Annual Report 2023
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 2023 Annual Report | 2
From our
Chief Executive Officer
Fiscal 2023 Highlights
Fiscal 2023 marked another exceptional year
for Aritzia, as we continued to break records in
Canada and the United States while building
on our strong momentum and expanding
into key markets. We delivered $2.2 billion in
annual net revenue, with both Canada and
the United States garnering over $1 billion in
sales. Additionally, we are proud to report net
revenue growth of over $700 million, building
on our impressive growth of more than $600
million from the previous year. We achieved
these outstanding results while navigating an
extremely dynamic operating environment
marked by substantial supply chain disruption
and elevated cost pressures. Our world-class
team did a phenomenal job managing these
challenges to maximize sales and meet the
unprecedented demand for our beautiful product
– delivering the Everyday Luxury experience to
more clients than ever before.
SALES CHANNEL HIGHLIGHTS
The exceptional performance across all of our
channels and geographies drove net revenue
growth of 47% in Fiscal 2023 and comparable
sales growth of 28%. We continued to expand
our boutique portfolio, with Retail net revenue
growing to $1.4 billion, an increase of 53% from
last year. eCommerce net revenue grew to
$770 million, increasing 36% from last year and
representing an impressive 50% CAGR over the
past three years.
Fiscal 2023 Annual Report | 3
GEOGRAPHIC EXPANSION
MULTI-YEAR GROWTH PLAN
Our increased investment in the United States
has yielded impressive results, with the opening
of 7 new boutiques in key markets such as
Atlanta, Las Vegas and Miami. In Fiscal 2023, our
United States business once again accelerated
at an unprecedented pace as net revenue grew
to $1.1 billion, a remarkable 66% increase from
last year on top of a 132% increase two years
ago. The United States now generates more than
half of our total net revenue, and we continue to
have a long runway of growth ahead of us.
eCOMMERCE GROWTH
This year we celebrated the 10-year anniversary
of our eCommerce business. We have made
significant progress toward creating a best-in-
class experience for our new and loyal clients,
and we remain committed to improving and
elevating our online platform as we work to
deliver eCommerce 2.0. In Fiscal 2023, we refined
and enhanced our personalization strategies,
inspiring our clients to discover our robust and
diverse product assortment, while tailoring
content to their individual style and preferences
to keep them engaged in our Everyday Luxury
offering.
INCREASED BRAND AWARENESS
Our robust social media and influencer
strategies, coupled with our beautiful product
and real estate expansion strategy, continued
to drive increased awareness of the Aritzia
brand and a record number of new clients. These
market share gains further propelled us toward
our goal of gaining widespread recognition
across the United States, where our active client
base increased more than 50% during the last
fiscal year, on top of an increase of over 100% in
the previous year.
In October 2022, we announced our new multi-
year growth plan, which builds upon our IPO
goals that we exceeded in Fiscal 2022. Our plan
is to achieve $3.5 to $3.8 billion in net revenue
in Fiscal 2027, including more than doubling our
US and eCommerce businesses and growing our
retail channel by more than 50%. We also intend
to grow adjusted EBITDA1,2 as a percentage of
net revenue to approximately 19% by the end
of Fiscal 2027, as we benefit from geographic
and channel mix shifts, scaling opportunities,
improved efficiencies in our business and the
strength of our brand. To reach these targets, we
plan to continue investing in the infrastructure
that will allow us to catch up with our recent,
tremendous growth and capitalize the many
opportunities that lie ahead.
SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
As Aritzia continues to focus on maximizing sales
growth and driving margin expansion, we’re also
working to extend our sustainability programs
and accelerate our progress across the value
chain. In November 2022, we submitted a Letter
of Intent to the Science Based Target initiative
confirming our commitment to set targets for
reducing greenhouse gas emissions within the
next 24 months. We’re excited to join the more
than 4,000 global organizations who are part of
this initiative. This year also marks the first full
year of our Environmental and Social Committee
of the Board providing strategic insight and
guidance to our teams.
1 Certain metrics, including those expressed on an adjusted or comparable basis, are
non-IFRS measures or supplementary financial measures. Please see the sections entitled
“How We Assess the Performance of Our Business”, “Selected Consolidated Financial
Information” and “Non-IFRS Measures and Retail Industry Metrics” of our Management’s
Discussion and Analysis (“MD&A”) for the fiscal year ended February 26, 2023 (“Fiscal 2023
MD&A”), dated May 2, 2023 (as included in this Annual Report and available on SEDAR at
www.sedar.com) for further details.
2 Adjusted EBITDA as a percentage of net revenue for Fiscal 2023 was 16.0%. Net income
as a percentage of net revenue for Fiscal 2023 was 8.5%.
Fiscal 2023 Annual Report | 4
We remain extremely excited about the endless
runway of opportunities in front of us, as we
continue to fuel our momentum by growing
our boutique portfolio, delivering eCommerce
2.0 and acquiring new clients. Our business is
strong – never in our history have we had the
brand momentum, design and manufacturing
capabilities, real estate portfolio, distribution
centre network and, most importantly, the
quality of people that we now have.
We are confident that our growth strategies and
targeted infrastructure investments will continue
to maximize sales and create sustainable long-
term value. To our shareholders – thank you for
your continued support and confidence in our
management team and our plan for the business.
I look forward to sharing additional updates with
you on our business in the future.
Sincerely,
Jennifer Wong
Chief Executive Officer
May 11, 2023
Looking Forward
As we set our sights on the future, the
unprecedented strength and positioning of our
business enables us to fully capitalize on the
many opportunities ahead. Over the past two
years, our primary focus has been to maximize
sales and meet the surging demand for our
product in an extremely dynamic operating
environment — and our team surpassed this goal
with exceptional results, resulting in a new $2.2
billion net revenue baseline from which we plan
to grow.
Going forward, building upon our strong
foundation to support our next phase of growth
is our top priority. We are confident in the
sustainability of our new, elevated baseline from
which we will continue to pursue our growth
strategies. This is why in Fiscal 2024 we are
focused on investing in infrastructure to support
the scale of our current business and to fuel
our future growth – always with a long-term
approach in mind. Our decisions are carefully
considered, and we pride ourselves on best-in-
class execution. Our track record of nearly four
decades of success is proof that this approach
works.
We have key infrastructure projects coming
online later this year, including our new 550,000
square foot distribution centre in Toronto, which
will serve as a fulfilment hub for Eastern Canada
and the Eastern United States, and our expanded
support office space. In addition to these
projects, we have a robust pipeline of new stores
this year and next, including a new flagship
location in Chicago and the repositioning of all
three of our Manhattan flagship locations. We
will also be investing in eCommerce technology
to drive eCommerce 2.0 and in talent across all
areas of the business as we scale our teams to
align with our recent growth.
Fiscal 2023 Annual Report | 5
Fiscal 2023 Annual Report | 6
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 approximately 97% of
Aritzia’s net revenue.
Fiscal 2023 Annual Report | 7
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
omnichannel capabilities to seamlessly provide an
Everyday Luxury experience for our clients to shop
wherever, whenever, and however.
Destinations
68
114
Boutiques1
3
Edmonton
Whistler
2
Victoria
1
13
1 Kelowna
7
Vancouver
Calgary
1
Saskatoon
2
Seattle
1
Portland
1
Winnipeg
1
Halifax
Minneapolis
1
1 Quebec City
Montreal
6
Ottawa
2
29
Toronto
1
Boston
Chicago
4
Troy
1
King of Prussia
3
1
Suburban New York
5
Manhattan
New Jersey
3
1 Denver
Columbus
1
1 Washington DC
1
Tysons
46
2
San Francisco
1 Palo Alto
1
San Jose
5
1 Las Vegas
Los Angeles
1
San Diego
1Boutique count at the end of Fiscal 2023, excluding four Reigning Champ boutiques.
1
Dallas
1
Austin
1
Houston
San Antonio
1
1
Honolulu
1 Nashville
1 Atlanta
1 Orlando
1 Miami
Fiscal 2023 Annual Report | 8
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 unprecedented
opportunities.
1. 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 continues to
accelerate, trending ahead of our target payback of
12 to 18 months due to our high sales performance,
management of build-out costs, and landlord
allowances.
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 a minimum of 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.
2. eCommerce Growth
Our eCommerce business was launched in Fiscal
2013 and quickly surpassed 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 increased 88% in Fiscal 2021
during the height of the COVID-19 pandemic, followed
by growth of 33% in Fiscal 2022 and 36% in Fiscal 2023.
eCommerce revenue was 35% of total net revenue
in Fiscal 2023, compared to 23% in Fiscal 2020,
pre-pandemic. We continue to invest in our digital
capabilities to support our eCommerce business,
and we plan to further fuel eCommerce growth by
delivering eCommerce 2.0, connecting clients to
tailored product discovery, creative innovation, and
intuitive experiences.
Fiscal 2023 Annual Report | 9
3. Increased Brand Awareness
Increased brand awareness is driven through real
estate and marketing strategies designed to attract
new clients and deepen loyalty of existing clients.
These strategies are propelling our brand with our
active client base increasing more than 50% in the
United States during Fiscal 2023 on top of an increase
of over 100% in Fiscal 2022. Our premier real estate
locations, aspirational boutique designs, and high-
touch service highlight the unique ethos and aesthetic
of our exclusive brands as well as 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 2023 Annual Report | 10
ENVIRONMENT, SOCIAL & GOVERNANCE
Our Community Strategy
PLANET
•
Incorporated lower impact fabrics in 61% of our
2022 collections and 64% of our Spring/Summer
2023 collections, which include organic and
recycled cotton, recycled polyester and nylon,
amongst others.
• Became a member of the Aid by Trade
Foundation’s The Good Cashmere Standard and
certified over 50% of our cashmere styles across
our FW22 collections.
• Signed and submitted a Letter of Intent in
November 2022 to the Science Based Target
initiative confirming our commitment to set
greenhouse gas emissions reduction targets
within the next 24 months.
Aritzia proudly acknowledges the role it must
play in accelerating its Environmental, Social, and
Governance (ESG) commitments and performance. As
our business grows, so does our potential to make an
impact.
At Aritzia, Community refers to the contributions
we make to People and the Planet. Our Community
priorities span across our operations and wider
value chain — which includes our raw material
production, third-party manufacturing suppliers,
product distribution, use by our clients and their end-
of-life destination, as well as across our boutiques,
distribution centres and our offices.
With the guidance of our Environmental & Social
Committee of the Board and leadership of our
Community Executive Committee, we continue to
refine our strategies to deliver Everyday Luxury
responsibly.
Our Results
PEOPLE
•
Launched and kicked off our People Resource
Groups (PRGs) to celebrate and embrace
the diversity in our business and to inspire
communities.
• Expanded our Supplier Workplace Standards
Program to in- scope Tier 2 Suppliers (fabric and
trims suppliers).
• Donated $1 million of warm winter coats to our
Aritzia CommunityTM Partners across North
America during the holiday season.
• Collaborated with Salish artist Atheana Picha
to design a T-shirt in honour of Orange Shirt
Day, donating 100% of proceeds to Orange Shirt
Society.
Fiscal 2023 Annual Report | 11
Our Priorities
Informed by our materiality assessment, Aritzia’s
Community priorities span across our value chain,
with People and Planet initiatives embedded cross-
functionally throughout our organization. These
priorities aim to improve the lives of the people who
propel our business forward, make Aritzia products,
and exist within our surrounding communities, and to
reduce the impact our operations and products have
on the planet. As part of our Community strategy and
aligned with our material impacts, we have identified
priorities for the next year and beyond including:
PEOPLE
• Build and scale People & Culture infrastructure to
attract, retain and develop high performing talent
•
Further invest in Equity, Diversity and Inclusion
resources and programs
• Expanded and continued to monitor, safeguard
and mitigate risks related to the human rights and
workplace standards of people in our supply chain
• Continued to support community organizations
with product donations, funding and volunteering
PLANET
• Expand the use of lower impact materials in our
products and packaging
• Set mid and long term greenhouse gas emissions
reduction targets
• Monitor supplier environmental performance
and partner on identified opportunities for
improvement
• Assess water stewardship opportunities
GOVERNANCE
•
Integrate assessment and management of People
& Planet risks into enterprise risk management
processes
• Embed materiality assessment findings into the
developments of our Community strategy to be
launched in Fiscal 2024
• Continue to disclose on performance against our
Community priorities
For a detailed discussion on our approach,
performance and practices, refer to the Aritzia
Community | ESG Report, available on Aritzia’s
Environmental and Social Investor Relations page at
www.investors.aritzia.com
Fiscal 2023 Annual Report | 12
Proven Results
Comparable Sales Growth (%)1,2
FY2019
FY2020
FY2021
FY2022
FY2023
Q1
Q2
Q3
Q4
Annual
10.9%
11.5%
12.9%
5.5%
9.8%
7.9%
8.4%
5.1%
8.9%
7.6%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
29.4%
28.3%
22.8%
32.2%
28.2%
Net Revenue ($ millions)
Net Income ($ millions)
26%
CAGR
$2,196
$1,495
eCommerce
$874
$981
$857
Retail
$79
$57
$91
$188
$157
24%
CAGR
$19
FY2019
FY2020
FY2021
FY2022
FY2023
FY2019
FY2020
FY2021
FY2022
FY2023
Adjusted EBITDA1
2
($ millions)
Adjusted Net Income1
2
($ millions)
$351
$289
22%
CAGR
$77
$161
$173
FY2019
FY2020
FY2021
FY2022
FY2023
18.4%
17.6%
9.0%
As a percentage of net revenue (1)
2,3
19.4%
16.0%
$215
$177
23%
CAGR
$26
$95
$97
FY2019
FY2020
FY2021
FY2022
FY2023
10.8%
9.9%
3.0%
11.8%
9.8%
As a percentage of net revenue (1,3)
2,3
1 Adjusted EBITDA and Adjusted Net Income are non-lFRS financial measures. Adjusted EBITDA as a percentage of net revenue and Adjusted Net Income as a percentage of net revenue are non-IFRS ratios and comparable sales growth is a retail operating metric.
1 Results in Fiscal 2021 and Fiscal 2022 reflect temporary boutique closures and severe occupancy restrictions due to the COVID-19 pandemic. As temporary boutique closures in Fiscal 2021
See "Non-lFRS Measures and Retail Industry Metrics" for additional information on page 3 of this presentation.
2 As temporary boutique closures from COVID-19 in FY2022 and FY2021 have resulted in all boutiques being removed from our comparable store base, we believe total comparable sales growth was not representative of the underlying trends of our business. We do not
and Fiscal 2022 resulted in all boutiques being removed from our comparable store base, we believe total comparable sales growth was not representative of the underlying trends of our
believe this metric is useful to investors in understanding performance and therefore have not reported this metric during FY2021 or FY2022.
business. We do not believe this metric is useful to investors in understanding performance and therefore have not reported this metric for Fiscal 2021 or Fiscal 2022.
3 Net income as a percentage of net revenue for FY2019, FY 2020, FY 2021, FY 2022 and FY23 was 9.0%, 9.2%, 2.2%, 10.5% and 8.5%, respectively.
2 Adjusted EBITDA and Adjusted Net Income are non-IFRS measures, Adjusted EBITDA as a percentage of net revenue and Adjusted Net Income as a percentage of net revenue are non-IF-
RS ratios and comparable sales growth is a supplementary financial measure. See the sections entitled “How We Assess the Performance of Our Business”, “Selected Consolidated Financial
Information” and “Non-IFRS Measures and Retail Industry Metrics” of our Fiscal 2023 MD&A for additional information. A quantitative reconciliation of Net Income to EBITDA, Adjusted
EBITDA, Adjusted EBITDA as a percentage of net revenue, Adjusted Net Income and Adjusted Net Income as a percentage of net revenue can be found on page 8 of our Fiscal 2023 MD&A,
page 8 of our annual MD&A for Fiscal 2022 dated May 5, 2022, page 7 of our annual MD&A for Fiscal 2021 dated May 11, 2021, page 15 of our annual MD&A for Fiscal 2020 dated May 28, 2020,
and page 12 of our annual MD&A for Fiscal 2019 dated May 9, 2019, filed on SEDAR at www.sedar.com, which reconciliations are incorporated herein by reference.
3 Net income as a percentage of net revenue for Fiscal 2019, Fiscal 2020, Fiscal 2021, Fiscal 2022 and Fiscal 2023 was 9.0%, 9.2%, 2.2%, 10.5% and 8.5%, respectively.
Fiscal 2023 Annual Report | 13
Operational and Financial Summary
SELECTED 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 expense (income)
Income before income taxes
Income tax expense
Net income
Net income per diluted share
Adjusted EBITDA(1)
Adjusted Net Income(1)
Adjusted Net Income per Diluted Share(1)
Weighted average number of diluted
shares outstanding (thousands)
Cash and cash equivalents
Capital cash expenditures (net of proceeds from
lease incentives)(1)
Free cash flow(1)
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 expense (income)
Income before income taxes
Income tax expense
Net income
Adjusted EBITDA(1)
Adjusted Net Income(1)
Other Metrics:
Year-over-year net revenue growth (decline)
Comparable sales growth(1)
Boutiques:(2)
Number of boutiques, end of period
New boutiques
Repositioned to a flagship boutique
Pop-up boutique converted to
permanent boutique
Boutique closure
Boutique closed due to mall
redevelopment
Boutiques expanded or repositioned
Fiscal 2023
52 Weeks
Fiscal 2022
52 Weeks
Fiscal 2021
52 Weeks
Fiscal 2020
52 Weeks
Fiscal 2019
53 Weeks
$
2,195,630 $
1,494,630 $
857,323 $
980,589 $
1,281,638
913,992
602,469
24,369
287,154
31,263
(7,916)
263,807
76,219
839,678
654,952
392,802
26,131
236,019
25,202
(8,783)
219,600
62,683
544,818
312,505
250,726
10,691
51,088
28,420
(3,534)
26,202
6,975
577,165
403,424
243,362
7,790
152,272
28,319
(2,185)
126,138
35,544
187,588 $
156,917 $ 19,227 $
90,594 $
1.63 $
1.36 $
0.17 $
0.81 $
874,296
531,383
342,913
215,297
11,540
116,076
4,821
(395)
111,650
32,922
78,728
0.67
351,181 $ 289,385 $ 76,812 $
172,572 $
161,045
214,771 $ 176,736 $
26,028 $ 97,388 $
94,543
1.86 $ 1.53 $
0.23 $ 0.87 $
0.81
115,301
115,784
112,844
112,128
117,358
86,510 $ 265,245 $ 149,147 $ 117,750 $
100,897
(112,050) $
(52,607) $
(42,529) $ (36,253) $
(49,862)
(119,656) $
221,937 $
36,306 $
117,246 $
38,874
$
$
$
$
$
$
$
$
100.0%
58.4%
41.6%
27.4%
1.1%
13.1%
1.4%
100.0%
56.2%
43.8%
26.3%
1.7%
15.8%
1.7%
100.0%
63.5%
36.5%
29.2%
1.2%
6.0%
3.3%
100.0%
58.9%
41.1%
24.8%
0.8%
15.5%
2.9%
(0.4%)
(0.6%)
(0.4%)
(0.2%)
14.7%
4.2%
10.5%
19.4%
11.8%
3.1%
0.8%
2.2%
9.0%
3.0%
12.9%
3.6%
9.2%
17.6%
9.9%
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%
74.3%
(12.6%)
n/a
106
6
-
-
(1)
-
6
n/a
101
7
(1)
-
-
(1)
3
12.2%
7.6%
17.6%
9.8%
96
5
-
-
-
-
3
91
7
(1)
-
-
-
4
12.0%
3.5%
8.5%
16.0%
9.8%
46.9%
28.2%
114
8
(1)
1
-
-
5
(1) Adjusted EBIDTA and Adjusted Net Income are non-IFRS financial measures; Adjusted Net Income per Diluted Share, Adjusted EBITDA as a
(1) Adjusted EBITDA and Adjusted Net Income are non-IFRS financial measures; Adjusted Net Income per Diluted Share, Adjusted EBITDA as a percentage of net
percentage of net revenue and Adjusted Net Income as a percentage of net revenue are non-IFRS ratios; capital cash expenditures (net of proceeds
revenue and Adjusted Net Income as a percentage of net revenue are non-IFRS ratios; capital cash expenditures (net of proceeds from lease incentives and
from lease incentives and free cash flow are capital management measures; and gross profit margin and comparable sales growth are supplementary
free cash flow are capital management measures; and gross profit margin and comparable sales growth are supplementary financial measures. Please see the
sections entitled “How We Assess the Performance of Our Business”, “Selected Consolidated Financial Information” and “Non-IFRS Measures and Retail Industry
financial measures. Please see the sections entitled “How We Assess the Performance of Our Business”, “Selected Consolidated Financial
Metrics” of our Fiscal 2023 MD&A (as included in this Annual Report and available on SEDAR at www.sedar.com) for further details concerning these measures.
