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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Welcome to Aritzia's Third Quarter 2018 Earnings Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Catherine Tang. Please go ahead.
Thank you, and thank you all for joining us for Aritzia's Third Quarter 2018 Earnings Conference Call. Joining me today for the results are Brian Hill, Founder, CEO and Chairman; Jennifer Wong, President and COO; and Todd Ingledew, CFO.We will begin today's call with management's discussion followed by a question-and-answer period open to analysts and investors. Please note that remarks on this conference call may provide certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements. We would refer you to our most recently filed management's discussion and analysis, which includes a summary of the significant assumptions underlying such forward-looking statements and certain risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.The third quarter earnings release, the related financial statements, management's discussion and analysis and the annual information form are available on SEDAR as well as the Investor Relations section of Aritzia's website at aritzia.com. Finally, all figures discussed on this conference call are in Canadian dollars, unless otherwise noted.Brian will begin with the highlights from the quarter followed by an update on our strategic growth initiatives. He will be followed by Jennifer, who will provide an overview of our operational initiative. I will then provide a detailed review of our financial results.I will now turn the call over to Founder, CEO and Chairman, Brian Hill.
Thank you, Catherine, and thank you, everyone, for joining us today. We once again delivered strong financial results for the third quarter. We are thrilled to have achieved our 13th consecutive quarter of positive comparable sales results as revenue performance strengthened with more seasonal weather in the back half of the period. We attribute our ability to deliver consistent revenue and adjusted EBITDA growth to Aritzia's effective business model. As a vertically integrated fashion brand with a differentiated global sourcing strategy, we provide beautiful, high-quality products and an aspirational shopping experience. Our distinct product offering resonates with our customers and garner strong brand loyal. As we look ahead, we remain very optimistic about the tremendous growth opportunities in front of us and our ability to meet or exceed our long-term performance targets. In the third quarter, net revenue grew 9.6% to $204 million, driven by new expanded and repositioned stores and comparable sales growth. Our new expanded and repositioned stores overall continue to meet our expectations. Comparable sales increased by 6.3%, driven primarily by continued momentum in our eCommerce business. Again, I am very proud that we delivered consistent quarterly comparable sales growth for more than 3 years, particularly given the headwinds in the industry. I'm also pleased that our holiday season started with the strong Black Friday sales event in both Canada and in the U.S. Over the past few years, we have seen Canadian consumer behavior start to resemble that of the U.S. where holiday shopping kicks off early with the Black Friday sales events. We also saw higher proportion of sales on our eCommerce site during the holiday season, which is consistent with what we have seen during the other promotional events. We attribute this to the ease of shopping sale merchandise online with a larger product assortment available and the ability to purchase at any time. These changes in consumer shopping patterns seemed to have created 2 defined sales peaks that have bookend the holiday period, the first Black Friday week and the second Boxing Week. That contrast with the ramp-up of sales leading up to Boxing Week that we've seen in the years passed. Overall, we've experienced a healthy growth in holiday sales compared to fiscal 2017 while the timing has shifted to earlier in the selling season. We achieved a 70 basis point gross margin improvement to 44.8% compared to 44.1% in the third quarter of last year. This was primarily due to the benefit of ongoing product supply chain initiatives as well as the benefit from the change in foreign currency rates. As our business is growing, we find ourselves having more leverage with existing vendors and are able to enter partnerships with new vendors, both manifesting themselves into better costing. While a portion of these savings is reflected in our higher merchandise margin, the remainder has been invested back in the product improvements, allowing us to provide a higher quality product while maintaining our attainable price point. Adjusted EBITDA grew 10% to $50 million and adjusted net income grew 11.4% to $30.6 million. The $50 million adjusted EBITDA was impacted by $1 million of rent expense for our new distribution center expansion in our San Francisco flagship store prior to their opening. In summary, we are extremely pleased with our results for the third quarter. Our strong financial performance is underpinned by our differentiated global sourcing strategy, our innovative, creative and operational strategies and our aspirational shopping experience both online and in stores. In the third quarter, we provided an exceptional fall/winter assortment across all categories that resonated with our customers. Despite the unseasonably warm weather in the first half of the quarter, the weather shifted and our seasonally appropriate product performed extremely well, maintaining our balance between new items in our fashion essentials. In the third quarter, we opened new Babaton Pacific Centre in Vancouver and expanded or repositioned 3 existing Aritzia stores, Scarborough and Eaton Centre in Toronto and Bellevue Square in Seattle. Expansions and repositions allow us to better showcase our product assortment and provide a higher level of customer