings
(“Prime”) plus a marginal interest rate between 0.50% and 2.50% (March 1, 2020 – 0.50% and 2.50%).
During the year ended February 28, 2021 the Company incurred $3.2 million of interest (March 1, 2020 -
$2.9 million), at a weighted average rate of 2.53% (March 1, 2020 – 3.49%). As at February 28, 2021, the
interest rate on the loan was 2.20% (March 1, 2020 – 3.43%), based on a one-month BA rate.
The term loan requires mandatory loan prepayments by the Company of principal and interest if certain
events occur. As at February 28, 2021 and March 1, 2020, the Company was not required to make a
mandatory loan prepayment.
The Company defers third party costs and creditor fees directly associated with acquiring long-term debt.
These deferred costs are classified against long-term debt and bank indebtedness and are amortized as
finance expense over the expected life of the related indebtedness using the effective interest rate
method.
b) Bank indebtedness
The Company has a revolving credit facility of $100.0 million (March 1, 2020 - $100.0 million). The
revolving credit facility bears interest at BA, LIBO or Prime plus a marginal rate between 0.50% and 2.50%
(March 1, 2020 – 0.50% and 2.50%). Up to $10.0 million of the facility can be drawn upon by way of a
swingline loan. During the year ended February 28, 2021, $100.0 million of the revolving credit facility was
drawn and subsequently repaid (March 1, 2020 - $25.0 million drawn and subsequently repaid). As of
February 28, 2021 and March 1, 2020, no advances were made under this revolving credit facility.
The Company also has letters of credit facilities of $75.0 million, secured pari passu with the Credit
Facilities. The interest rate for the letters of credit is between 1.00% and 2.50%. The amount available
under these facilities is reduced to $33.7 million (March 1, 2020 - $46.5 million) by certain open letters of
credit (note 20(b)).
Fiscal 2021 Annual Report | 75
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
The Credit Facilities are collateralized by a first priority lien on all property and equipment, leased real property
interests and inventory. In addition, the Company is to maintain certain financial covenants. As at February 28,
2021 and March 1, 2020, the Company was in compliance with all financial covenants.
12 Financial instruments
Accounting classification and fair values
The classification of financial instruments and their carrying amounts are as follows:
Financial assets
Cash and cash equivalents
Accounts receivable
Equity derivative contracts
Financial liabilities
Accounts payable and accrued liabilities
Long-term debt (net of deferred financing fees)
February 28,
2021
March 1,
2020
$
$
149,147 $
6,202
4,369
117,750
6,555
650
131,893 $
74,855
57,715
74,740
The carrying value of cash and cash equivalents, accounts receivable and accounts payable and accrued
liabilities approximates their fair value due to the immediate or short-term maturity of these financial
instruments. The fair value of the lease obligations is approximately equal to their carrying value. For the other
financial liabilities, the fair value is as follows:
Long-term debt (Level 2)
Equity derivative contracts (Level 2)
Derivative financial instruments
February 28,
2021
March 1,
2020
$
75,000 $
4,369
75,000
650
The Company has equity derivative contracts to hedge the share price exposure on its cash-settled DSUs and
RSUs. These contracts are not designated as hedging instruments for accounting purposes. During the year
ended February 28, 2021, the Company recorded an unrealized gain of $3.7 million for the change in fair value
for these contracts in the consolidated statements of operations in other income (March 1, 2020 - $0.7 million).
As at February 28, 2021, the equity derivative contracts had a positive fair value of $4.4 million (March 1, 2020
– $0.7 million) which is recorded in prepaid expenses and other current assets in the consolidated statements
of financial position.
76 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
13 Share capital
On March 5, 2019, in connection with the March 2019 Secondary Offering and Share Repurchase, certain
selling shareholders exchanged 14,996,824 of their multiple voting shares for subordinate voting shares (note
1).