Information” and “Non-IFRS Measures including Retail Industry Metrics” of our MD&A dated May 2, 2023 (as included in this Annual Report and
(2) Reigning Champ had four boutiques in Fiscal 2023 and Fiscal 2022 which are excluded from the boutique count.
available on SEDAR at www.sedar.com) for further details concerning these measures, including definitions and reconciliations to the relevant
reported IFRS measure.
(2) CYC Design Corporation had four boutiques in Fiscal 2023 and Fiscal 2022 which are excluded from the boutique count.
Fiscal 2023 Annual Report | 14
Certain statements made in this Annual Report may constitute forward-looking information under applicable
securities laws, including statements relating to: our approach and expectations with respect to boutique
growth, expansion and repositions; our expectations with respect to our growth runway in the United States; our
ability to successfully open new boutiques in line with expected store economics, including average payback
periods; our Fiscal 2027 strategic and financial plan including our expectations for net revenue in Fiscal 2027,
geographical and channel growth and adjusted EBITDA as a percentage of net revenue by the end of Fiscal
2027; our ability to maintain momentum in our business and our advancements of, and investments in, our
strategic growth levers including geographic expansion, eCommerce growth and increased brand awareness;
our plans to deliver eCommerce 2.0 including tailored product discovery, creative innovation and intuitive
experiences; our investments in eCommerce technology and investment in talent, and the expected results
therefrom; and our environmental, social and governance initiatives and related statements regarding our
commitment to establish greenhouse gas emission reduction targets. Forward-looking statements are based on
information currently available to management and on estimates and assumptions, including assumptions about
future economic conditions and courses of action. Many factors could cause our actual results, performance,
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
our Fiscal 2023 MD&A and our annual information form for the fiscal year ended February 26, 2023, which are
incorporated by reference into this Annual Report Please refer to the “Forward-Looking Information” section in
our Fiscal 2023 MD&A for further details about forward-looking information and our press release dated October
27, 2022, “Aritzia Presents its Fiscal 2027 Strategic and Financial Plan, Powering Stronger” which is available on
SEDAR for details about our Fiscal 2027 strategic and financial plan.
Fiscal 2023 Annual Report | 15
Management’s Discussion
& Analysis
Aritzia Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fiscal Year Ended February 26, 2023
May 2, 2023
The following Management’s Discussion and Analysis (“MD&A”) dated May 2, 2023 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 13-week and 52-week periods ended February 26, 2023. This MD&A should be read in conjunction
with the Company’s audited annual consolidated financial statements and accompanying notes for Fiscal 2023 (as
hereinafter defined).
FORWARD-LOOKING INFORMATION
Certain statements made in this document may constitute forward-looking information under applicable securities
laws. Statements containing forward-looking information are neither historical facts nor assurances of future
performance, but instead, provide insights regarding management’s current expectations and plans and allows
investors and others to better understand the Company’s anticipated business strategy, financial position, results of
operations and operating environment. Readers are cautioned that such information may not be appropriate for
other purposes. Although the Company believes that the forward-looking statements are based on information,
assumptions and beliefs that are current, reasonable, and complete, such information is necessarily subject to a
number of business, economic, competitive and other risk factors that could cause actual results to differ materially
from management’s expectations and plans as set forth in such forward-looking information.
Specific forward looking information in this document include, but are not limited to, statements relating to:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
our Fiscal 2027 strategic and financial plan and anticipated results therefrom,
our ability to continue to achieve strong boutique sales productivity,
our approach and expectations with respect to boutique growth, expansion and enhancements, including
boutique payback period expectations,
our eCommerce growth, including our plans to deliver eCommerce 2.0, execute our eCommerce roadmap
and the anticipated results therefrom,
our expectations with respect to our omni-channel capabilities and the success and completion of our Omni
Project,
our ability to maintain momentum in our business and advance our strategic growth levers including
geographic expansion, eCommerce growth and increased brand awareness,
our expectations regarding the construction, completion and future operation of our new distribution
facilities, our expansion and retrofitting plans, plans relating to the use of existing facilities and the
anticipated results therefrom,
our expectations with respect to liquidity,
our use of financial instruments and risk mitigation strategies
our expectations with respect to our inventory position and normalized markdowns,
our plans for continued strategic investments in technology, digital and physical infrastructure and people,
our future investment opportunities,
the competitive position of our brand and products in the retail industry,
our ability to respond to consumer trends and produce enduring client loyalty,
our normal course issuer bid and future purchases of subordinate voting shares, and
our environmental, social and governance initiatives and related statements regarding our commitments to
increase disclosures, maintain our annual reporting, and establish greenhouse gas emission reduction
targets and development of our climate strategy and roadmap.
1
Fiscal 2023 Annual Report | 17
Particularly, information regarding our expectations of future results, targets, performance achievements, intentions,
prospects, opportunities or other characterizations of future events or developments or the markets in which we
operate is forward-looking information. Often but not always, forward-looking statements can be identified by the
use of forward-looking terminology such as “plans”, “targets”, “expects”, “is expected”, “an opportunity exists”,
“budget”,
“intends”,
“forecasts”,
“anticipates”, “believes”, or positive or negative variations of such words and phrases or state that certain actions,
events or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur” or “be achieved”.
“scheduled”,
“projection”,
“prospects”,
“estimates”,
“strategy”,
“outlook”,
Forward-looking statements are based on information currently available to management and on estimates and
assumptions, including assumptions about future economic conditions and courses of action. Examples of material
estimates and assumptions and beliefs made by management in preparing such forward looking statements
include, but are not limited to:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
continued strength across our retail and eCommerce channels,
continued strength in the United States and ongoing growth in Canada,
general economic and geopolitical conditions, particularly in light of inflationary pressures,
changes in laws, rules, regulations, and global standards,
ongoing cost inflationary pressures,
our competitive position in our industry,
our ability to keep pace with changing consumer preferences,
no COVID-19 related restrictions impacting client shopping patterns or incremental direct costs related to
health and safety measures,
our future financial outlook,
our ability to drive ongoing development and innovation of our exclusive brands and product categories,
our ability to invest in physical and digital infrastructure to support growth,
our ability to realize our eCommerce 2.0 roadmap and omni-channel capabilities,
our expectations for normalized year over year inventory growth and markdown rates,
our ability to recruit and retain exceptional talent,
our expectations regarding new boutique openings, expansion and repositioning of existing boutiques, and
growth of our boutique network and annual square footage,
our ability to mitigate business disruptions, including our sourcing and production activities,
our expectations for capital expenditures,
our ability to generate positive cash flow,
anticipated cost efficiencies from optimization of our processes,
availability of sufficient liquidity,
–
–
–
–
–
– warehousing costs and expedited freight costs, and
–
currency exchange and interest rates.
Given the current challenging operating environment, there can be no assurances regarding: (a) pandemic-related
limitations or restrictions that may be placed on servicing our clients or the duration of any such limitations or
restrictions; (b) the macroeconomic impacts (including those from the recent COVID-19 pandemic) on Aritzia's
business, operations, labour force, supply chain performance and growth strategies; (c) Aritzia's ability to mitigate
such impacts, including ongoing measures to enhance short-term liquidity, contain costs and safeguard the
business; (d) general economic conditions and impacts to consumer discretionary spending and shopping habits;
(e) credit, market, currency, commodity market, inflation, interest rates, global supply chains, operational, and
liquidity risks generally; (f) geopolitical events; and (g) other risks inherent to Aritzia's business and/or factors
beyond its control which could have a material adverse effect on the Company.
Many factors could cause our actual results, performance, 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 the Company's annual information form for Fiscal
2023 (the "AIF") which are incorporated by reference into this document. 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 or any successor or replacement thereof.
The Company cautions that the foregoing list of risk factors and uncertainties is not exhaustive and other factors
could also adversely affect its results. We operate in a highly competitive and rapidly changing environment in
which new risks often emerge. It is not possible for management to predict all risks, nor assess the impact of all risk
factors on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements. Readers are urged to consider the risks,
2
Fiscal 2023 Annual Report | 18
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 document represents our
expectations as of the date of this document (or as of the date they are otherwise stated to be made) and are
subject to change after such date. We disclaim any intention, obligation or undertaking to update or revise any
forward-looking information, whether written or oral, 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 2023” are to our 13-week period ended February 26, 2023, to "Q1 2023" are to
our 13-week period ended May 29, 2022, to “Q4 2022” are to our 13-week period ended February 27, 2022 and to
"Q1 2024" are to our 13-week period ending May 28, 2023. All references in this MD&A to "Fiscal 2027" are to our
52-week period ending February 28, 2027, to "Fiscal 2026" are to our 52-week period ending March 1, 2026, to
"Fiscal 2024" are to our 53-week period ending March 3, 2024, to “Fiscal 2023” are to our 52-week period ending
February 26, 2023, to “Fiscal 2022” are to our 52-week period ended February 27, 2022, to "Fiscal 2021" are to our
52-week period ended February 28, 2021 and to "Fiscal 2020" are to our 52-week period ended March 1, 2020.
The audited annual consolidated financial statements and accompanying notes for Fiscal 2023 and this MD&A were
authorized for issue by the Company’s Board of Directors (the "Board of Directors").
Documents referenced herein are not incorporated by reference into this MD&A, unless such incorporation by
reference is explicit.
OVERVIEW
Aritzia is a vertically integrated design house with an innovative global platform, home to an extensive portfolio of
exclusive brands for every function and individual aesthetic. We’re about good design, quality materials and
timeless style that endures and inspires — all with the well-being of our People and Planet in mind. We call this
Everyday Luxury.
Founded in 1984, in Vancouver, Canada, we create and curate products that are both beautiful and beautifully
made, cultivate aspirational environments, offer engaging service that delights, and connect through captivating
communications. We pride ourselves on providing immersive and highly personal shopping experiences at
aritzia.com and in our 110+ boutiques throughout Canada and the United States to everyone, everywhere.
Everyday Luxury. To Elevate Your World.™
On June 25, 2021, Aritzia acquired 75% of the common shares in CYC Design Corporation (“CYC”), a leading
designer and manufacturer of premium athletic wear, Reigning Champ. The results of operations, financial position,
and cash flows of CYC have been included in our consolidated financial statements since the date of acquisition.
RECENT EVENTS
Normal Course Issuer Bid and Automatic Share Purchase Plan
On January 18, 2023, the Company announced that the TSX had accepted our notice of intention to proceed with a
normal course issuer bid (the “2023 NCIB”) to repurchase and cancel up to 3,860,745 of its subordinate voting
shares, representing approximately 5% of the public float of 77,214,916 subordinate voting shares, over the 12-
month period commencing January 20, 2023 and ending January 19, 2024.
On February 3, 2023, the Company announced it had entered into an automatic share purchase plan with a
designated broker for the purpose of permitting the Company to purchase its subordinate voting shares under the
2023 NCIB during predetermined blackout periods.
3
Fiscal 2023 Annual Report | 19
Between January 20, 2023 and May 2, 2023, the Company repurchased a total of 35,800 subordinate voting shares
for cancellation at an average price of $39.42 per subordinate voting share for total cash consideration of $1.4
million under the 2023 NCIB.
Investor Day 2022 Fiscal 2027 Strategic and Financial Plan
On October 27, 2022, the Company announced its Fiscal 2027 strategic and financial plan and hosted an Investor
Day at its Support Office in Vancouver, Canada. As part of the Fiscal 2027 strategic and financial plan, the
Company intends to execute on the following three strategic levers:
– Geographic expansion: The Company plans to continue opening and expanding boutiques, resulting in
annual square footage growth. The Company intends to capitalize on premier real estate for new locations,
continuing to elevate its boutique design and deliver exceptional experiences for its clients.
– eCommerce acceleration: Having grown its eCommerce business by 150% from Fiscal 2020 to Fiscal
2022, the Company intends to further fuel its growth by delivering eCommerce 2.0, connecting clients to
tailored product discovery, creative innovation, and intuitive experiences. In addition to elevating the
existing web platform, Aritzia plans to create new digital platforms.
– Increased brand awareness: The Company plans to build and execute on its Everyday Luxury experience,
propelling increased brand awareness, new client acquisition, and loyalty. Aritzia intends to leverage the
power of influence to build a greater following and community by amplifying clients' voices and augmenting
their social media presence through strategic marketing.
These strategic levers are underpinned by the Company's unique strengths that have driven its 39-year track
record of success, including: high-quality, beautifully designed product; premier real estate; a proprietary retail
model; a strong digital model; talented people and high-performance culture; best-in-class infrastructure; and
community responsibility. For further details, see the Company's press release dated October 27, 2022, "Aritzia
Presents its Fiscal 2027 Strategic and Financial Plan, Powering Stronger", which is available on SEDAR at
www.sedar.com under the Company's profile and on our website at investors.aritzia.com.
Completion of Secondary Offering
On November 14, 2022, the Company announced a secondary offering (the “2022 secondary offering”) on a bought
deal basis of its subordinate voting shares through a secondary sale of shares by certain entities owned and/or
controlled, directly or indirectly, by Brian Hill, Founder and Executive Chair of Aritzia, or Brian Hill and his immediate
family (collectively, the “Selling Shareholders”). The 2022 secondary offering of 1,500,000 subordinate voting
shares raised gross proceeds of $77.4 million for the Selling Shareholders, at a price of $51.60 per subordinate
voting share and was completed on November 30, 2022. The Company did not receive any proceeds from the 2022
secondary offering. As part of the 2022 secondary offering, during the year ended February 26, 2023, the Selling
Shareholders exchanged an aggregate of 1,500,000 of their multiple voting shares for subordinate voting shares.
Immediately following the closing of the 2022 secondary offering, Brian Hill remained the Company’s largest
shareholder with an approximately 18.5% equity interest. Underwriting fees were paid by the Selling Shareholders,
and other expenses related to the 2022 secondary offering of approximately $0.5 million were paid by the
Company.
COVID-19 PANDEMIC
While there were no in-store capacity restrictions or closures due to COVID-19 that directly impacted the Company
during Fiscal 2023, the trailing effects of the pandemic and related macroeconomic conditions remain uncertain.
Management continues to monitor and assess the impacts of the COVID-19 pandemic and related macroeconomic
conditions on the business as well as on certain estimates and judgments.
See also the “Risk Factors” section 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 “Reconciliation to Non-IFRS
Financial Measures” for reconciliations of non-IFRS financial measures with the most directly comparable IFRS
financial measure.
4
Fiscal 2023 Annual Report | 20
Q4 2023
– Net revenue increased 43.5% from Q4 2022 to $637.6 million, achieving comparable sales growth
1
of 32.2%
compared to Q4 2022
– United States net revenue increased 55.7% from Q4 2022 to $337.5 million, comprising 52.9% of net revenue
in Q4 2023
– Retail net revenue increased 38.4% from Q4 2022 to $363.1 million
–
eCommerce net revenue increased 50.8% from Q4 2022 to $274.5 million, comprising 43.1% of net revenue
in Q4 2023
– Gross profit margin1 decreased 240 bps to 38.0% from 40.4% in Q4 2022
– Net income increased 9.1% from Q4 2022 to $37.3 million
– Adjusted EBITDA1 increased 19.7% from Q4 2022 to $79.4 million
– Net income per diluted share of $0.32 per share, compared to $0.29 per share in Q4 2022
– Adjusted Net Income per Diluted Share1 of $0.40 per share, compared to $0.34 per share in Q4 2022
Fiscal 2023
– Net revenue increased 46.9% to $2.2 billion, compared to $1.5 billion in Fiscal 2022
– United States net revenue increased 65.8% from Fiscal 2022 to $1.1 billion, comprising 51.1% of net revenue
in Fiscal 2023
– Retail net revenue increased 53.3% from Fiscal 2022 to $1.4 billion
–
eCommerce net revenue increased 36.4% from Fiscal 2022 to $769.9 million, comprising 35.1% of net
revenue in Fiscal 2023
– Gross profit margin1 decreased 220 bps to 41.6% from 43.8% in Fiscal 2022
– Net income increased 19.5% from Fiscal 2022 to $187.6 million
– Adjusted EBITDA1 increased 21.4% from Fiscal 2022 to $351.2 million
– Net income per diluted share of $1.63 per share, compared to $1.36 per share in Fiscal 2022
– Adjusted Net Income per Diluted Share1 of $1.86 per share, compared to $1.53 per share in Fiscal 2022
Strategic Accomplishments for Fiscal 2023
– Grew active United States clients by 54% during Fiscal 2023
–
Achieved 65.8% growth in United States net revenue, through strength in both our boutiques and eCommerce, to
surpass 50% of total net revenue in Fiscal 2023
– Drove continued momentum in eCommerce, growing revenue by 36.4% on top of 32.5% growth in Fiscal 2022
and 88.3% growth in Fiscal 2021, comprising 35.1% of net revenue in Fiscal 2023
– Opened eight new boutiques and repositioned five existing boutiques in premier real estate locations, with
–
payback periods tracking ahead of expectations
Advanced initiatives to support Aritzia’s communities, cultivate diversity and enhance sustainability, including our
commitment to set greenhouse gas emission reduction targets by November 2024
OUTLOOK
A discussion of management's expectations as to the Company's financial outlook for Fiscal 2024 is contained in
the Company's press release dated May 2, 2023, "Aritzia Reports Fourth Quarter and Fiscal 2023 Financial
Results" under the heading "Outlook". In addition, a discussion of the Company's long-term financial plan is
contained in the Company's press release dated October 27, 2022, "Aritzia Presents its Fiscal 2027 Strategic and
Financial Plan, Powering Stronger". These press releases are available on SEDAR at www.sedar.com under the
Company's profile and on our website at investors.aritzia.com.
1 See the sections below entitled “How We Assess the Performance of our Business”, “Selected Financial Information” and “Non-IFRS Measures
and Retail Industry Metrics” for further details concerning gross profit margin, comparable sales growth, Adjusted EBITDA, Adjusted EBITDA as
a percentage of net revenue, Adjusted Net Income and Adjusted Net Income per Diluted Share including definitions and reconciliations of each
non-IFRS financial measure to the relevant reported IFRS financial measure. Non-IFRS financial measures and non-IFRS ratios do not have a
standardized meaning under IFRS, which is used to prepare the Company's financial statements and might not be comparable to similar
financial measures presented by other entities.
5
Fiscal 2023 Annual Report | 21
SELECTED FINANCIAL INFORMATION
The following table summarizes our recent results of operations for the periods indicated. The selected
consolidated financial information set out below for Q4 2023 and Q4 2022 is unaudited.