service. Overall, our new, expanded and repositioned stores continue to meet our expectations. Our eCommerce channel sustained strong momentum during the quarter, and we remain on track to meet or exceed the penetration expectations we laid out in our 5-year plan. We continue to see meaningful growth in traffic to the site as well as double-digit growth in new online customers. As part of our efforts to further enhance the online shopping experience, we launched PayPal and Apple Pay on our site, providing our customers more payment options. We are working towards elevating our omni-channel presence to ensure that our customers enjoy the same aspirational shopping experience and exceptional customer service seamlessly across our retail and eCommerce channels. We are excited about initiatives we have in place to drive our eCommerce growth, which I will speak to shortly.We're also pleased to share that we successfully completed the deployment of our new point-of-sale system across all our retail stores in our customer care center. This was a single largest technology investment and the most complex infrastructure undertaken in Aritzia's history. This milestone is not just significant to our store operations, it will create meaningful growth opportunities for the company as a whole. I'm incredibly proud of our team who executed the project with our usual operational excellence as evidenced by the seamless transition from a customer experience perspective. Jennifer will provide more detail on our operational initiatives later in the call. As we look ahead, we're excited about the growth opportunities in front of us. Our third quarter sales momentum has continued into the fourth quarter, and we look forward to ending the year on a strong note. For fiscal 2019, we believe that we are well positioned to capitalize on our long-term growth opportunities. Through anticipated continued product cost improvements from our global sourcing initiatives, our focus on product innovation and building our omni-channel presence as we expand our store base and drive eCommerce penetration. We will continue to invest in people, process, technology and physical space to enable our growth. We remain focused on driving our business forward as we continue to execute our strategy initiatives. First, we will remain committed to product innovation as we continue to develop beautiful high-quality products at exceptional value to our customers. Our product innovation is enabling us to develop new product categories that we previously offered through third-party brands. We are presently focused on developing our denim and leather programs. As we continue to refine our product supply chain, we expect to identify additional opportunities to capitalize on market trends. Second, I'm extremely pleased with the progress we are making on our store expansion strategy. We continue to gain access to premier locations that we believe will drive profit and brand exposure over the long term. In the beginning of the fourth quarter, we repositioned our San Francisco location from a 2,400 square-foot location to an 11,300 square-foot flagship store with prominent exposure on Market Street. Similar to our Rush flagship store in Chicago, our new San Francisco flagship is meeting our expectations and propelling our brand in the United States. In the remainder of the fourth quarter, we plan to open a new Aritzia store in South Coast Plaza in California and a new Babaton store in Square One Shopping Centre in Toronto. As we previously mentioned, we are pleased that we continue to see more and more opportunities to obtain premier locations with favorable economics. As we capitalize on these opportunities, we will remain disciplined and selective in our real estate strategy. Third, we will continue to drive our eCommerce business and expect another year of meaningful growth as we continue to develop our omni-channel distribution capabilities. We are laying the foundation to meet or exceed our 25% of total net revenue eCommerce penetration 2021 target with a 4-part strategy. First, we will continue to develop our omni-channel capabilities. Alignment between our retail and eCommerce processes and systems will allow our customers to shop and receive their product through any channel they choose. The successful implementation of our new POS system is a critical component of this initiative. Second, we intend to capitalize on digital marketing channels to acquire new customers. Third, we are focused on growing our clienteling program to enhance customer loyalty through increased personalization. Fourth, we work to continue to enhance our international website in order to expand our brand awareness globally, particularly in markets such as China where we are seeing growing demand for our product. Before I turn the call over to our President and Chief Operating Officer, Jennifer Wong, I want to share a few thoughts on how I view our business. Aritzia is a vertically integrated fashion brand. First, we have a differentiated global sourcing strategy that allows us to continually refine our supply chain to elevate our product whilst increasing the value to our customers. Second, we have innovative, creative strategies that ensure we provide a balanced assortment of beautiful, high-quality products that our customer desires, and we have innovative operational strategies that we execute with excellence in all areas of our business. Third, we offer our products to our customers through a seamless omni-channel approach with an aspirational shopping experience. This is all underpinned our commitment to invest in infrastructure to support our growth and drive long-term value.In conclusion, we see tremendous growth opportunities for Aritzia. We remain committed to delivering on the long-term plan that we laid out and I believe we are well positioned to meet or exceed these growth targets. With that, I'll turn the call to Jennifer to provide an update on our operational activities.