On July 11, 2019, the Company announced the commencement of a normal course issuer bid (the “NCIB”) to
repurchase and cancel up to 3,624,915 of its subordinate voting shares, representing approximately 5% of the
public float, over the 12-month period commencing July 16, 2019 and ended July 15, 2020. All repurchases are
made through the facilities of the Toronto Stock Exchange and are done at market prices. The amounts paid
above the average book value of the subordinate voting shares are charged to retained earnings.
On August 30, 2019, the Company entered into an automated share purchase plan (the “ASPP”) with a
designated broker for the purpose of permitting the Company to purchase its subordinate voting shares under
the NCIB during self-imposed blackout periods. The volume of purchases is determined by the broker in its sole
discretion based on purchase price and maximum volume parameters established by the Company under the
ASPP. All purchases made under the ASPP will be included in computing the number of subordinate voting
shares purchased under the NCIB. The Company records a liability for purchases that are estimated to occur
during blackout periods based on the parameters of the NCIB and ASPP.
On March 17, 2020, the Company amended the ASPP under the NCIB such that the then authorized trading
window ended March 17, 2020. On May 28, 2020, the Company further amended its ASPP such that no
additional trading windows will be authorized, which effectively terminated any further purchases under the
ASPP.
Between March 2, 2020 and March 17, 2020, the Company repurchased 38,664 subordinate voting shares for
cancellation at an average price of $13.51 per subordinate voting share, for total cash consideration of $0.5
million, under the terms of the ASPP.
As at February 28, 2021, there were 24,537,349 multiple voting shares and 85,416,470 subordinate voting
shares issued and outstanding. There were no preferred shares issued and outstanding as at February 28,
2021. Neither the multiple voting shares nor the subordinate voting shares issued have a par value.
Fiscal 2021 Annual Report | 77
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
14 Stock options
The Company has granted stock options under the Legacy Plan and the Option Plan.
Legacy Plan
Following completion of the IPO, no additional options will be granted under the Legacy Plan. The options vest
annually pro rata on the anniversary of the grant date over a period of five years. All issued options expire after
10 to 15 years from the date granted.
Transactions for stock options granted under the Legacy Plan for the years ended on February 28, 2021 and
March 1, 2020 were as follows:
February 28, 2021
March 1, 2020
Number
of
stock
options
Weighted
average
exercise
price
Number
of
stock
options
Weighted
average
exercise
price
Outstanding, at beginning of year
3,624,983
$
4.85 5,081,717
$
4.64
Exercised
Forfeited
(565,659)
-
3.37
-
(1,325,988)
(130,746)
3.79
7.09
Outstanding, at end of year
3,059,324
$
5.13 3,624,983
$
4.85
Exercisable, at end of year
2,988,322
$
5.08 3,251,195
$
4.67
Information relating to stock options outstanding under the Legacy Plan and exercisable as at February 28,
2021 is as follows:
Exercise prices
per share
$0.01 to $4.72
$4.73 to $5.59
$5.60 to $7.09
Stock options outstanding
Stock options exercisable
Weighted
average
remaining
contractual
life
(in years)
2.18
1.43
4.92
2.88
Number of
stock
options
871,985
1,107,838
1,079,501
3,059,324
Weighted
average
exercise
price
$3.59
$5.01
$6.50
$5.13
Number of
stock
options
871,985
1,107,838
1,008,499
2,988,322
Weighted
average
remaining
contractual
life
(in years)
2.18
1.43
4.90
2.82
Weighted
average
exercise
price
$3.59
$5.01
$6.45
$5.08
Stock-based compensation expense in relation to the options under the Legacy Plan for the year ended
February 28, 2021 was $0.5 million (March 1, 2020 – $1.1 million).
78 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Option Plan
The options vest annually pro rata on the anniversary of the grant date over a period of five years. All issued
options expire after seven years from the date granted.