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 expense (income)
Income before income taxes
Income tax expense
Net income
Net income per diluted share
Adjusted EBITDA2
Adjusted Net Income2
Adjusted Net Income per Diluted Share2
Weighted average number of diluted shares
outstanding (thousands)
Cash and cash equivalents
Capital cash expenditures (net of proceeds from lease
incentives)2
Free cash flow2
Percentage of Net Revenue:
Gross profit
Selling, general and administrative
Net income
Adjusted EBITDA2
Adjusted Net Income 2
Other Metrics:
Year-over-year net revenue growth
Comparable sales growth2
Q4 2023
13 Weeks
Q4 2022
13 Weeks
Fiscal 2023
52 Weeks
Fiscal 2022
52 Weeks
$
637,582 $
395,422
444,322 $
264,816
2,195,630 $
1,281,638
1,494,630
839,678
242,160
179,506
913,992
654,952
171,299
3,157
67,704
9,501
4,052
54,151
16,813
120,221
5,725
53,560
6,092
740
46,728
12,503
602,469
24,369
287,154
31,263
(7,916)
263,807
76,219
392,802
26,131
236,019
25,202
(8,783)
219,600
62,683
$
$
$
$
$
$
$
$
37,338 $
34,225 $
187,588 $
156,917
0.32 $
0.29 $
1.63 $
1.36
79,354 $
46,671 $
0.40 $
66,303 $
39,475 $
0.34 $
351,181 $
214,771 $
1.86 $
115,249
116,774
115,301
289,385
176,736
1.53
115,784
86,510 $
265,245 $
86,510 $
265,245
(38,503) $
(49,193) $
(16,434) $
(112,050) $
(37,047) $
(119,656) $
(52,607)
221,937
38.0 %
26.9 %
5.9 %
12.4 %
7.3 %
43.5 %
32.2 %
40.4 %
27.1 %
7.7 %
14.9 %
8.9 %
66.1 %
n/a
41.6 %
27.4 %
8.5 %
16.0 %
9.8 %
46.9 %
28.2 %
43.8 %
26.3 %
10.5 %
19.4 %
11.8 %
74.3 %
n/a
2 Please see “How We Assess the Performance of Our Business”, "Selected Financial Information" and "Non-IFRS Measures and Retail Industry
Metrics" sections of this MD&A for further details on these financial and operating measures.
6
Fiscal 2023 Annual Report | 22
The following tables provide selected consolidated information for the three most recently completed fiscal years.
For a discussion of factors that caused changes in our business between Fiscal 2022 and Fiscal 2021, please refer
to the "Results of Operations" section of our Fiscal 2022 MD&A dated May 5, 2022.
Selected Consolidated Financial Information
(in thousands of Canadian dollars,except per share amounts)
Fiscal 2023
Fiscal 2022
Fiscal 2021
Net revenue
Net income
Net income per share
Basic
Diluted
Selected Consolidated Financial Position Information
(in thousands of Canadian dollars, unless otherwise noted)
Total assets
Total non-current liabilities
$2,195,630
187,588
$1,494,630
156,917
$857,323
19,227
1.70
1.63
1.42
1.36
0.18
0.17
As at
As at
As at
February 26,
2023
February 27,
2022
February 28,
2021
$1,836,543
733,456
$1,424,586
$1,140,737
506,450
531,279
7
Fiscal 2023 Annual Report | 23
The following table provides a reconciliation of net income to EBITDA, Adjusted EBITDA, Adjusted Net Income and
Adjusted Net Income per Diluted Share for the periods indicated.
Reconciliation to Non-IFRS Financial Measures
(in thousands of Canadian dollars, unless otherwise
noted)
Q4 2023
13 Weeks
Q4 2022
13 Weeks
Fiscal 2023
52 Weeks
Fiscal 2022
52 Weeks
$
37,338 $
34,225 $
187,588 $
156,917
12,110
17,593
6,092
12,503
82,523
52,855
81,047
31,263
76,219
44,569
68,058
25,202
62,683
428,972
357,429
Reconciliation of Net Income to EBITDA and
Adjusted EBITDA:
Net income
Depreciation and amortization
Depreciation on right-of-use assets
Finance expense
Income tax expense
EBITDA
Adjustments to EBITDA:
Stock-based compensation expense
Rent impact from IFRS 16, Leases3
Unrealized loss (gain) on equity derivative
contracts
Realized gain on equity derivative contracts
Fair value adjustment of non-controlling interest
("NCI") in exchangeable shares liability
Fair value adjustment for inventory acquired in
CYC
CYC integration and acquisition costs
Secondary offering transaction costs
Reconciliation of Net Income to Adjusted Net
Income:
Net income
Adjustments to net income:
Stock-based compensation expense
Unrealized loss (gain) on equity derivative
contracts
Realized gain on equity derivative contracts
Fair value adjustment of NCI in exchangeable
shares liability
Fair value adjustment for inventory acquired in
CYC
CYC integration and acquisition costs
Secondary offering transaction costs
Related tax effects
Adjusted Net Income
Adjusted Net Income as a percentage of net
revenue
Weighted average number of diluted shares
outstanding (thousands)
14,617
23,164
9,501
16,813
101,433
3,157
(31,839)
6,136
—
—
—
467
—
3,157
6,136
—
—
—
467
—
(427)
5,725
(22,939)
24,369
(107,851)
994
—
—
—
—
—
6,093
(1,387)
—
—
467
518
994
—
—
—
—
—
6,093
(1,387)
—
—
467
518
(1,469)
(2,877)
26,131
(90,048)
(11,192)
—
2,000
1,902
2,633
530
289,385
19.4 %
(11,192)
—
2,000
1,902
2,633
530
(2,185)
176,736
115,784
1.53
Adjusted EBITDA
Adjusted EBITDA as a percentage of net revenue
$
79,354 $
66,303 $
351,181 $
12.4 %
14.9 %
16.0 %
$
37,338 $
34,225 $
187,588 $
156,917
5,725
24,369
26,131
$
46,671 $
39,475 $
214,771 $
7.3 %
8.9 %
9.8 %
11.8 %
Adjusted Net Income per Diluted Share
$
0.40 $
0.34 $
1.86 $
115,249
116,774
115,301
3 Rent Impact from IFRS 16, Leases
8
Fiscal 2023 Annual Report | 24
(in thousands of Canadian dollars)
Q4 2023
13 Weeks
Q4 2022
13 Weeks
Fiscal 2023
Fiscal 2022
52 Weeks
52 Weeks
Depreciation on right-of-use assets, excluding fair value
adjustments
Interest expense on lease liabilities
Rent impact from IFRS 16, Leases
$
$
(23,031) $
(17,460) $
(80,515) $
(8,808)
(5,479)
(27,336)
(67,702)
(22,346)
(31,839) $
(22,939) $
(107,851) $
(90,048)
The following table reconciles cash used in investing activities to capital cash expenditures (net of proceeds from
lease incentives) for the periods indicated.
(in thousands of Canadian dollars)
Q4 2023
13 Weeks
Q4 2022
13 Weeks
Fiscal 2023
52 Weeks
Fiscal 2022
52 Weeks
Reconciliation of Cash Used in Investing Activities
to Capital Cash Expenditures (Net of
Proceeds From Lease Incentives):
Cash used in investing activities
$
(41,240) $
(20,734) $
(131,213) $
Acquisition of CYC, net of cash acquired
Contingent consideration payout, net relating to the
acquisition of CYC
Proceeds from lease incentives
—
—
—
—
2,737
4,300
—
5,625
13,538
(99,576)
32,555
—
14,414
Capital cash expenditures (net of proceeds from
lease incentives)
$
(38,503) $
(16,434) $
(112,050) $
(52,607)
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:
Q4 2023
13 Weeks
Q4 2022
13 Weeks
Fiscal 2023
52 Weeks
Fiscal 2022
52 Weeks
Net cash generated from operating activities
$
10,184 $
733 $
74,913 $
338,353
Interest paid on credit facilities
Proceeds from lease incentives
Repayments of principal on lease liabilities
Purchase of property, equipment and intangible assets
510
2,737
(21,384)
(41,240)
613
4,300
(21,959)
(20,734)
3,743
13,538
(86,262)
(125,588)
2,491
14,414
(66,300)
(67,021)
Free cash flow
$
(49,193) $
(37,047) $
(119,656) $
221,937
SUMMARY OF FACTORS AFFECTING PERFORMANCE
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
Our exclusive fashion brands offer a strategic mix of brands that have been thoughtfully conceived, designed, and
developed. We believe that a key area of differentiation for us is that we design apparel and accessories to enable
us to reach many different groups of clients. Our sourcing and manufacturing strategy gives us control over our
supply chain and provides us with the flexibility to optimize our brand mix as needed to address changes in client
demand and fashion preferences. This has been critical to our ability to grow 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
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Fiscal 2023 Annual Report | 25
distinct aesthetic point of view. As a group, they are united by an unwavering commitment to Everyday Luxury
product using superior fabrics, meticulous construction and relevant, effortless design.
Our exclusive brands currently represent approximately 97% of Aritzia’s net revenue. Our broad product assortment
includes t-shirts, blouses, sweaters, jackets, coats, pants, shorts, skirts, dresses, denim, intimates, swimwear,
accessories, and men’s wear (resulting from our acquisition of CYC) 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 fashion apparel and accessories
addresses a broad range of style preferences and lifestyle requirements for our clients, producing strong and
enduring client loyalty.
Creative Development
We have talented teams of designers who focus on creating products featuring high quality fabrics, considered
detailing and sophisticated construction. Our product design and development process builds on client favourites
while taking new fashion trends into account with the goal of creating fashion must-haves each season. Our
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 high quality
mills and suppliers to create and sample garments, which are fit-tested before production. We ensure that the
quality of our raw materials and the finished product are all held to our Everyday Luxury standards and the
expectations of our clients.
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 Canada and the United
States. 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 boutiques, 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 continue to elevate our boutique design and believe we
deliver a fully immersive experience including, commencing in Fiscal 2019, enhancing the sensory experience by
adding A-OK cafes in select boutiques.
The following table summarizes the change in Aritzia’s boutique count for the periods indicated (excluding CYC
boutiques).
Number of boutiques, beginning of period
New boutiques
Repositioned to a flagship boutique
Pop-up boutique converted to permanent boutique
Boutique closure
Number of boutiques, end of period
Boutiques expanded or repositioned
In addition, CYC had four boutiques as at February 26, 2023.
eCommerce Growth
Q4 2023
Q4 2022
Fiscal 2023
Fiscal 2022
113
2
(1)
—
—
114
1
105
2
—
—
(1)
106
1
106
8
(1)
1
—
114
5
101
6
—
—
(1)
106
6
We continue to invest in our digital capabilities to support our eCommerce business, and we plan to further fuel
eCommerce growth by delivering Aritzia eCommerce 2.0, featuring tailored product discovery, creative innovation,
and intuitive experiences. We aspire to connect clients to Everyday Luxury, offering beautiful product, tailored
experiences, and endless inspiration to be a leading eCommerce business.
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Fiscal 2023 Annual Report | 26
The strategy behind Aritzia eCommerce 2.0 has three components, which is our value proposition that we believe
highlights our unique competitive advantage:
– We plan to deliver tailored product discovery: We plan to enable clients to discover all we have to offer,
while personalizing suggestions for their individual taste, style and preferences. 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. We have begun to customize merchandising and content
experience based on geography and climate and plan to continue to evolve personalized experiences.
Aritzia.com showcases our entire product assortment, and our brands are designed for a segment of our
overall client base. We aim to inspire the client to discover our diverse assortment, while content is tailored
to their individual style and preferences to keep them engaged.
– We plan to deliver creative innovation: With an emphasis on form, creative innovation keeps our
eCommerce experience at the forefront of cool. This extends to service, operations and technology. We aim
to continuously raise the bar across both form and function. Whether it be aspirational site design, how we
merchandise, captivating content and communications, or coming up with a creative technology solution –
we plan to redefine the norms.
– We plan to deliver an intuitive experience: Our eCommerce platform aims to provide our clients further
ease of use at all touchpoints. A word that is often used to describe Everyday Luxury is effortless, and this
is the digital interpretation. We strive to offer a seamless, integrated, and highly shoppable experience.
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 discovery, evaluating, and purchase are continuously improved resulting in increased conversion
rate and average order value. We have also re-set our optimization program, embedding a culture of test
and learn on how we go to market with new features and capabilities.
We plan to execute on our eCommerce roadmap: We aim to elevate our existing web platform and create new
digital platforms. Our roadmap includes key initiatives such as brand new creative, an upgrade on our technology
ecosystem, improved mobile experience and enhanced personalization.
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. Our distribution centres include a
223,000 square foot facility in New Westminster, British Columbia, a 150,000 square foot third-party facility in
Mississauga, Ontario, and a 240,000 square foot third-party facility in Columbus, Ohio.
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. We also lease additional space
outside of these three distribution centres to manage overflow inventory storage.
We completed retrofitting work in Fiscal 2023 in our New Westminster, British Columbia distribution centre in order
to expand capability and capacity to accommodate the surge of eCommerce growth without having to add more
space.
In Fiscal 2022 we broke ground on a new facility that we will be operating in Vaughan, Ontario and in Fiscal 2023
we commenced retrofitting work in the new facility which we expect will be completed in Fiscal 2024. This new
facility will be in-sourced and will replace our existing 150,000 square feet distribution centre operated by a third-
party logistics provider with a new 550,000 square feet distribution centre operated by Aritzia.
In Fiscal 2024, we plan to expand and take over the entire building in our Columbus, Ohio distribution centre,
resulting in an additional 240,000 square feet for a total of 480,000 square feet in that facility. We also plan to
undergo retrofitting work in this facility to further expand our capacity.
In Fiscal 2024 we plan to start construction on a new 380,000 square foot facility in Delta, British Columbia to
replace our current distribution centre in New Westminster, British Columbia. This facility will be operated by us and
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Fiscal 2023 Annual Report | 27
is expected to be operational in Fiscal 2026. We will be retaining our current facility in New Westminster, British
Columbia for storage and office space purposes, among other things.
Our current facilities are set up to flexibly manage multi-channel and omni-channel demands, as our business
continues to grow, but these expansions will support both our retail and eCommerce businesses with added
capacity to handle higher levels of throughput.
Omni-Channel Capabilities
Our Omni Project builds on the foundation of our point-of-sale system and our investment in digital selling tools to
enable omni-channel capabilities such as store inventory visibility, buy online, ship from store and buy online, pick-
up in store. The project includes multiple workstreams spanning a store order fulfillment solution, the physical
optimization of our backroom spaces, foundational order sourcing technology, and enhancements to our digital
client experience.
–
–
–
Store Inventory Visibility – Launched in Fiscal 2022, this functionality enhances the client experience on
aritzia.com by providing visibility of product availability in stores. This initiative drives cross-channel shopping
behavior and reduces contacts to our Concierge team by enabling clients to self-serve on common product
availability related questions.
Buy Online, Ship From Store – We intend to launch this capability along with foundational systems to enable
future omni channel capabilities. This new capability introduces store inventory online, ensuring our full product
assortment is available on aritzia.com. It also enables strategic targeting of inventory across our network of
boutiques and minimizes delivery time to our clients.
Buy Online, Pick-up In Store – We intend to launch this capability to provide clients with the option to pick up
their online order in store. Building on store inventory visibility, this capability further integrates the online and
in-store experiences leveraging the exceptional service in our boutiques to deliver an elevated, yet convenient
experience.
We are also focused on improving the availability of fulfillment data and analytics. We believe that reporting
optimizations and visibility into key performance indicators will help our boutique teams to maintain accurate
inventory and monitor performance on key fulfillment metrics.
Environment, Social & Governance ("ESG")
As a prominent player in the fashion industry, Aritzia acknowledges the role it has to play in accelerating its ESG
commitments and performance. At Aritzia, Community refers to the contributions we make to People and the
Planet. Our Community priorities span across our operations and wider value chain — from raw material sourcing,
third-party manufacturing suppliers, product use and end-of-life, as well as across our boutiques, distribution
centres, and offices. We know that the choices we make at every level of our business matter, and with them, we
seek to demonstrate consciousness and responsibility for People and the Planet. With the goal to strengthen our
positive impact, initiatives are embedded throughout our organization with oversight shared across multiple
departments. To ignite meaningful change, we take an evidence-based approach with a focus on delivering long-
term impact.
We prioritize our efforts based on our material impacts, opportunities and risks as identified by Aritzia’s materiality
assessment as well as The Sustainability Accounting Standards Board’s (SASB) reporting framework for the
Apparel, Accessories and Footwear industry, the United Nations Sustainable Development Goals, and the
Taskforce for Climate-Related Financial Disclosures (TCFD).
In January of 2022, Aritzia formalized its approach to the oversight of environmental and social ("E&S") issues
when it established the Environmental and Social Committee of the Board of Directors to guide and inform Aritzia's
E&S strategies. In Fiscal 2023, Aritzia also formed a Community Executive Committee, comprised of cross-
functional leaders, to act as a central body to manage all business activities relating to People and Planet.
–
–
People – We are committed to supporting people to thrive across the following areas: Our People, Supply
Chain, and Communities.
Planet – Aritzia's priority Planet impact areas include climate, water and materials. Across each of these,
we address our footprint at each stage of the value chain. We are developing a climate strategy and
roadmap that champions emissions reductions and adapts to the impacts of climate change. To guide this
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Fiscal 2023 Annual Report | 28
strategy we submitted a letter of intent in November 2022 to the Science-Based Targets initiative confirming
our commitment to set greenhouse gas emissions reduction targets by November 2024.
– Risk Management – In Fiscal 2023, Aritzia engaged with internal and external stakeholders to conduct a
materiality assessment and worked with an expert consultant to validate the approach.
– Metrics and Performance Indicators – We are working to increase our disclosures against key ESG
performance indicators and each year will report our progress in our Aritzia Community | ESG Report. With
the support of third-party partners and data management systems, we are able to assess the accuracy of
our analysis and identify opportunities for improvement.
For a more detailed discussion on our ESG metrics and key performance indicators, refer to the FY2022 Aritzia
Community™ | ESG Report, available on Aritzia's Environmental and Social Investor Relations page at
investors.aritzia.com and for details on our ESG impacts and progress refer to the “Environment, Social &
Governance (ESG): Our Impacts and Our Progress” section of the Company’s AIF, which is available on SEDAR at
www.sedar.com.
Consumer Trends
The 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
The apparel industry is seasonal in nature, with a higher proportion of net revenue and operating income generated
in 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.
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
16%
24%
30%
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 our ability to execute our strategy to effectively present seasonal inventory.
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Fiscal 2023 Annual Report | 29
Competition
We operate in the apparel industry, primarily within the Canadian and United States markets. 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 our clients all over the world.
Foreign Exchange
Approximately half of our net revenue is derived in each of Canadian and U.S. dollars while the vast majority of our
inventory purchases are denominated in U.S. dollars which affects our cost of goods sold. 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 can be no assurances that such strategies
will prove to be successful. See the “Risk Factors” section of this MD&A.
NON-IFRS MEASURES AND RETAIL INDUSTRY METRICS
This MD&A makes reference to certain non-IFRS measures and 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 financial measures
including “EBITDA”, “Adjusted EBITDA”, and “Adjusted Net Income”; non-IFRS ratios including “Adjusted Net
Income per Diluted Share”, "Adjusted EBITDA as a percentage of net revenue", and "Adjusted Net Income as a
percentage of net revenue"; and capital management measures including “capital cash expenditures (net of
proceeds from lease incentives)”, and “free cash flow.” This MD&A also makes reference to “gross profit margin” as
well as “comparable sales growth”, which are commonly used operating metrics in the retail industry but may be
calculated differently by other retailers. Gross profit margin and comparable sales growth are considered
supplementary financial measures under applicable securities laws. These non-IFRS measures and 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 and retail industry
metrics in the evaluation of issuers. Our management also uses non-IFRS measures and 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 of these non-IFRS
measures and retail industry metrics and reconciliations of these non-IFRS financial measures to the relevant
reported measures, please see the “How We Assess the Performance of Our Business” and “Selected Financial
Information” 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 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 consideration received, net of discounts and an estimated allowance
for returns. Revenues are reported net of sales taxes collected for various governmental agencies. Receipts from
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Fiscal 2023 Annual Report | 30
the sale of gift cards are treated as deferred revenue. When gift cards are redeemed for merchandise, the related
revenue is recognized.