Thank you, Brian, and good afternoon, everyone. As Brian mentioned, during the third quarter, we completed the implementation of our new point-of-sale system across all stores and our customer care center. The new hardware and software we placed are legacy POS and provides us with a robust platform on which to build and evolve the services and experience we offer to our customers. It has provided us with world-class infrastructure, labor efficiencies, greater access to more reliable data and specifically, a foundation to evolve our omni-channel and clienteling capability. The new system provides near real-time visibility to inventory and sales data. This has already allowed us to respond more nimbly in managing our inventory to maximize sales. Our customers are also benefiting from the inventory visibility, along with new functionality to broker orders for customers when their desired items are located in other locations. Items can be purchased in store and delivered to home. For orders picked up in-store, customers now receive e-mail notifications when their order is ready. Turnaround time for customer pickup of orders is reduced, thus, enhancing the customer experience. In addition to greater internal control, the system has also created labor efficiencies by eliminating many manual processes in the store. And because the system is so intuitive, we have reduced formal training time of an associate from 8 hours to 2 hours. Our new flagship distribution center in Vancouver broke ground in Q3 and is on track to complete the build portion of the space by late spring. We are well underway with construction and equipment installation for both the facility itself and the adjacent office. We are simultaneously upgrading the warehouse management system, which will continue through to late summer, and we plan to have this facility operational by the fall. We will relocate from our current 83,000 square-foot facility to a brand new 223,000 square-foot flagship distribution center. The increased distribution footprint and continuing with enhancements to our overall distribution network will pave the way for operational efficiencies and support our growth in store and eCommerce.We also continue to expand our talent pool across the organization. We're continuing to find exceptional talent at all levels to facilitate our expected future growth. In the third quarter, we added executives in people, marketing and eCommerce as well as senior-level talent in product and distribution. Overall, we are focused on investing in infrastructure, which includes people, process, technology and physical space to enable our growth for the long term. With that, I'll turn the call over to our CFO, Todd Ingledew, to review our financial results in further detail.