Transactions for stock options granted under the Option Plan for the years ended February 28, 2021 and March
1, 2020 were as follows:
February 28, 2021
March 1, 2020
Number
of
stock
options
Weighted
average
exercise
price
Number
of
stock
options
Weighted
average
exercise
price
Outstanding, at beginning of year
4,158,524
$
15.22 4,767,727
$
14.81
Granted
Exercised
Forfeited
1,272,766
(78,263)
(144,749)
18.82
14.73
14.87
385,408
(447,375)
(547,236)
18.44
14.75
14.28
Outstanding, at end of year
5,208,278
$
16.12 4,158,524
$
15.22
Exercisable, at end of year
2,363,805
$
15.13 1,629,235
$
15.06
Information relating to stock options outstanding under the Option Plan and exercisable as at February 28,
2021 is as follows:
Exercise prices per
share
$12.99 to $14.12
$14.13 to $16.81
$16.82 to $26.38
Stock options outstanding
Stock options exercisable
Weighted
average
remaining
contractual
life
(in years)
3.69
2.87
6.12
4.20
Number of
stock
options
1,621,389
1,870,827
1,716,062
5,208,278
Weighted
average
exercise
price
$13.74
$15.83
$18.68
Number of
stock
options
954,051
1,305,654
104,100
$16.12
2,363,805
Weighted
average
remaining
contractual
life
(in years)
3.70
2.85
5.23
3.29
Weighted
average
exercise
price
$13.76
$15.90
$18.13
$15.13
Fiscal 2021 Annual Report | 79
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
The weighted average fair value of the time-based stock options granted during the year ended February 28,
2021 was estimated at the date of grant based on the Black-Scholes option pricing model using the following
assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Exercise price
0.0%
34.7% to 36.1%
0.4% to 0.5%
6.0 to 7.0 years
$18.29 to $26.38
Stock-based compensation expense in relation to the options under the Option Plan for the year ended
February 28, 2021 was $5.5 million (March 1, 2020 - $4.8 million).
Director Deferred Share Unit (“DSU”) Program
Each eligible director receives a portion of his or her annual director retainer in DSUs. DSUs vest when
granted, but are not redeemable for cash settlement until the eligible director ceases to be a member of the
Board. The Company is required to record a liability for the potential future settlement of the DSUs at each
reporting date by reference to the fair value of the liability. The fair value of the recorded liability in relation to
the DSUs was $4.6 million at February 28, 2021 (March 1, 2020 – $2.4 million), with an expense of $2.2 million
for the year ended February 28, 2021 (March 1, 2020 - $1.3 million), recorded as stock-based compensation
expense.
Transactions for DSUs granted for the years ended on February 28, 2021 and March 1, 2020 were as follows:
Outstanding, at beginning of year
Granted
Outstanding, at end of year
Vested, at end of year
February 28,
2021
Number of
DSUs
108,959
44,152
153,111
153,111
March 1,
2020
Number of
DSUs
65,191
43,768
108,959
108,959
80 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Restricted Share Unit (“RSU”) Program
RSUs vest on the third anniversary of the award date and at that time, are redeemable for cash based on the
market value of the Company’s shares. The Company is required to record a liability for the potential future
settlement of the RSUs at each reporting date by reference to the fair value of the liability. The fair value of the
recorded liability in relation to the RSUs was $3.1 million as at February 28, 2021 (March 1, 2020 – $0.7
million), with an expense of $2.5 million for the year ended February 28, 2021 (March 1, 2020 - $0.6 million),
recorded as stock-based compensation expense.
Transactions for RSUs granted for the periods ended on the dates indicated below were as follows:
Outstanding, at beginning of year
Granted
Forfeited
Outstanding, at end of year
Vested, at end of year
February 28,
2021
Number of
RSUs
145,790
208,405
(5,149)
349,046
-
March 1,
2020
Number of
RSUs
38,099
116,364
(8,673)
145,790
-
Fiscal 2021 Annual Report | 81
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
15 Net income per share
a) Basic
Basic net income per share is calculated by dividing the income attributable to shareholders of the Company by
the weighted average number of multiple voting shares and subordinate voting shares outstanding during the
period. As all the classes of shares are subject to the same distribution rights, the Company performs the net
income per share calculations as if all shares are a single class.