Comparable sales growth is a retail industry metric used to explain our total 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 monthly
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).
Due to temporary boutique closures from COVID-19 in Fiscal 2022 and Fiscal 2021 which resulted in boutiques
being removed from our comparable store base, we believe total comparable sales growth was not representative
of the underlying trends of our business and therefore we have not reported figures on this metric for Fiscal 2022 or
Fiscal 2021 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, occupancy costs, and depreciation expense for our boutiques and distribution centres. 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 technology, 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 net revenue volume first and second quarters, and lower in the higher net revenue
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. We believe this measure is useful as it is used by management as a component of reconciliation
between other non-IFRS measures and their most comparable IFRS measure.
Adjusted EBITDA and Adjusted EBITDA as a percentage of net revenue are useful measures of operating
performance, as we believe they provide a more relevant picture of operating results in that the measures exclude
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 and Adjusted EBITDA as a percentage of net revenue 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, fair value adjustment for inventories acquired in CYC, fair value adjustments on NCI in
exchangeable shares liability and other non-cash items and/or 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. We define Adjusted EBITDA as a percentage of net revenue as the percentage
obtained by dividing Adjusted EBITDA by net revenue.
Adjusted Net Income (and per Diluted Share) and Adjusted Net Income as a percentage of net revenue are
useful measures of performance, as we believe they provide 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, Adjusted Net Income per Diluted Share, and Adjusted Net Income as a
percentage of net revenue 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
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Fiscal 2023 Annual Report | 31
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, fair
value adjustment for inventories acquired in CYC, fair value adjustments in NCI in exchangeable shares liability and
other non-cash items and/or 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. We define Adjusted Net Income as a
percentage of net revenue as the percentage obtained by dividing Adjusted Net Income by net revenue.
Capital cash expenditures (net of proceeds from lease incentives) is a measure we believe is a useful indicator
of the net cash capital investment relating to our boutiques and infrastructure. We define capital cash expenditures
(net of proceeds from lease incentives) as cash used in investing activities, excluding cash used in business
combinations, less proceeds from lease incentives.
Free cash flow is a useful metric because it is an indicator of how much cash is available for business acquisitions,
debt repayment, share repurchases and other investing and 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 invest in infrastructure. We define free cash flow as net cash generated from
operating activities excluding interest paid on credit facilities, plus proceeds from lease incentives, less repayments
of principal on lease liabilities and cash used for the purchase of property, equipment and intangible assets.
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Fiscal 2023 Annual Report | 32
RESULTS OF OPERATIONS
Analysis of Results for Fourth Quarter Fiscal 2023
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 expense (income)
Income before income taxes
Income tax expense
Net income
Net income per diluted share
Adjusted EBITDA1
Adjusted Net Income1
Adjusted Net Income per Diluted Share1
Q4 2023
Q4 2022
Percentage of
net revenue
Percentage of
net revenue
$
637,582
395,422
100.0 % $
62.0 %
444,322
264,816
100.0 %
59.6 %
242,160
38.0 %
179,506
40.4 %
171,299
3,157
26.9 %
0.5 %
120,221
5,725
67,704
9,501
4,052
54,151
16,813
10.6 %
1.5 %
0.6 %
8.5 %
2.6 %
53,560
6,092
740
46,728
12,503
27.1 %
1.3 %
12.1 %
1.4 %
0.2 %
10.5 %
2.8 %
$
$
$
$
$
37,338
5.9 % $
34,225
7.7 %
0.32
79,354
46,671
0.40
$
0.29
12.4 % $
7.3 % $
$
66,303
39,475
0.34
14.9 %
8.9 %
Net revenue increased by 43.5% to $637.6 million, compared to $444.3 million in Q4 2022. The Company
continued to see strong momentum in the United States, where net revenue increased by 55.7% to $337.5 million,
compared to $216.8 million in Q4 2022. Net revenue in Canada increased by 31.9% to $300.1 million, compared to
$227.5 million in Q4 2022.
– Retail net revenue increased by 38.4% to $363.1 million, compared to $262.4 million in Q4 2022. The increase
was led by strong performance of our existing and new boutiques in both the United States and Canada.
Boutique count4 at the end of Q4 2023 totaled 114 compared to 106 boutiques at the end of Q4 2022.
–
eCommerce net revenue increased by 50.8% to $274.5 million, compared to $182.0 million in Q4 2022, driven
by exceptional performance in both Canada and the United States.
4 CYC had four boutiques as at February 26, 2023 and February 27, 2022 which are excluded from the boutique count.
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Fiscal 2023 Annual Report | 33
The following table provides net revenue by channel and geographic location for the periods indicated.
(in thousands of Canadian dollars)
Retail net revenue
eCommerce net revenue
Net revenue
United States net revenue
Canada net revenue
Net revenue
Q4 2023
Q4 2022
363,101 $
274,481
637,582 $
262,354
181,968
444,322
Q4 2023
Q4 2022
337,456 $
300,126
637,582 $
216,798
227,524
444,322
$
$
$
$
Gross profit increased by 34.9% to $242.2 million, compared to $179.5 million in Q4 2022. Gross profit margin
was 38.0%, compared to 40.4% in Q4 2022. The 240 bps decrease in gross profit margin was primarily driven by
additional warehousing costs related to inventory management, ongoing inflationary pressures, normalized
markdowns and foreign exchange headwinds. These impacts were partially offset by lower expedited freight costs
and leverage on occupancy and depreciation costs.
SG&A expenses increased by 42.5% to $171.3 million, compared to $120.2 million in Q4 2022. SG&A expenses
were 26.9% of net revenue, compared to 27.1% in Q4 2022. The increase in SG&A expenses was primarily due to
additional investments in retail talent to help ensure the Company continues to deliver exceptional client services,
as well as ongoing investments in talent, marketing initiatives and technology to help support its growth.
Depreciation and amortization increased by $8.1 million to $37.8 million, compared to $29.7 million in Q4 2022.
The following table provides the depreciation and amortization expense for the periods indicated.
(in thousands of Canadian dollars)
Q4 2023
Q4 2022
Depreciation on right-of-use assets
Depreciation and amortization
Total depreciation and amortization
$
$
23,164 $
14,617
37,781 $
17,593
12,110
29,703
Stock-based compensation expense was $3.2 million, compared to $5.7 million in Q4 2022. The following table
provides details of the stock-based compensation expense for the periods indicated.
(in thousands of Canadian dollars)
Q4 2023
Q4 2022
Equity-settled plans
Stock options
Restricted Share Units
Performance Share Units
Cash-settled plans
Restricted Share Units
Deferred Share Units
Stock-based compensation expense
$
$
4,134 $
1,024
726
(1,393)
(1,334)
3,157 $
2,725
—
451
2,466
83
5,725
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Fiscal 2023 Annual Report | 34
The Company uses equity derivative contracts to offset our cash flow variability of the expected payment
associated with our cash-settled deferred and restricted share units. Realized and unrealized gains and losses
related to these equity derivative contracts are recorded in other expense (income).
Finance expense increased by $3.4 million to $9.5 million, compared to $6.1 million in Q4 2022. The increase in
finance expense was primarily due to higher interest expense on lease liabilities in Q4 2023.
Other expense (income) was $4.1 million, compared to $0.7 million in Q4 2022. The following table provides
details of other expense (income) for the periods indicated.
(in thousands of Canadian dollars)
Q4 2023
Q4 2022
Realized foreign exchange loss (gain)
Unrealized foreign exchange loss (gain)
Fair value adjustment of NCI in exchangeable shares liability
Unrealized loss (gain) on equity derivative contracts
CYC integration and acquisition costs
Interest and other income
Other expense (income)
$
493 $
(1,941)
—
6,136
467
(1,103)
$
4,052 $
(150)
358
—
994
—
(462)
740
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 2023 and Q4 2022 were 26.6%.
Income tax expense was $16.8 million, compared to $12.5 million in Q4 2022 and the effective tax rates for Q4
2023 and Q4 2022 were 31.0% and 26.8%, respectively. The effective tax rates are driven by the proportionate
amount of non-deductible stock-based compensation expense on equity settled plans relative to net income.
Net income was $37.3 million, an increase of 9.1% compared to $34.2 million in Q4 2022. The increase in net
income was primarily attributable to the factors described above.
Net income per diluted share was $0.32, an increase of 10.3% compared to $0.29 in Q4 2022, primarily due to
the factors discussed above.
Adjusted EBITDA1 was $79.4 million, or 12.4% of net revenue1, an increase of 19.7% compared to $66.3 million,
or 14.9% of net revenue in Q4 2022. The decrease in Adjusted EBITDA as a percentage of net revenue was
attributable to the factors described above.
Adjusted Net Income1 was $46.7 million, an increase of 18.2% compared to $39.5 million in Q4 2022, primarily
due to the factors discussed above.
Adjusted Net Income per Diluted Share1 was $0.40, an increase of 17.6% compared to $0.34 in Q4 2022,
primarily due to the factors discussed above.
Cash and cash equivalents at the end of Q4 2023 totaled $86.5 million compared to $265.2 million at the end of
Q4 2022.
Inventory at the end of Q4 2023 was $467.6 million, an increase of 124.7% compared to $208.1 million at the end
of Q4 2022. As a reminder, in Fiscal 2023 the Company made the strategic decision to build back its inventory base
due to unprecedented sales growth, mitigate supply chain risk, and help ensure the Company's ability to fuel the
robust demand for its product. On top of that, improved freight timelines resulted in inventory arriving even sooner
than anticipated, compared to the prior year when Spring and Summer inventory arrived late, contributing to the
year-over-year increase. The Company remains on track for its inventory to normalize by the end of the second
quarter of Fiscal 2024 and expects normalized markdowns in Fiscal 2024 to be no greater than pre-pandemic
levels.
Capital cash expenditures (net of proceeds from lease incentives)1 were $38.5 million in Q4 2023, compared
to $16.4 million in Q4 2022. The increase is primarily due to capital investments in new boutiques, expanded or
repositioned boutiques, distribution centers, support offices and technology infrastructure.
19
Fiscal 2023 Annual Report | 35
Analysis of Results for Fiscal 2023
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 expense (income)
Income before income taxes
Income tax expense
Net income
Net income per diluted share
Adjusted EBITDA1
Adjusted Net Income1
Adjusted Net Income per Diluted Share1
Fiscal 2023
Fiscal 2022
Percentage of
net revenue
Percentage of
net revenue
$ 2,195,630
1,281,638
100.0 % $ 1,494,630
839,678
58.4 %
100.0 %
56.2 %
913,992
41.6 %
654,952
43.8 %
602,469
24,369
27.4 %
1.1 %
392,802
26,131
287,154
31,263
(7,916)
13.1 %
1.4 %
(0.4) %
236,019
25,202
(8,783)
263,807
76,219
12.0 %
3.5 %
219,600
62,683
26.3 %
1.7 %
15.8 %
1.7 %
(0.6) %
14.7 %
4.2 %
$
$
$
$
$
187,588
8.5 % $
156,917
10.5 %
1.63
$
1.36
351,181
214,771
1.86
16.0 % $
9.8 % $
$
289,385
176,736
1.53
19.4 %
11.8 %
Net revenue increased by 46.9% to $2.2 billion, compared to $1.5 billion in Fiscal 2022. The Company continued to
see exceptional momentum in the United States, where net revenue increased by 65.8% to $1.1 billion compared to
$676.1 million in Fiscal 2022. The Company also saw meaningful growth in Canada where net revenue increased
by 31.3% to $1.1 billion, compared to $818.5 million in Fiscal 2022.
–
–
Retail net revenue increased by 53.3% to $1.4 billion, compared to $930.3 million in Fiscal 2022. The
increase in revenue was led by strong performance of our existing and new boutiques in the United States,
strong double digit comparable sales growth in Canada, as well as boutique revenue from 34 of our boutiques
which were closed for approximately two-thirds of the first quarter of Fiscal 2022 ("Q1 2022") and one-third of
the second quarter of Fiscal 2022 ("Q2 2022").
eCommerce net revenue increased by 36.4% to $769.9 million, compared to $564.3 million in Fiscal 2022.
Overall eCommerce net revenue growth was moderated by the channel shift to retail in Eastern Canada where
34 of our boutiques were closed for approximately two-thirds of Q1 2022 and one-third of Q2 2022.
20
Fiscal 2023 Annual Report | 36
The following table provides net revenue by channel and geographic location for the periods indicated.
(in thousands of Canadian dollars)
Retail net revenue
eCommerce net revenue
Net revenue
United States net revenue
Canada net revenue
Net revenue
Fiscal 2023
Fiscal 2022
1,425,779 $
769,851
2,195,630 $
930,290
564,340
1,494,630
Fiscal 2023
Fiscal 2022
1,120,962 $
1,074,668
2,195,630 $
676,135
818,495
1,494,630
$
$
$
$
Gross profit increased by 39.6% to $914.0 million, compared to $655.0 million in Fiscal 2022. Gross profit margin
was 41.6%, compared to 43.8% in Fiscal 2022. The 220 bps decrease in gross profit margin was primarily due to
inflationary pressures, additional warehousing costs, and normalized markdowns from Fiscal 2022 due to low
inventory levels last year and foreign exchange headwinds. These impacts were partially offset by leverage on
occupancy and depreciation costs and lower freight costs.
SG&A expenses increased by 53.4% to $602.5 million, compared to $392.8 million in Fiscal 2022. SG&A
expenses were 27.4% of net revenue, compared to 26.3% in Fiscal 2022. The increase in SG&A expenses was
primarily due to additional investments in retail talent to help ensure the Company continues to deliver exceptional
client services, as well as ongoing investments in talent, marketing initiatives and technology to help support its
growth.
Depreciation and amortization increased by $21.3 million to $133.9 million, compared to $112.6 million in Fiscal
2022. The following table provides the depreciation and amortization expense for the periods indicated.
(in thousands of Canadian dollars)
Fiscal 2023
Fiscal 2022
Depreciation on right-of-use assets
Depreciation and amortization
Total depreciation and amortization
$
$
81,047 $
52,855
133,902 $
68,058
44,569
112,627
Stock-based compensation expense was $24.4 million, compared to $26.1 million in Fiscal 2022. The following
table provides details of the stock-based compensation expense for the periods indicated.
(in thousands of Canadian dollars)
Fiscal 2023
Fiscal 2022
Equity-settled plans
Stock options
Restricted Share Units
Performance Share Units
Cash-settled plans
Restricted Share Units
Deferred Share Units
$
14,467 $
2,666
2,409
4,742
85
Stock-based compensation expense
$
24,369 $
10,171
—
1,136
10,866
3,958
26,131
The Company uses equity derivative contracts to offset our cash flow variability of the expected payment
associated with our cash-settled deferred and restricted share units. Unrealized gains and losses related to these
equity derivative contracts are recorded in other expense (income).
Finance expense increased by $6.1 million to $31.3 million, compared to $25.2 million in Fiscal 2022. The increase
in finance expense was primarily due to higher interest expense on lease liabilities in Fiscal 2023.
21
Fiscal 2023 Annual Report | 37
Other expense (income) was $(7.9) million, compared to $(8.8) million in Fiscal 2022. The following table provides
details of other expense (income) for the periods indicated.
(in thousands of Canadian dollars)
Fiscal 2023
Fiscal 2022
Realized foreign exchange loss (gain)
Unrealized foreign exchange loss (gain)
Fair value adjustment of NCI in exchangeable shares liability
Unrealized loss (gain) on equity derivative contracts
Realized loss (gain) on equity derivative contracts
CYC integration and acquisition costs
2022 and 2021 secondary offering costs
Interest and other income
Other expense (income)
$
(9,109) $
(1,657)
—
6,093
(1,387)
467
518
(2,841)
$
(7,916) $
1,685
(2,839)
2,000
(11,192)
—
2,633
530
(1,600)
(8,783)
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 2023 and Fiscal 2022 were 26.6%.
Income tax expense was $76.2 million, compared to $62.7 million in Fiscal 2022 and the effective tax rates for
Fiscal 2023 and Fiscal 2022 were 28.9% and 28.5%, respectively. The effective tax rates are driven by the
proportionate amount of non-deductible stock-based compensation expense on equity settled plans relative to net
income.
Net income was $187.6 million, an increase of 19.5% compared to $156.9 million in Fiscal 2022. The increase in
net income was primarily attributable to the factors described above.
Net income per diluted share was $1.63, an increase of 19.9%, compared to $1.36 in Fiscal 2022, primarily due
to the factors discussed above.
Adjusted EBITDA1 was $351.2 million, or 16.0% of net revenue1, an increase of 21.4%, compared to $289.4
million, or 19.4% of net revenue in Fiscal 2022. The decrease in Adjusted EBITDA as a percentage of net revenue
was attributable to the factors described above.
Adjusted Net Income1 was $214.8 million, an increase of 21.5%, compared to $176.7 million in Fiscal 2022,
primarily due to the factors discussed above.
Adjusted Net Income per Diluted Share1 was $1.86, an increase of 21.6%, compared to $1.53 in Fiscal 2022,
primarily due to the factors discussed above.
Capital cash expenditures (net of proceeds from lease incentives)1 were $112.1 million in Fiscal 2023,
compared to $52.6 million in Fiscal 2022. The increase is primarily due to capital investments in new boutiques,
expanded or repositioned boutiques, distribution centers, support offices and technology infrastructure.
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 revolving credit facility, 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”, “Recent Events” 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
revolving credit facility.
22
Fiscal 2023 Annual Report | 38
Revolving Credit Facility
We have a revolving credit facility of $175.0 million which bears interest at banker's acceptance rate (BA), London
Inter-Bank Offered Rate (LIBO) or Canadian prime rate, plus a marginal rate between 0.50% and 2.50%. As at
February 26, 2023, no amounts were drawn on the revolving credit facility.
The revolving credit facility 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.
In addition, we also have letters of credit facilities of CAD$50.0 million and US$40.0 million, secured pari passu with
the revolving credit facility. The interest rate for the letters of credit is between 1.00% and 2.50%.
See “Contractual Obligations – Off-Balance Sheet Arrangements and Commitments” for letters of credit issued.
Cash Flows
The following table presents cash flows for the periods indicated.
(in thousands of Canadian dollars)
Q4 2023
Q4 2022
Fiscal 2023
Fiscal 2022
Net cash generated from operating activities
Net cash used in financing activities
Cash used in investing activities
Effect of exchange rate changes on cash and cash
$
10,184 $
733 $
74,913 $
(15,295)
(41,240)
(20,171)
(20,734)
(122,537)
(131,213)
338,353
(124,093)
(99,576)
equivalents
963
(515)
102
1,414
Change in cash and cash equivalents
$
(45,388) $
(40,687) $
(178,735) $
116,098
Analysis of Cash Flows for the Fourth Quarter and Fiscal 2023
Net Cash Generated from Operating Activities
For Q4 2023, net cash generated from operating activities totaled $10.2 million, compared to $0.7 million in Q4
2022. This change was primarily attributable to an increase in income from operations and a lower use of working
capital due to lower inventory purchases and timing of payments, partially offset by an increase in income taxes
paid.
For Fiscal 2023, net cash generated from operating activities totaled $74.9 million, compared to $338.4 million in
Fiscal 2022. This change was primarily attributable to a higher use of working capital due to higher inventory
purchases and timing of payments along with an increase in income taxes paid, partially offset by an increase in
income from operations.
Net Cash Used in Financing Activities
For Q4 2023, net cash used in financing activities totaled $15.3 million, compared to $20.2 million in Q4 2022.