Net income attributable to shareholders of the Company
Weighted average number of shares outstanding during
the period (thousands)
February 28,
2021
March 1,
2020
$
19,227 $
90,594
109,487
108,411
Basic net income per share
$
0.18 $
0.84
b) Diluted
Net income per diluted share is calculated by dividing the income attributable to shareholders of the Company
by the weighted average number of multiple voting shares and subordinate voting shares outstanding during
the period adjusted for the effects of potentially dilutive stock options.
Net income attributable to shareholders of the Company
Weighted average number of shares for net income per
diluted share (thousands)
February 28,
2021
March 1,
2020
$
19,227 $
90,594
112,844
112,128
Net income per diluted share
$
0.17 $
0.81
82 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
16 Net Revenue
Net revenue disaggregated for boutiques and online sales was as follows:
Retail net revenue
eCommerce net revenue
17 Expenses by nature
Cost of goods sold
Inventory and product-related costs and occupancy costs (note 1)
Depreciation expense on right-of-use-assets (note 8)
Depreciation expense on property and equipment (note 6)
Personnel expenses
Salaries, wages and employee benefits
Stock-based compensation expense
Government payroll subsidies (note 1)
Finance expense
Interest expense on lease liabilities (note 8)
Interest expense and banking fees
Amortization of deferred financing fees
February 28,
2021
March 1,
2020
$
$
431,394 $
425,929
754,391
226,198
857,323 $
980,589
February 28,
2021
$
450,018 $
64,405
30,395
March 1,
2020
492,403
57,229
27,533
$
544,818 $
577,165
February 28,
2021
$
223,294 $
10,691
(32,603)
March 1,
2020
184,556
7,790
-
$
201,382 $
192,346
February 28,
2021
March 1,
2020
$
23,671 $
4,537
212
23,763
4,344
212
$
28,420 $
28,319
February 28,
2021
March 1,
2020
Other income
Realized foreign exchange gain
Unrealized foreign exchange loss
Unrealized gain on equity derivative contracts (note 12)
Interest and other income
$
(1,399) $
3,149
(3,701)
(1,583)
(964)
593
(650)
(1,164)
$
(3,534) $
(2,185)
Fiscal 2021 Annual Report | 83
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
18
Income taxes
a)
Income tax expense
February 28,
2021
March 1,
2020
Current tax expense
Current period
Adjustments with respect to prior periods
$
8,752 $
(3,978)
Deferred tax expense
Origination and reversal of temporary differences
Adjustments with respect to prior periods
Changes in substantively enacted tax rates
4,774
(776)
2,977
-
2,201
35,254
(875)
34,379
462
879
(176)
1,165
Income tax expense
$
6,975 $
35,544
b) Reconciliation of effective tax rate
The Company’s income tax expense differs from that calculated by applying the combined substantively
enacted Canadian federal and provincial statutory income tax rates for the years ended February 28, 2021
and March 1, 2020 of 26.7% and 26.8%, respectively, as follows:
Income before income taxes
Expected income tax expense
Increase (decrease) in income taxes resulting from
Non-deductible stock-based compensation
Foreign tax rate differences
Changes in substantively enacted tax rates
U.S. CARES Act true-up (note 1)
Other
February 28,
2021
March 1,
2020
$
$
26,202 $
126,138
6,991 $
33,805
1,609
38
-
(1,965)
302
1,561
164
(176)
-
190
Income tax expense
$
6,975 $
35,544
84 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
c) Deferred income tax
The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities as
at February 28, 2021 and March 1, 2020 are as follows:
Deferred tax assets
Capital leases
Accounts payable and accrued liabilities
Deferred revenue
Deferred lease liability
Other
Financing and share issuance costs
Stock-based compensation
Charitable contributions
Total deferred tax assets
Deferred tax liabilities
Property and equipment
Goodwill and intangible assets
Other
Total deferred tax liabilities
Net deferred tax liability
February 28,
2021
March 1,
2020
$
35,772 $
4,079
2,799
2,075
2,045
901
892
385
48,948
(26,627)
(24,478)
(34)
(51,139)
36,360
1,494
1,600
1,810
1,034
1,004
637
204
44,143
(19,393)
(23,664)
(137)
(43,194)
$
(2,191) $
949
The net change in deferred income tax liabilities is recorded as follows:
Deferred tax expense recorded in net income
Deferred tax expense (recovery recorded in retained
earnings)
Deferred tax expense recorded in other comprehensive
income (loss)
February 28.