Financing activities in Q4 2023 primarily relate to the repayment of principal on lease liabilities, partially offset by
proceeds received from options exercised and proceeds received from lease incentives. Financing activities in Q4
2022 primarily relate to the repayment of principal on lease liabilities and the repurchase of subordinate voting
shares for cancellation under the 2022 normal course issuer bid, partially offset by proceeds received from options
exercised and proceeds received from lease incentives.
For Fiscal 2023, net cash used in financing activities totaled $122.5 million, compared to $124.1 million in Fiscal
2022. Financing activities in Fiscal 2023 primarily relate to the repayment of principal on lease liabilities and the
$61.1 million repurchase of subordinate voting shares for cancellation under the 2022 normal course issuer bid,
partially offset by proceeds received from lease incentives and proceeds received from options exercised.
Financing activities in Fiscal 2022 primarily relate to a $75.0 million term loan repayment, the repayment of principal
23
Fiscal 2023 Annual Report | 39
on lease liabilities and the repurchase of subordinate voting shares for cancellation, under the 2022 normal course
issuer bid, partially offset by proceeds received from lease incentives and proceeds received from options
exercised.
Cash Used in Investing Activities
For Q4 2023, cash used in investing activities totaled $41.2 million, compared to $20.7 million in Q4 2022. Investing
activities in Q4 2023 and Q4 2022 primarily relate to new boutiques, boutique expansions and repositions, and
distribution center and support office projects.
For Fiscal 2023, cash used in investing activities totaled $131.2 million, compared to $99.6 million in Fiscal 2022.
Investing activities in Fiscal 2023 primarily relate to new boutiques, boutique expansions and repositions, and
distribution center projects as well as a $5.6 million contingent consideration payout to CYC's shareholders.
Investing activities in Fiscal 2022 primarily relate to the acquisition of CYC, net of cash assumed of $32.6 million,
new boutiques, boutique expansions and repositions and distribution center and support office projects.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our significant undiscounted maturities of our contractual obligations and
commitments as at February 26, 2023.
(in thousands of Canadian dollars)
Accounts payable and accrued liabilities
Lease liabilities
Contingent consideration
Minimum lease commitments with future
commencement dates
Less than 1
year
1 to 5 years
More than 5
years
Total
$ 221,712
152,520
6,619
$
—
443,102
—
$
—
376,490
—
$
221,712
972,112
6,619
2,632
45,309
98,202
146,143
Total contractual obligations and commitments
$ 383,483
$ 488,411
$ 474,692
$ 1,346,586
As part of the CYC acquisition, CYC issued exchangeable shares to minority shareholders in exchange for their
25% share of the total common shares at acquisition, resulting in a non-controlling interest in exchangeable shares
liability (refer to section below "Financial Instruments - Non-controlling interest in exchangeable shares liability").
As at February 26, 2023, the fair value of the non-controlling interest in exchangeable shares liability was $35.5
million (February 27, 2022 - $35.5 million).
OFF-BALANCE SHEET ARRANGEMENTS
Our third party manufacturers purchase raw materials on our behalf to be used for future production. As at
February 26, 2023, we had purchase obligations of $158.0 million, which represent commitments for fabric
expected 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 26, 2023, letters of credit totaling $31.6 million have been issued.
FINANCIAL INSTRUMENTS
In connection with the acquisition of CYC, we entered into two financial instruments that will be revalued on a
recurring basis in the consolidated financial statements: contingent consideration and non-controlling interest in
exchangeable shares liability. Changes in the fair value of these two financial instruments are recorded in net
income. The significant assumptions made in determining the fair value of our financial instruments are disclosed in
note 13 to our audited annual consolidated financial statements for Fiscal 2023 and in the "Critical Accounting
Estimates and Judgments" section of this MD&A.
Contingent consideration
We have a contingent consideration under the CYC purchase agreement that is based on future operating results
of CYC during the measurement period ending January 31, 2023. As at the acquisition date of CYC on June 25,
2021, we recorded a contingent consideration liability of $13.2 million which is payable in two equal installments of
24
Fiscal 2023 Annual Report | 40
$6.6 million on May 31, 2022 and May 31, 2023. In May 2022, the first installment was paid to CYC net of $1.0
million in indemnities and shared costs pursuant to the CYC purchase agreement. In Fiscal 2023, there was no
change in fair value of the remaining contingent consideration given the targets set out in calculating the contingent
consideration were already met during the predefined measurement period.
Non-controlling interest in exchangeable shares liability
In conjunction with the acquisition, CYC issued exchangeable shares to minority shareholders (“exchangeable
shareholders”) in exchange for their 25% share of the total common shares at acquisition. The exchangeable
shares allow the holders to put back their shares to CYC in the following periods: one-third from May 1, 2024 to
August 31, 2024, one-third from May 1, 2025 to August 31, 2025, and one-third from May 1, 2026 to August 31,
2026 (the “put options”). In the event that the exchangeable shareholders do not exercise the put option by August
31, 2026, we have an open-ended call option, but not an obligation, to purchase all of the shares held by the
exchangeable shareholders (the “call option”).
The exercise prices of the put option and the call option are based on certain specific operating results of CYC in
the most recently completed fiscal year prior to exercise, subject to a capped enterprise value of $60.0 million
(remaining 25% purchase). Upon exercise, the options are settled through a variable number of the Company’s
shares based on a volume weighted average price (VWAP) of the Company’s shares for 30 consecutive trading
days.
As at February 26, 2023, the fair value of the non-controlling interest in exchangeable shares liability was $35.5
million (February 27, 2022 - $35.5 million).
Equity derivative contracts
We have equity derivative contracts to hedge the share price exposure on our cash-settled deferred and restricted
share units. 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. During Fiscal 2023, the Company recorded
unrealized losses of $6.1 million (Fiscal 2022 - unrealized gains of $11.2 million) for the change in fair value for
these contracts and realized gains of $1.4 million (Fiscal 2022 - $nil) arising from the settlement of these equity
derivative contracts. As at February 26, 2023, the equity derivative contracts had a positive fair value of $9.5 million
(February 27, 2022 - $15.6 million) which is recorded in prepaid expenses and other current assets.
RELATED PARTY TRANSACTIONS
During Fiscal 2023, we made payments of $5.4 million (Fiscal 2022 - $4.9 million) for lease of premises and
management services and $1.3 million (Fiscal 2022 - $1.0 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 26, 2023, a nominal amount
was included in accounts payable and accrued liabilities (February 27, 2022 - $0.5 million). As at February 26,
2023, the outstanding balance of lease liabilities owed to these companies was $49.7 million (February 27, 2022 -
$13.3 million). These transactions were measured at the amount of consideration established at market terms.
TRANSACTIONS WITH KEY MANAGEMENT
Key management includes our directors and executive team. Compensation awarded to key management includes:
(in thousands of Canadian dollars)
Q4 2023
Q4 2022
Fiscal 2023
Fiscal 2022
Salaries, directors’ fees and short-term benefits
Stock-based compensation
1,059
344
1,114
1,232
4,404
6,617
4,906
8,685
$
1,403 $
2,346 $
11,021 $
13,591
25
Fiscal 2023 Annual Report | 41
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:
Return Allowances
Recognizing provisions for sales return allowances requires the use of estimates of the return rate of merchandise
based on historical return patterns.
Valuation of Finished Goods Inventory
Inventory is stated at the lower of cost and net realizable value. We periodically review our inventories and make
provisions which requires the use of estimates related to product quality, damages, future demand, selling prices,
and market conditions.
Impairment of Goodwill and Indefinite Life Intangible Assets
Goodwill and indefinite life intangible asset impairment testing requires the use of estimates in the impairment
testing model. On an annual basis, we test whether goodwill and indefinite life intangible assets are impaired. The
recoverable value is determined using discounted future cash flow models, which incorporate estimates regarding
future events, specifically future cash flows, growth rates and discount rates. We use judgment in determining the
grouping of assets to identify our cash generating units ("CGUs") for purposes of testing for impairment. In testing
for impairment, goodwill acquired in a business combination is allocated to the group of CGUs that are expected to
benefit from the synergies of the business combination, which involves judgment.
Leases
We estimate the incremental borrowing rate used for calculating lease liabilities and right-of-use assets. 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 at the lease commencement date. We exercise
judgment on whether we will exercise available renewal or termination options, and thus include such options in the
lease terms. We consider all facts and circumstances that create an economic incentive to exercise a renewal or
termination option.
Business Combinations
Business combinations require judgment in applying the acquisition method of accounting and estimates to value
identifiable assets and liabilities at the acquisition date. We may engage independent third parties to determine the
fair value of inventory, property and equipment and intangible assets. Assumptions and estimates are used to
determine cash flow projections, including the period of future benefit, future growth and discount rates, among
other factors. The values place on the acquired assets and liabilities assumed affect the amount of goodwill
recorded on an acquisition.
Non-Controlling Interest in Exchangeable Shares Liability
Non-controlling interest in exchangeable shares involves uncertainty in estimating the fair value of the obligation on
a recurring basis. The fair value estimate includes inputs associated with estimated future operating results,
expected volatility, anticipated timing and discount rate associated with the obligation.
26
Fiscal 2023 Annual Report | 42
ACCOUNTING POLICY DEVELOPMENTS
Standards Issued But Not Yet Adopted
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current, which amends IAS 1 –
Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or
after January 1, 2024 with earlier application permitted. 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 Company is
currently assessing the potential impact of these amendments.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates, which amends IAS 8. The amendments are
effective for annual periods beginning on or after January 1, 2023 with earlier adoption permitted. The amendments
introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial
statements that are subject to measurement uncertainty. The amendments also clarify the relationship between
accounting policies and accounting estimates by specifying that a company develops an accounting estimate to
achieve the objective set out by an accounting policy. The Company is currently assessing the potential impact of
these amendments.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB issued Disclosure of Accounting Policies, which amends IAS 1 and IFRS Practice
Statement 2. The amendments are effective for annual periods beginning on or after January 1, 2023 with earlier
adoption permitted. The amendments are intended to help preparers in deciding which accounting policies to
disclose in their financial statements. The amendments to IAS 1 require companies to disclose their material
accounting policy information rather than their significant accounting policies. The amendments also clarify that
accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as
such need not be disclosed. The amendment to IFRS Practice Statement 2 adds guidance and examples to the
materiality practice statement, which explains how to apply the materiality process to identify material accounting
policy information. The Company is currently assessing the potential impact of these amendments.
Deferred Tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12)
In May 2021, the IASB issued targeted amendments to IAS 12 – Income Taxes. The amendments are effective for
annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. The amendments
clarify that companies are required to recognize deferred taxes on transactions where both assets and liabilities are
recognized, such as with leases and asset retirement (decommissioning) obligations. The aim of the amendments
is to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations. The Company is
currently assessing the potential impact of these amendments.
RISK FACTORS
For a detailed description of risk factors associated with the Company, 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
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.
27
Fiscal 2023 Annual Report | 43
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 currency forward
contracts to mitigate risks associated with forecasted U.S. dollar merchandise purchases sold in Canada.
Interest Rate Risk
We have a revolving credit facility which provides available borrowings in an amount up to $175.0 million. Because
the revolving credit facility bears interest at a variable rate, we are exposed to market risks relating to changes in
interest rates on outstanding balances. As at February 26, 2023, no advances were made under the revolving credit
facility.
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 AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
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 Chief Executive Officer ("CEO") and the Chief Financial Officer
("CFO"), so that they can make appropriate and timely decisions regarding public disclosure.
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 and effective operation of the Company’s disclosure
controls and procedures was conducted under the supervision of management, including the CEO and CFO, as at
February 26, 2023. They concluded that, as at February 26, 2023 the design and operation of its disclosure controls
and procedures was effective in providing reasonable assurance that material information regarding this MD&A, the
consolidated financial statements and other disclosures was made known to them on a timely basis.
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
28
Fiscal 2023 Annual Report | 44
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
and the effective operation of the Company’s internal control over financial reporting as defined in NI 52-109, as at
February 26, 2023. 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 26, 2023.
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 Q4 2023 and during Fiscal 2023 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CURRENT SHARE INFORMATION
As of May 1, 2023, an aggregate of 90,054,526 subordinate voting shares, 20,437,349 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 Brian Hill, our principal shareholder, Founder and Executive Chair. As of
May 1, 2023, an aggregate of 9,027,174 options, 201,060 performance share units and 356,322 restricted share
units 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 TSX under the symbol
“ATZ”.
29
Fiscal 2023 Annual Report | 45
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 Results5
(in thousands of Canadian dollars, unless
otherwise noted)
Financial Summary:
Net revenue
Cost of goods sold
Gross profit
SG&A
Income from operations
Net income
Net income per share
Net income per diluted share
Adjusted EBITDA6
Adjusted Net Income6
Adjusted Net Income6 per Diluted Share
Weighted average number of diluted shares
outstanding (in thousands)
Fiscal 2023
Fiscal 2022
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 637,582
$ 624,615
$ 525,523
$ 407,910
$ 444,322
$ 453,323
$ 350,069
$ 246,916
395,422
353,952
305,250
227,014
264,816
243,181
193,873
137,808
242,160
270,663
220,273
180,896
179,506
210,142
156,196
109,108
171,299
163,737
147,154
120,279
120,221
110,084
67,704
37,338
0.34
0.32
$
$
95,368
70,728
0.64
0.61
79,354
$ 119,618
46,671
0.40
$
$
76,610
0.67
$
$
$
$
$
64,138
46,261
0.42
0.40
82,563
50,619
0.44
$
$
$
$
$
$
$
$
$
$
59,944
33,261
0.30
0.29
69,646
40,871
0.35
53,560
34,225
0.31
0.29
$
$
90,949
64,941
0.59
0.56
66,303
$ 109,289
39,475
0.34
$
$
71,199
0.61
$
$
$
$
$
$
$
$
$
$
92,115
55,819
39,848
0.36
0.35
72,891
44,411
0.39
$
$
$
$
$
70,382
35,691
17,903
0.16
0.16
40,902
21,651
0.19
115,249
115,154
114,457
116,080
116,774
116,140
115,265
114,711
Cash and cash equivalents
$
86,510
$ 131,898
$
65,424
$ 179,358
$ 265,245
$ 305,932
$ 131,796
$ 157,878
Capital cash expenditures (net of proceeds from
lease incentives)6
Free cash flow6
Percentage of Net Revenue:
Gross profit
SG&A
Net income
Adjusted EBITDA6
Adjusted Net Income6
Other Metrics:
Net revenue growth
Comparable sales growth6
Boutiques:4
Number of boutiques, beginning of period
New boutiques added
Repositioned to a flagship boutique
Pop-up boutique converted to a permanent
boutique
Boutique closure
Number of boutiques, end of period
Boutiques expanded or repositioned
$ (38,503)
$ (26,362)
$ (22,830)
$ (24,355)
$ (16,434)
$ (20,318)
$ (49,193)
$
68,297
$ (84,514)
$ (54,246)
$ (37,047)
$ 169,704
$
$
(9,333)
77,347
$
$
(6,522)
11,933
38.0 %
26.9 %
5.9 %
12.4 %
7.3 %
43.5 %
32.2 %
113
2
(1)
—
—
114
1
43.3 %
26.2 %
11.3 %
19.2 %
12.3 %
37.8 %
22.8 %
41.9 %
28.0 %
8.8 %
15.7 %
9.6 %
50.1 %
28.3 %
44.3 %
29.5 %
8.2 %
17.1 %
10.0 %
65.2 %
29.4 %
112
109
106
—
—
1
—
113
4
3
—
—
—
112
—
3
—
—
—
109
—
40.4
27.1
7.7
14.9
8.9
66.1 %
n/a
105
2
—
—
(1)
106
1
46.4 %
24.3 %
14.3 %
24.1 %
15.7 %
62.9 %
n/a
44.6 %
26.3 %
11.4 %
20.8 %
12.7 %
44.2 %
28.5 %
7.3 %
16.6 %
8.8 %
74.9 %
121.7 %
n/a
n/a
104
102
101
1
—
—
—
105
4
2
—
—
—
104
1
1
—
—
—
102
—
5
For a discussion of the factors that have caused variations in our business over the last eight quarters, please refer to the "Results of Operations sections in this
MD&A, and in our Q3 2023 MD&A dated January 11, 2023 for the 13-week period ended November 27, 2022, our Q2 2023 MD&A dated October 12, 2022 for the 13-
week period ended August 28, 2022, our Q1 2023 MD&A dated July 7, 2022 for the 13-week period ended May 29, 2022, our Q3 2022 MD&A dated January 12,
2022 for the 13-week period ended November 28, 2021, our Q2 2022 MD&A dated October 13, 2021 for the 13-week period ended August 29, 2021 and our Q1
2022 MD&A dated July 13, 2021 for the 13-week period ended May 30, 2021, which are available on SEDAR.
6 See “How We Assess the Performance of Our Business” for definitions of Adjusted EBITDA and Adjusted Net Income which are non-IFRS financial measures,
Adjusted Net Income per Diluted Share, Adjusted EBITDA as a percentage of net revenue and Adjusted Net Income as a percentage of net revenue which are non-
IFRS ratios, Capital Cash Expenditures (net of proceeds from lease incentives) and Free Cash Flow which are capital management measures, and comparable sales
growth which is a supplementary financial measure. See also “Non-IFRS Measures and Retail Industry Metrics”.
30
Fiscal 2023 Annual Report | 46
Financial
Statements
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 26, 2023
and February 27, 2022, 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 26, 2023 and February 27, 2022;
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.
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 2023 Annual Report | 48
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 26, 2023. These matters were
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 6 – Inventory to
the consolidated financial statements.
As at February 26, 2023, the Company held
inventory of $467.6 million including finished goods
in transit of $60.5 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.
We considered this a key audit matter due to the
magnitude of the inventory balance and the audit
effort involved in testing the inventory.
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 a
sample of distribution centres and for a sample
of boutiques near year-end and performed
independent test counts.
● Tested, on a sample basis, the finished goods
in transit as at year-end by agreeing to third
party shipment documents, receipt of inventory
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
as at year-end.
● Tested how management determined net
realizable value, which included testing a
sample of inventory items to the most recent
retail prices of the inventory items.
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.
Fiscal 2023 Annual Report | 49
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express 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.
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.
Fiscal 2023 Annual Report | 50
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.
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
Fiscal 2023 Annual Report | 51
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 Paulina Prokop.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
May 2, 2023
Fiscal 2023 Annual Report | 52
Aritzia Inc.
Consolidated Statements of Financial Position
As at February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars)
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
Accounts payable and accrued liabilities
Income taxes payable
Current portion of contingent consideration
Current portion of lease liabilities
Deferred revenue
Total current liabilities
Lease liabilities
Other non-current liabilities
Contingent consideration
Non-controlling interest in exchangeable shares liability
Deferred tax liabilities
Total liabilities
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
Commitments and contingencies
Note
February 26,
2023
February 27,
2022
$
$
$
6
13
7
8
8
9
19
10
$
13
9
9
11
13
13
19
$
$
14
$
$
21
86,510 $
18,184
6,419
467,634
33,101
611,848 $
308,608
86,382
198,846
614,061
3,830
12,968
1,836,543 $
221,712 $
—
6,619
117,316
71,653
417,300 $
654,690
21,499
—
35,500
21,767
1,150,756 $
265,245
8,147
6,455
208,125
33,564
521,536
223,190
87,398
198,846
362,887
4,271
26,458
1,424,586
179,344
58,917
6,619
86,724
55,721
387,325
417,067
22,359
6,618
35,500
24,906
893,775
265,519 $
68,682
355,270
(3,684)
685,787
1,836,543 $
251,291
56,342
223,553
(375)
530,811
1,424,586
Approved on behalf of the Board of Directors
Brian Hill
Director
John Currie
Director
The accompanying notes are an integral part of these consolidated financial statements.
Fiscal 2023 Annual Report | 53
Aritzia Inc.