2021
March 1,
2020
$
2,201 $
1,166
-
939
(14,271)
(240)
$
3,140 $
(13,345)
Of the deferred income tax balances, the Company expects $12.2 million of the deferred tax assets to be
recovered within 12 months and $9.5 million of the deferred tax liabilities to be settled within 12 months.
The Company intends to indefinitely reinvest the undistributed earnings of its foreign subsidiaries;
accordingly, the Company has not recorded a deferred tax liability on these earnings.
Fiscal 2021 Annual Report | 85
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
19
Segment information
The Company defines an operating segment on the same basis that it uses to evaluate performance internally
and to allocate resources by the Chief Operating Decision Maker (the “CODM”). The Company has determined
that the Chief Executive Officer is its CODM and there is one operating segment. Therefore, the Company
reports as a single segment. This includes all sales channels accessed by the Company’s clients, including
sales through the Company’s eCommerce website and sales at the Company’s boutiques.
The following table summarizes net revenue by geographic location of the Company’s clients:
Canada
United States
February 28,
2021
March 1,
2020
$
$
565,591 $
291,732
642,973
337,616
857,323 $
980,589
The Company’s non-current, non-financial assets (property and equipment, intangible assets and goodwill, and
right-of-use assets) are geographically located as follows:
Canada
United States
20 Commitments and contingencies
a) Product purchase obligations
February 28,
2021
March 1,
2020
$
$
458,729 $
307,987
483,112
297,434
766,716 $
780,546
At February 28, 2021, the Company had purchase obligations of $69.8 million (March 1, 2020 - $42.2 million),
which represent commitments for fabric expected to be used during upcoming seasons, made in the normal
course of business.
b) Letters of credit
At February 28, 2021, the Company had open letters of credit of $41.3 million (March 1, 2020 - $28.5 million).
86 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
21 Related party transactions
Upon completion of the March 2019 Secondary Offering and Share Repurchase on March 8, 2019, the
Berkshire Shareholder sold its entire investment in the Company. As a result, effective March 8, 2019, the
Company is ultimately controlled by AHI Holdings Inc. and related entities which are controlled by a director
and officer of the Company.
The Company entered into the following transactions with related parties:
a) During the year ended February 28, 2021, the Company made payments of $4.2 million (March 1, 2020 -
$4.0 million) for lease of premises and management services and $0.7 million (March 1, 2020 – $0.6
million) for the use of an asset wholly or partially owned by companies that are owned by a director and
officer of the Company. As at February 28, 2021, the outstanding balance of lease liabilities owed to these
companies was $11.6 million (March 1, 2020 - $12.6 million). At February 28, 2021, $0.2 million was
included in accounts payable and accrued liabilities (March 1, 2020 - $0.2 million). These transactions were
measured at the amount of consideration established at market terms.
b) Key management includes the Company’s directors and executive team. Compensation awarded to key
management includes:
Salaries, directors’ fees and short-term
benefits
Stock-based compensation expense
February 28,
2021
March 1,
2020
$
$
3,860 $
4,135
7,995 $
3,981
3,111
7,092
Fiscal 2021 Annual Report | 87
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
22 Supplemental cash flow information
Net change in non-cash working capital balances
Accounts receivable
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Accrued purchases of property and equipment
Accrued purchases of intangible assets
23 Financial risk management
February 28,
2021
March 1,
2020
$
(3,183) $
(79,508)
(9,332)
1,265
85,386
9,285
82
18,462
(1,351)
(2,186)
(1,444)
5,062
$
$
3,913 $
18,625
2,940 $
-
6,168
266
The Company is exposed to a variety of financial risks in the normal course of operations including currency,
interest rate, credit and liquidity risk, as summarized below. The Company’s overall risk management program
and business practices seek to minimize any potential adverse effects on the Company’s consolidated financial
performance.
Risk management is carried out under practices approved by the Company’s Audit Committee. This includes
reviewing and making recommendations to the Board on the adequacy of the Company’s risk management
policies and procedures with regard to identifying the Company’s principal risks and implementing appropriate
systems and controls to manage these risks. Risk management covers many areas of risk including, but not
limited to, foreign exchange risk, interest rate risk, credit risk and liquidity risk.
a)
Market risk
Currency risk
The Company is exposed to foreign exchange risk on foreign currency denominated transactions,
monetary assets and liabilities denominated in a foreign currency, and net investments in foreign
operations. The Company sources the majority of its raw materials and merchandise from various
suppliers in Asia and Europe with the vast majority of purchases denominated in U.S. dollars. In addition,
the Company operates boutiques in the United States. The Company’s foreign exchange risk is primarily
with respect to the U.S. dollar and the Company has limited exposure to other currencies. Foreign
currency forward contracts are used from time to time to mitigate risks associated with forecasted U.S.
dollar merchandise purchases sold in Canada.
As at February 28, 2021, a $0.01 variation in the Canadian dollar against the U.S. dollar on net monetary
accounts in U.S. dollars would, with all other variables being constant, have an approximate favourable (or
unfavourable) impact of $0.2 million on net income.
88 |
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
Interest rate risk
The Company is exposed to changes in interest rates on its cash and cash equivalents and debt. Debt
issued at variable rates exposes the Company to cash flow interest rate risk. Debt issued at fixed rates
exposes the Company to fair value interest rate risk. During the year ended February 28, 2021, the
Company had only variable interest rate debt. An increase (or decrease) in interest rate by 1% would
result in an increase (or decrease) of $0.8 million in interest expense on the term loan.
Equity price risk
The Company is exposed to risk arising from the cash settlement of our deferred and restricted share
units, as an appreciating subordinate voting share price increases the potential cash outflow. We record a
liability for the potential future settlement of our deferred and restricted share units by reference to the fair
value of the liability. We use equity derivative contracts to offset our cash flow variability of the expected
payment associated with our deferred and restricted share units. We only enter into equity derivative
contracts with major financial institutions. As at February 28, 2021, an increase (or decrease) in the
Company’s share price by $1.00 would result in an increase (or decrease) of $0.3 million in the fair value
of the liability.
b) Credit risk
Credit risk is the risk of an unexpected loss if a counterparty to a financial instrument fails to meet its
contractual obligations. Financial instruments that potentially subject the Company to credit risk consist of
cash and cash equivalents, accounts receivable, and derivative contracts used to hedge market risks. The
Company offsets credit risks associated with cash and cash equivalents by depositing its cash and cash
equivalents with major financial institutions that have been assigned high credit ratings by internationally
recognized credit rating agencies. The Company is exposed to credit risk on accounts receivable from its
landlords for tenant allowances. To reduce this risk, the Company enters into leases with landlords with
established credit history and, for certain leases, the Company may offset rent payments until accounts
receivable are fully satisfied. The Company only enters into derivative contracts with major financial
institutions.
c) Liquidity risk
Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they
come due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a
reasonable price. The Company manages liquidity risk through various means, including monitoring actual
and projected cash flows, taking into account the seasonality of its revenue, income and working capital
needs. The Company’s revolving credit facility is used to maintain liquidity. As at February 28, 2021 and
March 1, 2020, no advances were made under this revolving credit facility. As at February 28 2021, the
Company also had available credit of $75.0 million under trade finance agreements (March 1, 2020 –
$75.0 million), of which $41.3 million of letters of credit were outstanding (March 1, 2020 – $28.5 million).