Consolidated Statements of Operations
For the years ended February 26, 2023 and February 27, 2022
(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 expense (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 26,
2023
February 27,
2022
17, 20 $
18
2,195,630 $
1,281,638
913,992
1,494,630
839,678
654,952
15, 18
9, 12, 18
13, 18
602,469
24,369
287,154
31,263
(7,916)
263,807
392,802
26,131
236,019
25,202
(8,783)
219,600
19
$
76,219
187,588 $
62,683
156,917
16 $
16 $
1.70 $
1.63 $
1.42
1.36
16
16
110,259
115,301
110,401
115,784
The accompanying notes are an integral part of these consolidated financial statements.
Fiscal 2023 Annual Report | 54
Aritzia Inc.
Consolidated Statements of Comprehensive Income
For the years ended February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars)
February 26,
2023
February 27,
2022
Net income
$
187,588 $
156,917
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to net income:
Foreign currency translation adjustment
Comprehensive income
(3,309)
184,279 $
(151)
156,766
$
The accompanying notes are an integral part of these consolidated financial statements.
Fiscal 2023 Annual Report | 55
Aritzia Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended February 26, 2023 and February 27,2022
(in thousands of Canadian dollars, except number of shares)
Multiple
voting shares
Subordinate
voting shares
Shares
Amounts
Shares
Amounts
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
loss
Total
shareholders
’ equity
Balance, February 28, 2021
Net Income
Options exercised (note 15)
Stock-based compensation expense on equity-
settled plans (note 15)
Share exchange at secondary offering (note 14)
Shares repurchased for cancellation (note 14)
Foreign currency translation adjustment
Balance, February 27, 2022
Net Income
Options exercised (note 15)
Stock-based compensation expense on equity-
settled plans (note 15)
24,537,349 $
—
—
—
(2,600,000)
—
—
21,937,349 $
—
—
—
Shares exchange at secondary offering (note 14)
Shares repurchased for cancellation (note 14)
Foreign currency translation adjustment
Balance, February 26, 2023
(1,500,000)
—
—
20,437,349 $
17,737
—
—
—
(1,879)
—
—
15,858
—
—
—
(1,084)
—
—
14,774
85,416,470 $ 210,928 $
56,606 $
75,216 $
—
1,328,799
—
23,044
—
(11,571)
156,917
—
(224) $
—
—
360,263
156,917
11,473
—
—
11,307
—
—
11,307
2,600,000
(164,200)
—
1,879
(418)
—
—
—
—
—
(8,580)
—
89,181,069 $ 235,433 $
56,342 $ 223,553 $
—
943,772
—
18,513
—
(7,202)
187,588
—
—
—
(151)
(375) $
—
—
—
(8,998)
(151)
530,811
187,588
11,311
—
—
19,542
—
—
19,542
1,500,000
(1,619,580)
—
1,084
(4,285)
—
—
—
—
—
(55,871)
—
90,005,261 $ 250,745 $
68,682 $ 355,270 $
—
—
(3,309)
(3,684) $
—
(60,156)
(3,309)
685,787
The accompanying notes are an integral part of these consolidated financial statements.
Fiscal 2023 Annual Report | 56
Aritzia Inc.
Consolidated Statements of Cash Flows
For the years ended February 26, 2023 and February 27, 2022
(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
Unrealized loss (gain) on equity derivative contracts
Income tax expense
Amortization of deferred lease inducements
Fair value adjustment for inventory acquired in CYC Design Corporation
Fair value adjustment of non-controlling interest in exchangeable shares liability
Rent concessions relating to lease liabilities
Cash generated before non-cash working capital balances and interest and income
taxes
Net change in non-cash working capital
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
Payment of financing fees
Repayment of principal on lease liabilities
Proceeds from lease incentives
Proceeds from options exercised
Shares repurchased for cancellation
Repayment of long-term debt
Net cash used in financing activities
Investing activities
Purchase of property and equipment
Purchase of intangible assets
Acquisition of CYC Design Corporation, net of cash acquired
Contingent consideration payout, net relating to the acquisition of CYC Design
Corporation
Cash used in investing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents – Beginning of year
Cash and cash equivalents – End of year
Note
February 26,
2023
February 27,
2022
$
187,588 $
156,917
7,8
9
18
15, 18
13, 18
19
18
9
23
9
12
9
15
14
12
7
8
5
13
52,855
81,047
31,263
24,369
6,093
76,219
(1,070)
—
—
—
44,569
68,058
25,202
26,131
(11,192)
62,683
(1,056)
1,902
2,000
(3,800)
458,364
371,414
(228,956)
229,408
(3,743)
(27,336)
(123,416)
74,913
—
(86,262)
13,538
11,311
(61,124)
—
(122,537)
(122,767)
(2,821)
—
(5,625)
18,723
390,137
(2,491)
(23,128)
(26,165)
338,353
(651)
(66,300)
14,414
11,473
(8,029)
(75,000)
(124,093)
(65,427)
(1,594)
(32,555)
—
(131,213)
(99,576)
102
(178,735)
265,245
$
86,510 $
1,414
116,098
149,147
265,245
Supplemental cash flow information
23
The accompanying notes are an integral part of these consolidated financial statements.
Fiscal 2023 Annual Report | 57
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(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 a vertically integrated design
house. The Company is a creator and purveyor of Everyday Luxury, home to an extensive portfolio of exclusive
brands for every function and individual aesthetic. The Company provides immersive and highly personal
shopping experiences at aritzia.com and in 100+ boutiques throughout North America.
On June 25, 2021, the Company acquired 75% of the common shares in CYC Design Corporation (“CYC”), a
leading designer and manufacturer of premium athletic wear, Reigning Champ (note 5). The results of
operations, financial position, and cash flows of CYC have been included in the Company’s consolidated
financial statements since the date of acquisition.
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.
The Company’s subordinate voting shares are listed on the Toronto Stock Exchange ("TSX") 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, non-controlling interest in exchangeable shares liability, 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.
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 2023
and 2022 represent the fiscal years ended February 26, 2023 and February 27, 2022.
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 2, 2023 by the Company’s Board of
Directors (“Board”).
COVID-19 Pandemic
While there were no in-store capacity restrictions or closures due to COVID-19 that directly impacted the
Company during Fiscal 2023, the trailing effects of the pandemic and related macroeconomic conditions remain
uncertain. Management continues to monitor and assess the impacts of the COVID-19 pandemic and related
macroeconomic conditions on the business as well as on certain estimates and judgments.
Fiscal 2023 Annual Report | 58
(1)
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
2
Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, including
Aritzia LP and CYC Design Corporation, 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.
Business combinations
The Company accounts for business combinations using the acquisition method when the acquired set of
activities and assets meets the definition of a business and control is transferred to the Company. The
Company assesses whether the set of assets acquired includes an input and substantive process and whether
the acquired set of assets has the ability to produce outputs.
The consideration transferred (including cash and contingent consideration) in the acquisition is measured at
fair value, as are the identifiable net assets acquired at the date of the acquisition. The fair value of the
purchase consideration is allocated to the fair values of the tangible and intangible assets acquired and
liabilities assumed.
Contingent consideration that is classified as a liability is remeasured at fair value at each reporting date and
subsequent changes in the fair value are recognized in profit and loss.
Goodwill is measured at cost, being the difference between the acquisition date fair value of consideration
transferred, including the recognized amount of any non-controlling interest in the acquiree over the net fair
value amount of the identifiable assets acquired and the liabilities assumed, all measured as at the acquisition
date.
The fair values of inventories acquired in a business combination are determined based on the estimated
selling price in the ordinary course of business less the estimated costs of sale, and a reasonable profit margin
based on the effort required to complete and sell the inventories.
The fair values of property and equipment acquired in a business combination are based on either the cost
approach or market approach, as applicable. Under the cost approach, the current replacement cost or
reproduction cost for each major asset is calculated. Under the market approach, the market value of property
is the estimated amount for which a property could be exchanged on the date of valuation between a willing
buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties each act
knowledgeably and willingly.
The fair values of brands acquired in a business combination are determined using a relief from royalty method
using a discounted cash flow model. The fair value of off-market leases acquired in a business combination is
determined based on the present value of the difference between market rates and rates in the existing leases.
The fair values of non-compete agreements acquired in a business combination are determined using a with-
and-without approach based on the difference between two discounted cash flow models and consideration for
likelihood of competition.
The purchase price allocation may be provisional during a measurement period of up to one year to provide
reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities
assumed. Measurement period adjustments are recognized in the period in which the adjustment amount is
determined and adjustments to fair values and allocations are retrospectively adjusted.
Transaction costs associated with the acquisition are expensed as incurred.
(2)
Fiscal 2023 Annual Report | 59
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Non-controlling interest in exchangeable shares liability
Non-controlling interest in exchangeable shares liability represents exchangeable shares that can be put back
to the Company's subsidiary at the option of the holder and are measured initially at its fair value at the date of
acquisition. Subsequent changes in the fair value are recognized in in profit and loss. The portion of change in
fair value attributable to changes in the Company's own credit risk is recognized in other comprehensive
income.
Functional and presentation currency
The consolidated financial statements are presented in Canadian dollars. 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. The functional currency of the parent corporation and its Canadian operations is
the Canadian dollar. The functional currency of the Company's U.S. operations is the U.S. dollar.
Foreign currency translation
Transactions denoted in foreign currencies are translated into the functional currency for the respective entity at
the exchange rates at the date of the transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions, and from the translation of monetary assets and liabilities denominated in
foreign currencies at the reporting date exchange rates, are recognized in profit or loss. Other non-monetary
items on the consolidated statement of financial position denominated in foreign currencies are translated into
the functional currencies using the exchange rates at the date of the transaction.
The Company's U.S. operations with a functional currency of U.S. dollars are translated into Canadian dollars
at each reporting date. Assets and liabilities 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 translation adjustments 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 26, 2023 and February 27, 2022, the Company had
no investments held in money market instruments classified as cash equivalents.
Prepaid expenses and other current assets
Prepaid expenses and other current assets comprise of equity derivative contracts, prepaid expenses, deposits
and packaging supplies.
Inventory
Inventory, consisting of finished goods and raw materials, 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 any accumulated impairment
losses. Cost includes expenditures that are directly attributable to the acquisition of the asset, including any
(3)
Fiscal 2023 Annual Report | 60
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
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. Costs 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.
Depreciation is recognized 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 - 7 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 and
internally developed computer software.
Costs to purchase any trademarks from third parties are capitalized and amortized over the useful lives of the
assets. Costs include 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 and Reigning Champ trade names have been determined to have an indefinite life and are 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
Non-compete agreements
Computer software
term of registration or
up to a maximum of 20 years
5 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.
(4)
Fiscal 2023 Annual Report | 61
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Impairment of non-financial assets
General
Impairment testing compares the carrying values of the assets or cash-generating units ("CGU") being tested
with their recoverable amounts (the recoverable amount being the greater of an asset's or CGUs value in use
or fair value less costs of disposal). To the extent that the carrying value of an asset or CGU exceeds its
recoverable amount, the excess amount would be recorded as an impairment loss. Should the recoverable
amounts for impaired assets or CGUs subsequently increase, the impairment losses previously recognized
(other than in respect of goodwill) may be reversed.
Property, plant and equipment, intangible assets, and right-of-use assets with finite lives
Assets that are subject to depreciation or amortization are periodically reviewed for indicators of impairment.
Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, the
asset or CGU is tested for impairment.
Goodwill and intangible assets with indefinite lives
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. The Company has selected the first day of the fourth quarter as the time of the annual impairment
test.
The fair value methodologies used by the Company in testing goodwill and indefinite-lived intangible assets
include assumptions related to sales trends, discount rates, royalty rates and other assumptions that are
judgmental in nature. If future economic conditions or operating performance, such as declines in sales or
increases in discount rates, are different than those projected by management in its most recent impairment
tests for goodwill and indefinite-lived intangible assets, future impairment charges may be required. See Note 8
for further details.
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 determine
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
made 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.
(5)
Fiscal 2023 Annual Report | 62
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
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. Proceeds from lease incentives are recognized as
financing cash flows in the consolidated statement of cash flows.
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 boutique 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, lease liabilities and long term debt, are classified as
amortized cost. The Company’s equity derivative contracts, contingent consideration and non-controlling
interest in exchangeable shares liability 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)
(ii)
the financial asset is held within a business model whose objective is to hold financial assets to collect
contractual cash flows; and
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.
(6)
Fiscal 2023 Annual Report | 63
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(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.
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
share capital. 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.
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.
(7)
Fiscal 2023 Annual Report | 64
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Cost of goods sold
Cost of goods sold includes inventory and product-related costs, occupancy costs, and depreciation expense
for the Company’s boutiques 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 through cost of goods sold or selling, general and administrative expenses 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.
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.
(8)
Fiscal 2023 Annual Report | 65
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Stock-based compensation expense
General
For stock-based compensation which vests in its entirety at one future point in time (cliff-vesting), the Company
recognizes the expense on a straight-line basis over the vesting period. For stock-based compensation which
vests in tranches, the Company recognizes the expense using the graded vesting method. An estimate of
forfeitures during the vesting period is made at the date of grant, which is adjusted to reflect actual forfeitures.
For stock-based compensation that is subject to performance criteria, it is earned only if certain performance
targets are achieved, as established by the Board, along with any other vesting conditions over the vesting
period and can decrease or increase if minimum or maximum performance targets are achieved.
Equity-settled plans
Stock option expense is initially recognized based on the fair value of the option at the grant date using the
Black-Scholes option-pricing model, with a corresponding increase in contributed surplus. When stock options
are exercised, the exercise price proceeds together with the amount initially recorded in contributed surplus are
reclassified to share capital.
Compensation expense related to other equity-settled plans is measured based on an estimated fair value at
the grant date, with a corresponding increase in contributed surplus. Upon settlement, the amount initially
recognized in contributed surplus is reclassified to share capital.
Cash-settled plans
Compensation expense related to cash-settled plans is measured based on the market value of the Company’s
shares at grant date, with a corresponding liability. The liability is subsequently 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 over the vesting period.
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 stock options granted, as calculated under the treasury stock method,
and the dilutive impact of equity-settled restricted and performance share units granted and the non-controlling
interest in exchangeable shares liability.
3 Accounting policy developments
Standards, interpretations and amendments not yet effective and not yet applied
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current, which amends IAS 1 –
Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on
or after January 1, 2024 with earlier application permitted. 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
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Fiscal 2023 Annual Report | 66
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
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 Company is currently assessing the potential impact of these amendments.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates, which amends IAS 8. The amendments
are effective for annual periods beginning on or after January 1, 2023 with earlier adoption permitted. The
amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in
the financial statements that are subject to measurement uncertainty. The amendments also clarify the
relationship between accounting policies and accounting estimates by specifying that a company develops an
accounting estimate to achieve the objective set out by an accounting policy. The Company is currently
assessing the potential impact of these amendments.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB issued Disclosure of Accounting Policies, which amends IAS 1 and IFRS Practice
Statement 2. The amendments are effective for annual periods beginning on or after January 1, 2023 with
earlier adoption permitted. The amendments are intended to help preparers in deciding which accounting
policies to disclose in their financial statements. The amendments to IAS 1 require companies to disclose their
material accounting policy information rather than their significant accounting policies. The amendments also
clarify that accounting policies related to immaterial transactions, other events or conditions are themselves
immaterial and as such need not be disclosed. The amendment to IFRS Practice Statement 2 adds guidance
and examples to the materiality practice statement, which explains how to apply the materiality process to
identify material accounting policy information. The Company is currently assessing the potential impact of
these amendments.
Deferred Tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12)
In May 2021, the IASB issued targeted amendments to IAS 12 – Income Taxes. The amendments are effective
for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. The
amendments clarify that companies are required to recognize deferred taxes on transactions where both assets
and liabilities are recognized, such as with leases and asset retirement (decommissioning) obligations. The aim
of the amendments is to reduce diversity in the reporting of deferred tax on leases and decommissioning
obligations. The Company is currently assessing the potential impact of these amendments.
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:
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Fiscal 2023 Annual Report | 67
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
•
•
Return allowances, which requires the Company to utilize estimates of the return rate of merchandise based
on historical return patterns.
The provision recorded to remeasure inventories based on the lower of cost and net realizable value
(note 6), which requires the Company to utilize estimates related to product quality, damages, future
demand, selling prices, and market conditions. The Company records a write-down if the cost exceeds net
realizable value of inventory, based on the above factors.
• Goodwill and indefinite life intangible asset impairment testing, which requires management to make
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 estimates regarding future events, specifically future cash flows, growth
rates and discount rates (note 8). The Company uses judgment in determining the grouping of assets to
identify its CGUs for purposes of testing for impairment. In testing for impairment, goodwill acquired in a
business combination is allocated to the group of CGUs that are expected to benefit from the synergies of
the business combination, which involves judgment.
•
•
•
•
Incremental borrowing rate used for calculating lease liabilities and right-of-use-assets. The Company
estimates 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 9).
Lease terms, which requires judgment 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 9). The Company considers all facts and circumstances that create an economic
incentive to exercise a renewal or termination option.
The Company uses judgment in applying the acquisition method of accounting for business combinations
and estimates to value identifiable assets and liabilities at the acquisition date. The Company may engage
independent third parties to determine the fair value of inventory, property and equipment and intangible
assets. Assumptions and estimates are used to determine cash flow projections, including the period of
future benefit, future growth and discount rates, among other factors. The values placed on the acquired
assets and liabilities assumed affect the amount of goodwill recorded on an acquisition (note 5).
Non-controlling interest in exchangeable shares liability involves uncertainty in estimating the fair value of
the obligation on a recurring basis. The fair value estimate includes inputs associated with estimated future
operating results, expected volatility, anticipated timing and discount rate associated with the obligation
(note 13).
5 Acquisition of CYC Design Corporation
On June 25, 2021, the Company acquired 75% of the common shares in CYC Design Corporation (“CYC”), a
leading designer and manufacturer of premium athletic wear, Reigning Champ. This acquisition will accelerate
the Company’s product expansion into men’s wear.
Total aggregate consideration for the acquisition of the 75% of the common shares was $46.1 million which
consisted of cash consideration of $32.9 million and future cash consideration (the “contingent consideration”).
The contingent consideration is based on the future operating results of CYC during the measurement period
ending January 31, 2023, and payable in two installments in May 2022 and May 2023. As at the date of
acquisition, the Company recorded a contingent consideration liability of $13.2 million and was based on its
expected outcome at the end of the earn out period (note 13).
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Fiscal 2023 Annual Report | 68
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
As part of the acquisition, the remaining shareholders of CYC exchanged their common shares for
exchangeable shares. The exchangeable shares can be put back to CYC at specified future dates in May to
August in each of 2024, 2025 and 2026, for a formula-based amount dependent on the future performance of
CYC in exchange for shares of the Company, resulting in a liability (note 13). The Company also has the ability
to call the exchangeable shares in August 2026. The formula-based amount is subject to a capped enterprise
value of CYC. As the exchangeable shares are a liability, the Company has treated the acquisition as an
acquisition of a 100% interest in the entity, with the non-controlling interest in exchangeable shares liability
included in the fair value of the acquired assets and liabilities.
The acquisition date fair values are as follows:
Fair value of consideration
Cash paid
Contingent consideration (note 13)
Assets acquired
Cash
Accounts receivable
Inventory
Prepaid expenses and other current assets
Property and equipment
Intangible assets:
Brand
Non-compete agreements
Goodwill
Right-of-use assets
Liabilities assumed
Accounts payable and accrued liabilities
Income taxes payable
Deferred revenue
Lease liabilities
Deferred tax liabilities
Net assets acquired
Non-controlling interest in exchangeable shares liability (note 13)
As at June 25,
2021
$
$
$
$
$
$
$
$
32,878
13,237
46,115
323
1,244
8,600
303
2,670
26,200
1,200
47,164
8,264
95,968
1,170
1,081
208
6,264
7,630
16,353
79,615
(33,500)
46,115
Goodwill is attributable to the expected synergies to be achieved from integrating CYC into the Company’s
existing business and is grouped with the Company's existing goodwill, based on the expected future benefits
to be derived. Goodwill is non-deductible for tax purposes.
For the period from the date of acquisition to February 27, 2022, CYC contributed revenue of $17.1 million and
net income of $0.4 million. If the acquisition had occurred on March 1, 2021, management estimates that CYC’s
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Fiscal 2023 Annual Report | 69
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
revenue would have been $25.3 million and net income would have been $0.8 million for the year ended
February 27, 2022.
In connection with the acquisition, during the year ended February 27, 2022, the Company recognized $2.6
million in acquisition-related costs which were expensed as incurred. These costs are included in other expense
(income) and include transaction costs such as fees for advisory and professional services.
6 Inventory
Finished goods
Finished goods-in-transit
Raw materials
Inventory
February 26,
2023
February 27,
2022
$
$
397,629 $
60,527
9,478
467,634 $
131,954
69,656
6,515
208,125
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 $5.2 million for the year ended February 26, 2023 (February 27, 2022 - $8.3
million). No inventory write-downs recorded in previous periods were reversed.
All of the Company’s inventory is pledged as security for the Company's revolving credit facility (note 12).
As part of the CYC acquisition on June 25, 2021, the Company acquired inventory with a fair value of $8.6
million at the time of acquisition. During the year ended February 27, 2022, the Company recognized $1.9
million relating to the purchase price fair value adjustment included in cost of goods sold for inventory sold.
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Fiscal 2023 Annual Report | 70
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
7
Property and equipment
Balance, February 27, 2022
$
296,202 $
69,831 $
29,241 $
18,720 $
Cost
Balance, February 28, 2021
Additions
Additions related to CYC acquisition
Transfers from construction-in-progress
Dispositions
Foreign exchange
Additions
Transfers from construction-in-progress
Dispositions
Foreign exchange
Balance, February 26, 2023
Accumulated depreciation
Balance, February 28, 2021
Depreciation
Dispositions
Foreign exchange
$
$
Depreciation
Dispositions
Foreign exchange
Balance, February 26, 2023
Net carrying value
Balance, February 27, 2022
Balance, February 26, 2023
$
$
$
Leasehold
improvements
Furniture
and
equipment
Computer
hardware and
software
Construction in-
progress
Total
$
253,076 $
60,510 $
25,164 $
11,565 $
350,315
38,091
2,083
9,898
(7,481)
535
10,185
500
1,267
4,832
87
169
(2,734)
(1,028)
103
17
18,443
—
(11,334)
—
46
62,605
11,789
(5,105)
9,613
14,689
3,171
(2,282)
1,843
6,061
228
(2,510)
322
44,067
(15,188)
—
758
375,104 $
87,252 $
33,342 $
48,357 $
544,055
111,459 $
30,669 $
18,619 $
— $
27,982
(7,481)
418
8,406
(2,734)
103
4,366
(1,028)
25
—
—
—
34,902
(5,105)
4,421
9,540
(2,282)
867
4,546
(2,510)
264
—
—
—
166,596 $
44,569 $
24,282 $
— $
235,447
163,824 $
33,387 $
208,508 $
42,683 $
7,259 $
9,060 $
18,720 $
48,357 $
223,190
308,608
71,551
2,670
—
(11,243)
701
413,994
127,422
—
(9,897)
12,536
160,747
40,754
(11,243)
546
190,804
48,988
(9,897)
5,552
Balance, February 27, 2022
$
132,378 $
36,444 $
21,982 $
— $
Construction-in-progress primarily includes build costs for boutiques not yet opened and distribution center and
support office projects not put into use.
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Fiscal 2023 Annual Report | 71
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
8 Goodwill and intangible assets
Cost
Balance, February 28, 2021
Additions
Additions related to CYC
acquisition (note 5)
Dispositions
Balance, February 27, 2022
Additions
Balance, February 26, 2023
Accumulated amortization
Balance, February 28, 2021
Amortization
Dispositions
Balance, February 27, 2022
Amortization
Balance, February 26, 2023
Net carrying value
Balance, February 27, 2022
Balance, February 26, 2023
Indefinite
life trade
names
Definite life
trade names
and trademarks
Computer
software
Non-compete
agreements
Construction-
in-
progress
Total
Intangible
assets
Goodwill
$
46,092 $
19,184 $
35,322 $
—
26,200
—
—
—
—
90
—
(56)
— $
—
— $
100,598 $ 151,682
1,674
1,764
—
1,200
—
—
—
27,400
47,164
(56)
—
$
$
$
$
$
$
$
72,292 $
19,184 $
35,356 $
1,200 $
1,674 $
129,706 $ 198,846
—
—
—
—
2,851
2,851
—
72,292 $
19,184 $
35,356 $
1,200 $
4,525 $
132,557 $ 198,846
— $
—
—
— $
—
— $
13,941 $
24,608 $
684
—
2,971
(56)
14,625 $
27,523 $
692
2,935
15,317 $
30,458 $
— $
160
—
160 $
240
400 $
— $
38,549 $
—
—
— $
—
— $
3,815
(56)
42,308 $
3,867
46,175 $
—
—
—
—
—
—
72,292 $
72,292 $
4,559 $
3,867 $
7,833 $
4,898 $
1,040 $
800 $
1,674 $
87,398 $ 198,846
4,525 $
86,382 $ 198,846
Construction-in-progress includes internally generated computer software not put into use.
Business combination
On June 25, 2021, the Company acquired 75% of the common shares in CYC Design Corporation, a leading
designer and manufacturer of premium athletic wear. The acquisition transaction was treated as a business
combination which resulted in $47.2 million recognized as goodwill and $26.2 million allocated to the CYC
brand name, known as Reigning Champ (note 5). Management has grouped goodwill that arose on the CYC
acquisition with the existing goodwill, based on the expected future benefits to be derived.
Impairment testing of goodwill and intangible assets with indefinite lives
Goodwill is monitored corporately at the level of the Company’s single operating segment. The recoverable
amount of goodwill is based on value in use, calculated using discounted cash flows over five years with a
terminal value generated from continuing use of the group of CGUs. Specific cash flow estimates are projected
based on approved financial forecasts, expected annual growth assumptions and a terminal growth rate to
extrapolate the cash flow projections. A pre-tax discount rate of 9.6% and a terminal growth assumption rate of
2.0% were used in the impairment model.
The Company’s indefinite life trade names include Aritzia and Reigning Champ. As there is no foreseeable limit
to the period over which the assets are expected to generate net cash inflows, these intangible assets are
considered to have indefinite useful lives. For the purposes of intangible assets with indefinite useful lives,
CGUs are grouped at the lowest level that the assets are monitored for internal management purposes and for
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Fiscal 2023 Annual Report | 72
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
which largely independent cash flows are generated. The carrying values allocated to the CGUs' intangible
assets with indefinite useful lives are set out in the following table:
Aritzia trade name
Reigning Champ trade name
Indefinite life trade names
February 26,
2023
February 27,
2022
$
$
46,092 $
26,200
72,292 $
46,092
26,200
72,292
The recoverable amount of the indefinite life trade names is determined based on the relief from royalty
method, calculated using discounted cash flows over five years with a terminal value generated from continuing
use of the group of CGUs. The method considers the projected royalties that would otherwise be paid to the
holder of the trade name, assuming an arm's length owner.
Specific cash flow estimates for the trade names are projected based on approved financial forecasts, annual
growth assumptions, royalty rates, discount rates and a terminal growth rate to extrapolate the cash flow
projections. A pre-tax discount rate of 9.6% and 19.3% for each of the Aritzia and Reigning Champ trade
names, respectively, and a terminal growth assumption rate of 2.0% (based on the Bank of Canada's target
inflation rate) were used in the impairment models for each trade name.
As at February 26, 2023 and February 27, 2022, management has determined that there was no impairment of
goodwill or the indefinite life trade names. The Company believes that any reasonably possible change in the
key assumptions on which the calculation of the recoverable amount of the CGUs is based would not cause the
CGUs carrying values to exceed their recoverable amounts.
9 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.
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Fiscal 2023 Annual Report | 73
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
The following table reconciles the change in right-of-use assets for the year ended February 26, 2023:
Cost
Balance, February 27, 2022
Additions, net of lease incentives received
Modifications
Foreign exchange
Balance, February 26, 2023
Accumulated depreciation
Balance, February 27, 2022
Depreciation
Amortization of fair value adjustment on CYC leases
Modifications
Foreign exchange
Balance, February 26, 2023
Net carrying value
Balance, February 27, 2022
Balance, February 26, 2023
$
$
$
$
$
$
The following table reconciles the change in lease liabilities for the year ended February 26, 2023:
Balance, February 27, 2022
Additions
Interest expense on lease liabilities (note 18)
Repayment of interest and principal on lease liabilities
Modifications
Foreign exchange
Balance, February 26, 2023
Current portion of lease liabilities
Long-term portion of lease liabilities
Lease liabilities
$
$
$
Right-of-use
assets
549,778
261,907
41,975
24,933
878,593
186,891
80,515
532
(12,367)
8,961
264,532
362,887
614,061
Lease
liabilities
503,791
279,492
27,336
(113,598)
52,916
22,069
772,006
117,316
654,690
772,006
(17)
Fiscal 2023 Annual Report | 74
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
The following table summarizes the Company's rent and rent-related expenses for the year ended
February 26, 2023:
Depreciation on right-of-use assets, excluding fair value adjustments
Interest expense on lease liabilities (note 18)
Variable lease expense
Common area maintenance, property taxes and other
Lease payments relating to short-term or low value leases
Total rent and rent-related expenses
February 26,
2023
February 27,
2022
$
$
80,515 $
27,336
26,370
41,336
2,670
178,227 $
67,702
22,346
14,439
37,010
1,656
143,153
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
Future undiscounted minimum lease payments
$
$
152,520
443,102
376,490
972,112
As at February 26, 2023, the Company had future undiscounted minimum lease payments of $146.1 million for
leases committed to but not yet commenced (February 27, 2022 - $122.6 million).
10 Accounts payable and accrued liabilities
Trade accounts payable
Employee benefits payable
Other non-trade payables
Current portion of Restricted Share Unit ("RSU") and Deferred Share Unit ("DSU")
plan liabilities (note 15)
Accounts payable and accrued liabilities
11 Other non-current liabilities
RSU and DSU plan liabilities (note 15)
Deferred lease inducements
Asset retirement obligations
Other non-current liabilities
February 26,
2023
February 27,
2022
149,422 $
44,205
22,351
5,734
221,712 $
124,506
38,494
12,469
3,875
179,344
February 26,
2023
February 27,
2022
14,914 $
6,174
411
21,499 $
15,736
6,250
373
22,359
$
$
$
$
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Fiscal 2023 Annual Report | 75
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
12 Bank indebtedness
On July 13, 2021, the Company refinanced its term loan and revolving credit facility, extending the term to July
13, 2025. As part of the refinancing, the Company repaid its term loan of $75.0 million and increased its existing
revolving credit facility from $100.0 million to $175.0 million. The Company incurred $0.7 million of financing
fees as part of the refinancing in the year ended February 27, 2022, which have been deferred and are being
amortized over the term of the facility.
The revolving credit facility bears interest at banker's acceptance rate ("BA"), London Inter-Bank Offered Rate
("LIBO") or Canadian prime rate, plus a marginal rate between 0.50% and 2.50% (February 27, 2022 – 0.50%
and 2.50%). Up to $10.0 million of the facility can be drawn upon by way of a swingline loan. As at February 26,
2023 and February 27, 2022, no advances were made under the revolving credit facility.
The Company also has letters of credit facilities of CAD$50.0 million and US$40.0 million (February 27, 2022 -
CAD$75.0 million) secured pari passu with the revolving credit facility. The interest rate for the letters of credit is
between 1.00% and 2.50%. As at February 26, 2023, the amount available under these facilities was reduced
to $72.9 million (February 27, 2022 - $31.5 million) by certain open letters of credit (note 21).
The revolving credit facility is collateralized by a first priority lien on all property and equipment, leased real
property interests and inventory. In addition, the Company is required to maintain certain financial covenants.
As at February 26, 2023 and February 27, 2022, the Company was in compliance with all financial covenants.
13 Financial instruments
The following tables show the carrying amounts and fair values of financial assets and liabilities, including their
levels in the fair value hierarchy and accounting classification:
Classification
Fair Value
Level
As at
February 26, 2023
Carrying
Value
Fair
Value
As at
February 27, 2022
Carrying
Value
Fair
Value
Financial assets
Cash and cash equivalents
Amortized cost
Accounts receivable
Amortized cost
Equity derivative contracts
FVTPL
Financial liabilities
Accounts payable and accrued
liabilities
Lease liabilities
Contingent consideration
Non-controlling interest in
exchangeable shares
liability
Amortized cost
Amortized cost
FVTPL
FVTPL
1
2
2
2
2
3
3
$
86,510 $
86,510 $
265,245 $
265,245
18,184
9,468
18,184
9,468
8,147
15,561
8,147
15,561
$
221,712 $
221,712 $
179,344 $
179,344
772,006 $
772,006
503,791
503,791
6,619 $
6,619
13,237
13,237
35,500 $
35,500
35,500
35,500
There were no transfers between the levels of the fair value of hierarchy for the years ended February 26, 2023
and February 27, 2022.
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Fiscal 2023 Annual Report | 76
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
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.
Equity derivative contracts
The Company has equity derivative contracts (total return swaps) 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 26, 2023, the Company recorded an unrealized loss of $6.1 million
(February 27, 2022 - unrealized gain of $11.2 million) for the change in fair value for these contracts in the
consolidated statements of operations in other expense (income). During the year ended February 26, 2023,
the Company recorded realized gains of $1.4 million (February 27, 2022 - $nil) arising from the settlement of
equity derivative contracts. As at February 26, 2023, the equity derivative contracts had a positive fair value of
$9.5 million (February 27, 2022 – $15.6 million) which is recorded in prepaid expenses and other current assets
in the consolidated statements of financial position.
Contingent consideration
The Company has a contingent consideration under the CYC purchase agreement that is based on future
operating results of CYC during the measurement period ended January 31, 2023. As at the acquisition date of
CYC on June 25, 2021, the Company recorded a contingent consideration liability of $13.2 million which is
payable in two equal installments of $6.6 million on May 31, 2022 and May 31, 2023. During the year ended
February 26, 2023, the first installment was paid to CYC net of $1.0 million in indemnities and shared costs
pursuant to the purchase agreement. During the year ended February 26, 2023, there was no change in fair
value of the remaining contingent consideration given the targets set out in calculating the contingent
consideration were already met during the pre-defined measurement period.
Non-controlling interest in exchangeable shares liability
In conjunction with the acquisition, CYC issued exchangeable shares to minority shareholders (“exchangeable
shareholders”) in exchange for their 25% share of the total common shares at acquisition. The exchangeable
shares allow the holders to put back their shares to CYC in the following periods: one-third from May 1, 2024 to
August 31, 2024, one-third from May 1, 2025 to August 31, 2025, and one-third from May 1, 2026 to August 31,
2026 (the “put options”). In the event that the exchangeable shareholders do not exercise the put options by
August 31, 2026, the Company has an open-ended call option, but not an obligation, to purchase all of the
shares held by the exchangeable shareholders (the “call option”).
The exercise prices of the put options and the call option are based on certain specific operating results of CYC
in the most recently completed fiscal year prior to exercise, subject to a capped enterprise value of $60.0
million (remaining 25% purchase). Upon exercise, the options are settled through a variable number of the
Company’s shares based on a volume weighted average price ("VWAP") of the Company’s shares for 30
consecutive trading days.
The fair value of the non-controlling interest in exchangeable shares liability is estimated initially, and on a
recurring basis, based on a Monte Carlo simulation that has been used to simulate the potential fluctuations in
CYC’s operating results over the period to exercise. The cash flows associated with the modelled operating
results are then discounted back to the valuation date.
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Fiscal 2023 Annual Report | 77
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
The fair value of the non-controlling interest in exchangeable shares liability was estimated for the year ended
February 26, 2023 based on the Monte Carlo simulation using the following assumptions:
Initial business enterprise value (100%)
Capped enterprise value
(remaining 25% purchase)
Gross profit expected volatility
Gross profit discount rate
Expected life
$63.0 million
$60.0 million
23.0%
14.5%
3.8 years
A 1.0% increase (decrease) in the gross profit discount rate would result in a $1.0 million decrease and $0.5
million increase, respectively in the amount of the non-controlling interest in exchangeable shares liability.
A 5.0% increase (decrease) in gross profit would result in a $1.0 million increase and $1.5 million decrease,
respectively, in the amount of the non-controlling interest in exchangeable shares liability.
As at the acquisition date of CYC on June 25, 2021, the fair value of the non-controlling interest in
exchangeable shares liability was $33.5 million. During year ended February 26, 2023, there was no change in
the fair value recorded for the non-controlling interest in exchangeable shares liability (February 27, 2022 - $2.0
million recorded in other expense (income)).
14 Share capital
Secondary offerings
From time to time, the Company will announce a secondary offering on a bought deal basis of its subordinate
voting shares through a secondary sale of shares by certain entities owned and/or controlled, directly or
indirectly, by Brian Hill, Founder and Executive Chair of Aritzia, or Brian Hill and his immediate family
(collectively, the “Selling Shareholders”). The Company does not receive any proceeds from the secondary
offerings. Underwriting fees are paid by the Selling Shareholders and other expenses related to the secondary
offerings are paid by the Company.
On November 14, 2022, the Company announced a secondary offering (the "2022 Secondary Offering"). As
part of the 2022 Secondary Offering, during the year ended February 26, 2023, the Selling Shareholders
exchanged 1,500,000 of their multiple voting shares for subordinate voting shares. On May 13, 2021, the
Company announced a secondary offering (“2021 Secondary Offering”). As part of the 2021 Secondary
Offering, during the year ended February 27, 2022, the Selling Shareholders exchanged 2,600,000 of their
multiple voting shares for subordinate voting shares. Details relating to the 2022 and 2021 Secondary Offerings
are summarized in the following table:
Completion date
Number of subordinate voting shares
Price per subordinate voting share
Gross proceeds to the Selling Shareholders
Other expenses paid by the Company
2022 Secondary
Offering
2021 Secondary
Offering
November 30,
2022
June 1,
2021
1,500,000
3,040,700
$
$
$
51.60 $
77,400 $
518 $
30.00
91,221
530
(21)
Fiscal 2023 Annual Report | 78
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Normal course issuer bids ("NCIB") and automatic share purchase plans ("ASPP")
From time to time, the Company will announce a NCIB approved by the Board and the TSX to repurchase and
cancel a specified number of subordinate voting shares. All repurchases are made through the facilities of the
Toronto Stock Exchange at market prices. Amounts paid above the average book value of the subordinate
voting shares is charged to retained earnings. In connection with an NCIB, the Company may enter into an
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 in accordance with the rules of the TSX, applicable securities laws and the terms of the ASPP. All
purchases made under an ASPP will be included in computing the number of subordinate voting shares
purchased under an NCIB.
On January 18, 2023, the Company announced that the TSX had accepted our notice of intention to proceed
with a normal course issuer bid (the “2023 NCIB”) to repurchase and cancel up to 3,860,745 of its subordinate
voting shares, representing approximately 5% of the public float of 77,214,916 subordinate voting shares, over
the 12-month period commencing January 20, 2023 and ending January 19, 2024. On February 3, 2023, the
Company subsequently entered into an ASPP (the “2023 ASPP”) which commenced immediately and
terminates when the 2023 NCIB expires, unless terminated earlier in accordance with the terms of the 2023
ASPP. During the year ended February 26, 2023, the Company did not repurchase any shares for cancellation
under the 2023 NCIB.