Fiscal 2021 Annual Report | 89
Aritzia Inc.
Notes to Consolidated Financial Statements
February 28, 2021 and March 1, 2020
(in thousands of Canadian dollars, unless otherwise noted)
The following table identifies the undiscounted contractual maturities of the Company’s financial liabilities
as at February 28, 2021:
Within one year
After one but
not more than
5 years
After 5 years
Total
Accounts payable and accrued
liabilities
Assumed interest on long-term
debt (1)
Long-term debt
Total
$
$
131,893 $
- $
- $
131,893
1,649
-
379
75,000
-
-
2,028
75,000
133,542 $
75,379 $
- $
208,921
(1) Based on interest rates in effect as at February 28, 2021, and assuming no unscheduled principal payments are
made prior to maturity.
24 Capital management
The Company’s objectives when managing capital are to:
ensure sufficient liquidity to enable the internal financing of capital projects thereby facilitating its growth;
provide a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business; and
maintain a flexible capital structure that optimizes the cost of capital at an acceptable risk and preserves
the ability to meet financial obligations.
The Company defines capital as its Credit Facilities and shareholders’ equity. The Company’s primary uses of
capital are to finance increases in non-cash working capital along with capital expenditures for new boutique
additions, existing boutique expansion and renovation projects, and other infrastructure investments. The
Company currently funds these requirements out of its internally generated cash flows and Credit Facilities.
The Company is subject to financial covenants and collateral pursuant to the Credit Facilities presented in note
11.
90 |
Board of Directors and
Executive Officers
Information for
Shareholders
Board of Directors
Support Office
Aldo Bensadoun
Director, Member of
Compensation and Nominating
Committee
John Currie
Lead Independent Director,
Chair of Audit Committee,
Member of Compensation and
Nominating Committee
611 Alexander St, Suite 118
Vancouver, British Columbia
V6A 1E1, Canada
aritzia.com
+1 604 251 3132
Brian Hill
Founder, Chief Executive Officer
Investor Inquiries
and Chairman
Ryan Holmes
David Labistour
Director
Director, Member of Audit
Committee
John Montalbano
Director, Member of
Audit Committee
Marni Payne
Director, Chair of Compensation
and Nominating Committee
Glen Senk
Marcia Smith
Director
Director, Member of
Compensation and Nominating
Committee
Jennifer Wong
President, Chief Operating
Officer and Corporate Secretary
Executive Officers
Brian Hill
Founder, Chief Executive Officer
and Chairman
Jennifer Wong
Todd Ingledew
Karen Kwan
Dave MacIver
Pippa Morgan
President, Chief Operating
Officer and Corporate Secretary
Chief Financial Officer
Chief People and Culture Officer
Chief Information Officer
Executive Vice President, Retail
Aritzia’s financial reports, regulatory filings and news
releases are available at sedar.com and on our website
at investors.aritzia.com.
Helen Kelly
Vice President, Investor Relations
investor@aritzia.com
+1 604 215 6557
Transfer Agent
TSX Trust
TMXEInvestorServices@tmx.com
+1 416 361 0930
Annual Special and Special Meeting
July 7, 2021
Virtual meeting details as outlined in Aritzia’s
Management Information Circular
Independent Auditors
PricewaterhouseCoopers LLP
Stock Exchange Listing
Aritzia’s subordinate voting shares are traded on the
Toronto Stock Exchange (TSX) under the symbol ATZ
Fiscal 2021 Annual Report | 91