On January 12, 2022, the Company announced that the TSX had accepted our notice of intention to proceed
with a NCIB (the “2022 NCIB”) to repurchase and cancel up to 3,732,725 of its subordinate voting shares,
representing approximately 5% of the public float of 74,654,507, over the 12-month period which commenced
January 17, 2022 and ended January 16, 2023. On May 18, 2022, the Company entered into an ASPP (the
“2022 ASPP”). With the announcement of the 2022 Secondary Offering, the 2022 ASPP was automatically
terminated pursuant to its terms. During the year ended February 26, 2023, the Company repurchased a total
of 1,619,580 subordinate voting shares for cancellation at an average price of $37.14 per subordinate voting
share for total cash consideration of $60.2 million (February 27, 2022 - 164,200 subordinate voting shares at an
average price of $54.79). As at February 26, 2023, $nil (February 27, 2022, $1.0 million) of cash consideration
related to subordinate voting share repurchases was recorded in accounts payable and accrued liabilities.
As at February 26, 2023, there were 20,437,349 multiple voting shares and 90,005,261 subordinate voting
shares issued and outstanding. There were no preferred shares issued and outstanding as at February 26,
2023. Neither the multiple voting shares nor the subordinate voting shares issued have a par value.
15 Stock-based compensation
Details of stock-based compensation expense
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 had granted stock options to directors, employees, consultants and
advisors. Concurrent with the IPO, the Company implemented a long-term incentive plan (the “Omnibus plan”)
for certain officers, directors, employees or consultants. The Omnibus plan includes stock options, Restricted
Share Units and Performance Share Units ("PSUs"). The Company also has a Deferred Share Unit plan for
non-employee directors.
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Fiscal 2023 Annual Report | 79
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Details of the Company's Omnibus plan are included in the following table:
Unit type
Stock Options
Vesting
Settled in cash or equity
Five-year graded vesting
Equity
Deferred Share Unit
Immediately at time of grant
Restricted Share Unit
Third anniversary of award date
Performance Share Unit
Third anniversary of award date
Cash (not redeemable until the eligible director
ceases to be a member of the Board)
Cash, equity or combination at the discretion of
the Board on the grant date
Cash, equity or combination at the discretion of
the Board on the grant date
RSUs granted through February 27, 2022 represent cash-settled awards. Effective February 28, 2022, RSUs
granted represent equity-settled awards. PSUs granted through February 26, 2023 represent equity-settled
awards subject to performance targets.
Reflected in the consolidated statements of operations as stock-based compensation expense are the following
amounts:
February 26,
2023
February 27,
2022
Equity-settled plans
Stock options
Restricted Share Units
Performance Share Units
Cash-settled plans
Restricted Share Units
Deferred Share Units
$
14,467 $
2,666
2,409
4,742
85
Stock-based compensation expense
$
24,369 $
10,171
—
1,136
10,866
3,958
26,131
Stock-based compensation expense in relation to the options under the Legacy Plan for the year ended
February 26, 2023 was $nil (year ended February 27, 2022 – nominal) as the options have been fully vested
and expensed.
Stock Options
Legacy Plan
Following completion of the IPO in October 2016, no additional options will be granted under the Legacy Plan.
All issued options expire after 10 or 15 years from the date granted.
(23)
Fiscal 2023 Annual Report | 80
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Transactions for options granted under the Legacy Plan for the years ended on February 26, 2023 and
February 27, 2022 were as follows:
February 26, 2023
February 27, 2022
Number
of
stock
options
2,213,883
(367,253)
1,846,630
1,846,630
Weighted
average
exercise
price
Number
of
stock
options
Weighted
average
exercise
price
5.35
4.68
5.48
5.48
3,059,324 $
(845,441)
2,213,883 $
2,213,883 $
5.13
4.56
5.35
5.35
Outstanding, at beginning of year
Exercised
Outstanding, at end of year
Exercisable, at end of year
The weighted average share price on the dates the stock options were exercised during the year ended
February 26, 2023 was $49.22 (February 27, 2022 - $45.81).
The Company's outstanding and exercisable stock option weighted average remaining contractual life and
weighted average exercise price under the Legacy Plan as at February 26, 2023 is as follows:
Range of exercise
prices
$3.15 to $4.96
$4.97 to $6.44
$6.45 to $7.09
Number of
stock
options
654,507
534,949
657,174
1,846,630
Omnibus Plan
Stock options outstanding
Stock options exercisable
Weighted
average
remaining
contractual
life (years)
1.78
2.41
3.10
2.43
Weighted
average
exercise
price
4.21
5.46
6.76
5.48
Number of
stock
options
654,507
534,949
657,174
1,846,630
Weighted
average
remaining
contractual
life (years)
1.78
2.41
3.10
2.43
Weighted
average
exercise
price
4.21
5.46
6.76
5.48
All issued options expire after 7 or 10 years from the date granted.
Transactions for options granted under the Omnibus Plan for the years ended February 26, 2023 and
February 27, 2022 were as follows:
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Fiscal 2023 Annual Report | 81
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
February 26, 2023
February 27, 2022
Number
of
stock
options
Weighted
average
exercise
price
Number
of
stock
options
Weighted
average
exercise
price
Outstanding, at beginning of year
Granted
Exercised
Forfeited
Outstanding, at end of year
6,380,499 $
1,743,661
(576,343)
(211,725)
7,336,092 $
21.16
36.58
16.65
30.42
24.92
5,208,278 $
1,777,158
(483,534)
(121,403)
6,380,499 $
Exercisable, at end of year
3,473,844 $
17.15
2,980,285 $
16.12
35.21
15.76
31.84
21.16
15.37
The weighted average share price on the dates the stock options were exercised during the year ended
February 26, 2023 was $49.85 (February 27, 2022 - $50.58).
Information relating to stock options outstanding under the Omnibus Plan and exercisable as at February 26,
2023 is as follows:
Stock options outstanding
Stock options exercisable
Range of exercise
prices
Number of
stock
options
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
Number of
stock
options
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
$12.99 to $16.81
2,569,072
$16.82 to $33.07
2,677,967
$33.08 to $59.75
2,089,053
7,336,092
1.44
5.95
9.25
5.31
$
$
$
$
14.64 2,522,066
24.10
875,282
38.61
76,496
24.92 3,473,844
1.43 $
5.12 $
8.63 $
2.52 $
14.64
21.75
47.15
17.15
The weighted average fair value of stock options estimated at the grant date for the year ended February 26,
2023 was $15.24 (February 27, 2022 - $12.86), 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%
39.5% to 42.4%
2.8% to 3.6%
5.0 to 7.0 years
$35.98 to $49.31
The expected volatility reflects the historical volatility in the price of the Company's shares over the expected
life.
(25)
Fiscal 2023 Annual Report | 82
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Director Deferred Share Unit Plan
The following table summarizes information related to DSUs for the years ended February 26, 2023 and
February 27, 2022:
Number of units
Outstanding, at beginning of year
Granted
Settled in cash
Outstanding, at end of year
Vested, at end of year
Additional information
Fair value of DSU liability
February 26,
2023
February 27,
2022
153,826
28,985
—
182,811
153,111
26,339
(25,624)
153,826
182,811
153,826
7,665
7,581
The weighted average fair value of the grant price for the year ended February 26, 2023 was $42.91
(February 27, 2022 - $40.21).
Restricted Share Unit Plan
The following table summarizes information related to RSUs for the years ended February 26, 2023 and
February 27, 2022:
Number of units
Outstanding, at beginning of year
Granted
Settled
Forfeited
Outstanding, at end of year
Additional information
Fair value of RSU liability
February 26, 2023
February 27, 2022
Cash-settled
Equity-settled
Cash-settled
Equity-settled
652,846
—
—
371,835
(95,876)
(60,749)
496,221
—
(11,247)
360,588
349,046
364,324
(37,247)
(23,277)
652,846
12,983
—
12,011
—
—
—
—
—
—
The weighted average fair value of the grant price for the year ended February 26, 2023 was $36.86 (equity-
settled) (February 27, 2022 - $36.96 (cash-settled)).
(26)
Fiscal 2023 Annual Report | 83
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Performance Share Unit Plan
The following table summarizes information related to PSUs for the years ended February 26, 2023 and
February 27, 2022:
Number of units
Outstanding, at beginning of year
Granted
Outstanding, at end of year
Unvested earned PSUs, at end of year
February 26,
2023
February 27,
2022
96,836
104,224
201,060
129,114
—
96,836
96,836
—
The weighted average fair value of the grant price for the year ended February 26, 2023 was $35.98
(February 27, 2022 - $36.94).
16 Net income per share
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.
February 26,
2023
February 27,
2022
Net income attributable to shareholders of the Company
Weighted average number of shares outstanding during the year (thousands)
Basic net income per share
$
$
187,588 $
110,259
1.70 $
156,917
110,401
1.42
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, equity-settled RSUs, PSUs and the non-
controlling interest in exchangeable shares liability.
February 26,
2023
February 27,
2022
Net income attributable to shareholders of the Company
Weighted average number of shares for net income per diluted share (thousands)
Net income per diluted share
$
$
187,588 $
115,301
1.63 $
156,917
115,784
1.36
For the year ended February 26, 2023, 1,928,728 stock options and equity-settled RSUs, along with the non-
controlling interest in exchangeable shares liability were not included in the calculation of diluted net income per
share as they were anti-dilutive (February 27, 2022 – 737,577 stock options).
(27)
Fiscal 2023 Annual Report | 84
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
17 Net Revenue
Net revenue disaggregated for boutiques and eCommerce was as follows:
Retail net revenue
eCommerce net revenue
Net revenue
18 Expenses by nature
Cost of goods sold
Inventory and product-related costs and occupancy costs
Depreciation on right-of-use assets
Depreciation on property and equipment
Cost of goods sold
Personnel expenses
Salaries, wages and employee benefits
Stock-based compensation expense (note 15)
Government payroll subsidies
Personnel expenses
Finance expense
Interest expense on lease liabilities (note 9)
Interest expense and banking fees
Amortization of deferred financing fees
Finance expense
February 26,
2023
February 27,
2022
1,425,779 $
930,290
769,851
2,195,630 $
564,340
1,494,630
February 26,
2023
February 27,
2022
1,162,199 $
77,730
41,709
1,281,638 $
740,219
65,688
33,771
839,678
February 26,
2023
February 27,
2022
483,182 $
24,369
—
507,551 $
316,877
26,131
(1,834)
341,174
February 26,
2023
February 27,
2022
27,336 $
3,743
184
31,263 $
22,346
2,555
301
25,202
$
$
$
$
$
$
$
$
(28)
Fiscal 2023 Annual Report | 85
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Other expense (income)
Realized foreign exchange loss (gain)
Unrealized foreign exchange loss (gain)
Fair value adjustment of non-controlling interest in exchangeable shares liability
Unrealized loss (gain) on equity derivative contracts (note 13)
Realized loss (gain) on equity derivative contracts (note 13)
CYC integration and acquisition costs
2022 and 2021 Secondary Offering costs (note 14)
Interest and other income
Other expense (income)
19 Income taxes
Income tax expense
Current period
Adjustments with respect to prior periods
Current tax expense
Origination and reversal of temporary differences
Changes in substantively enacted tax rates
Adjustments with respect to prior periods
Deferred tax expense (recovery)
Income tax expense
February 26,
2023
February 27,
2022
(9,109) $
(1,657)
—
6,093
(1,387)
467
518
(2,841)
(7,916) $
1,685
(2,839)
2,000
(11,192)
—
2,633
530
(1,600)
(8,783)
February 26,
2023
February 27,
2022
64,541 $
327
64,868
73,746
135
73,881
11,256
(11,428)
180
(85)
11,351 $
76,219 $
408
(178)
(11,198)
62,683
$
$
$
$
$
(29)
Fiscal 2023 Annual Report | 86
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
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 26, 2023 and
February 27, 2022 of 26.6%, as follows:
February 26,
2023
February 27,
2022
Income before income taxes
$
263,807 $
219,600
Expected income tax expense
Increase (decrease) in income taxes resulting from:
Non-deductible stock-based compensation
Non-deductible fair value adjustment of non-controlling interest in
exchangeable shares liability
Foreign tax rate differences
Other
Income tax expense
Deferred income tax
70,173
58,414
5,119
3,008
—
541
386
76,219 $
540
331
390
62,683
$
The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities as at
February 26, 2023 and February 27, 2022 are as follows:
February 26,
2023
February 27,
2022
Leases
Deferred revenue
Inventory
Stock-based compensation
Accounts payable and accrued liabilities
Deferred lease incentives
Net operating loss
Financing and share issuance costs
Other
Deferred tax assets
Property and equipment
Goodwill and intangible assets
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
$
42,716 $
5,502
3,966
3,053
3,024
1,790
1,110
970
772
62,903 $
31,159 $
40,529
14
71,702 $
(8,799) $
$
$
$
$
38,186
3,553
14,837
1,075
3,175
1,795
537
1,000
803
64,961
31,770
31,606
33
63,409
1,552
(30)
Fiscal 2023 Annual Report | 87
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
The net change in net deferred income tax assets (liabilities) is recorded as follows:
Deferred tax expense (recovery) recorded in net income
Deferred tax liability related to CYC Design acquisition (note 5)
Foreign currency translation adjustment on deferred taxes
Net change in deferred tax liabilities
February 26,
2023
February 27,
2022
$
$
11,351 $
—
(1,000)
10,351 $
(11,198)
7,630
(175)
(3,743)
Of the deferred income tax balances, the Company expects $51.3 million of the deferred tax assets to be
recovered within 12 months and $44.9 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.
20 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 together with the Founder, Executive Chair are 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:
United States
Canada
Net revenue
February 26,
2023
February 27,
2022
$
$
1,120,962 $
676,135
1,074,668
2,195,630 $
818,495
1,494,630
The Company’s non-current, non-financial assets (property and equipment, intangible assets, goodwill, and
right-of-use assets) are geographically located as follows:
Canada
United States
Non-current, non-financial assets
February 26,
2023
February 27,
2022
$
$
693,303 $
514,594
1,207,897 $
534,419
337,902
872,321
(31)
Fiscal 2023 Annual Report | 88
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
21 Commitments and contingencies
Product purchase obligations
At February 26, 2023, the Company had purchase obligations of $158.0 million (February 27, 2022 - $155.9
million), which represent commitments for fabric expected to be used during upcoming seasons, made in the
normal course of business.
Letters of credit
At February 26, 2023, the Company had open letters of credit of $31.6 million (February 27, 2022 - $43.5
million).
22 Related party transactions
The Company is ultimately controlled by AHI Holdings Inc. and related entities which are controlled by a
director and officer of the Company.
During the year ended February 26, 2023, the Company made payments of $5.4 million (February 27, 2022 -
$4.9 million) for lease of premises and management services and $1.3 million (February 27, 2022 - $1.0 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 26, 2023, a nominal amount was included in accounts payable and accrued liabilities
(February 27, 2022 - $0.5 million). As at February 26, 2023, the outstanding balance of lease liabilities owed to
these companies was $49.7 million (February 27, 2022 - $13.3 million). These transactions were measured at
the amount of consideration established at market terms.
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
Key management compensation
February 26,
2023
February 27,
2022
4,404
6,617
11,021 $
4,906
8,685
13,591
$
(32)
Fiscal 2023 Annual Report | 89
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
23 Supplemental cash flow information
The net change in non-cash working capital balances for the years ended February 26, 2023 and February 27,
2022 were as follows:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Net change in non-cash working capital balances
Accrued purchases of property and equipment
Accrued purchases of intangible assets
24 Financial risk management
February 26,
2023
February 27,
2022
$
$
$
$
(3,616) $
(252,376)
(6,869)
322
20,053
13,530
(228,956) $
(3,107)
(28,997)
1,913
(1,538)
32,899
17,553
18,723
14,231 $
219 $
9,196
172
The Company is exposed to a variety of financial risks in the normal course of operations including currency,
equity price, 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, equity price risk, credit risk and liquidity risk.
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 26, 2023, the Company had no outstanding foreign currency forward contracts.
As at February 26, 2023, a $0.05 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 $1.3 million on net income.
(33)
Fiscal 2023 Annual Report | 90
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Interest rate risk
The Company has a revolving credit facility which provides available borrowings in an amount up to $175.0
million. Because the revolving credit facility bears interest at a variable rate, the Company is exposed to market
risks relating to changes in interest rates on outstanding balances. As at February 26, 2023, no advances were
made under the revolving credit facility.
Equity price risk
The Company is exposed to risk arising from cash-settled deferred and restricted share units, as an
appreciating subordinate voting share price increases the potential cash outflow. The Company records a
liability for the potential future settlement of the deferred and restricted share units by reference to the fair value
of the liability. The company uses equity derivative contracts (total return swaps) to offset the cash flow
variability of the expected payment associated with deferred and restricted share units. The Company only
enters into equity derivative contracts with major financial institutions. As at February 26, 2023, an increase (or
decrease) in the Company’s share price by $1.00 would result in an increase (or decrease) of $0.5 million in
the fair value of the liability.
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.
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 26, 2023 and February 27, 2022,
no advances were made under this revolving credit facility. As at February 27, 2022, the Company also has
letters of credit facilities of CAD$50.0 million and US$40.0 million (February 27, 2022 – CAD$75.0 million), of
which $31.6 million of letters of credit were outstanding (February 27, 2022 – $43.5 million).
The following table summarizes the undiscounted contractual maturities of the Company’s financial liabilities as
at February 26, 2023:
(34)
Fiscal 2023 Annual Report | 91
Aritzia Inc.
Notes to Consolidated Financial Statements
February 26, 2023 and February 27, 2022
(in thousands of Canadian dollars, unless otherwise noted)
Less than
1 year
1 to
5 years
More than
5 years
Total
Accounts payable and accrued liabilities
Lease liabilities
Contingent consideration
Non-controlling interest in exchangeable shares
liability
Total
$
$
221,712
152,520
6,619
$
—
443,102
—
$
$
—
376,490
—
221,712
972,112
6,619
—
380,851
39,300
$ 482,402
$
—
376,490
39,300
$ 1,239,743
25 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 revolving credit facility 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.
The Company is subject to financial covenants and collateral pursuant to its revolving credit facility presented in
note 12.
(35)
Fiscal 2023 Annual Report | 92
Board of Directors and
Executive Officers
BOARD OF DIRECTORS
Aldo Bensadoun
John Currie
Director, Member of
Compensation and
Nominating Committee
Lead Independent Director,
Chair of Audit Committee,
Member of Compensation and
Nominating Committee
Daniel Habashi
Director, Member of
Environmental and
Social Committee
Brian Hill
Chairman of the Board
David Labistour
John Montalbano
Director, Member of
Audit Committee,
Chair of Environmental
and Social Committee
Director, Member of Audit
Committee, Member of
Environmental and Social
Committee
Marni Payne
Director, Chair of Compensation
and Nominating Committee
Glen Senk
Director
Director, Member of
Compensation and
Nominating Committee,
Member of Environmental
and Social Committee
Marcia Smith
Jennifer Wong
Director
EXECUTIVE OFFICERS
Brian Hill
Founder and Executive Chair
Jennifer Wong
Chief Executive Officer
Todd Ingledew
Chief Financial Officer
Karen Kwan
Chief People & Culture Officer
Dave MacIver
Chief Information Officer
Pippa Morgan
Executive Vice President, Retail
Information for
Shareholders
SUPPORT OFFICE
611 Alexander St, Suite 118
Vancouver, British Columbia
V6A 1E1, Canada
aritzia.com
+1 604 251 3132
INVESTOR INQUIRIES
Beth Reed
Vice President, Investor Relations
investor@aritzia.com
+1 646 603 9844
TRANSFER AGENT
TSX Trust
tsxtis@tmx.com
1-866-600-5869
ANNUAL GENERAL MEETING OF
SHAREHOLDERS
June 28, 2023
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 TSX.
Aritzia’s financial reports, regulatory
filings and news releases are available
at sedar.com and on our website at
investors.aritzia.com.
Fiscal 2023 Annual Report | 93