Thank you, Jennifer. Good afternoon, everyone. We are extremely pleased with our third quarter financial performance. Net revenue increased by 9.6% to $204.4 million from $186.5 million in the same period last year. The increase in our third quarter net revenue was driven by the addition of 7 new stores and the expansion or repositioning of 5 existing stores since the end of the third quarter last year as well as comparable sales growth of 6.3%. The increase in comparable sales was a result of continued momentum in our eCommerce business with both store and eCommerce trends improving in the back half of the quarter as weather became more seasonal. The weakening of the U.S. dollar year-over-year in the quarter negatively impacted net revenue by approximately 160 basis points or $3 million. In addition, we experienced some expected pressure on 8 existing stores that were impacted by the opening of a new, expanded or repositioned store. These 8 locations represented 8% of net revenue in the quarter. Gross profit for the quarter increased 11.3% to $91.5 million compared to $82.3 million in the third quarter last year. Our gross profit margin expanded 70 basis points to 44.8% during the quarter as compared to 44.1% in the third quarter last year. This growth was primarily driven by lower product costs attributable to our sourcing initiatives. Gross margin was also positively impacted by the strengthening of the Canadian dollar during the quarter. However, this improvement was offset by $1 million of straight-line rent expense related to both our new distribution center under construction in Vancouver and our new San Francisco flagship store prior to its opening early in the fourth quarter. We will continue to incur rent expense for our new distribution center until its planned opening in the fall of 2018, which, as expected, will temporarily inflate our reported cost of goods sold. Selling, general and administrative expenses decreased 1.6% to $47.7 million compared to $48.5 million in the third quarter last year. The prior year included $3.1 million of costs related to the company's IPO. SG&A was reduced by 100 basis points to 23.3% of net revenue compared to a normalized 24.3% in the third quarter last year after excluding these IPO-related costs. Adjusted EBITDA increased by 10% to $50 million or 24.4% of net revenue compared to $45.4 million or 24.4% of net revenue in the third quarter last year.Adjusted EBITDA in this year's third quarter excludes $3.9 million of stock-based compensation expense and $1.9 million of unrealized foreign exchange gains on U.S. dollar forward contracts. Stock-based compensation expense of $3.9 million in the quarter was comprised of $1.6 million in costs related to our legacy option plan and $2.3 million in costs related to the company's new option plan. Finance expense decreased $3.3 million in the quarter to $1.3 million from $4.6 million in the same period last year. The third quarter last year contained $2.9 million in expenses related to our debt refinancing in connection with the IPO. Income tax expense for the quarter was $12.6 million compared to $36.5 million in the same period last year. Our effective income tax rate for the quarter was 31%, reflecting the non-deductibility of stock-based compensation expense. As a reminder, excluding stock-based compensation expense, our effective tax rate is between 27% and 28%. Last year's income tax expense includes the noncash deferred income tax asset reversal of $28.3 million, which related to the modification of the accounting treatment of the company's legacy option plan from a liability to an equity-settled plan as of September 30, 2016. Adjusted net income increased by 11.4% to $30.6 million or $0.26 per diluted share, compared to $27.5 million or $0.23 per diluted share in the third quarter last year. Our adjusted figures excludes stock-based compensation, unrealized foreign exchange gains or losses on U.S. dollar forward contracts and other nonrecurring items net of related tax effects.Included in adjusted EBITDA and adjusted net income are the rent expense of $1 million related to both the new distribution center and San Francisco flagship store not open prior to the end of the third quarter. Our balance sheet continues to strengthen with a cash balance at the end of the quarter of $105.2 million and a 1.1x total debt to LTM adjusted EBITDA ratio or 0.2x net debt to LTM adjusted EBITDA ratio. Subsequent to the end of the quarter, we made our 2018 amortization payments of $15.3 million, reducing our total term loan to $118.8 million and lowering our total debt to LTM adjusted EBITDA ratio to 0.9x. We had 0 drawn on our revolving credit facility as of November 26, 2017. Investments in our growth and infrastructure continue to be our top priority. As our cash balances grow, we are considering the best options to deploy excess capital for the benefit of our shareholders. Management and the board are currently evaluating a share repurchase program in conjunction with refinancing our debt.Turning to our outlook. The sales momentum in the third quarter extended into the fourth quarter as a result of a strong start to the holiday and fall/winter sales season. By the end of fiscal 2018, we will have opened a total of 7 new stores and expanded or repositioned 7 existing locations this fiscal year. We continue to focus on delivering an aspirational shopping experience and opportunistically opening new stores and expanding or relocating existing stores in the future. We expect that sourcing initiatives underway will continue to benefit gross margin as we obtain better product cost. This margin improvement is expected to be offset in the near term by the investments we're making in our distribution center expansion. We continue to believe that for the fiscal year, our gross profit margin will remain essentially flat with what we've achieved in fiscal 2017. Likewise, we believe our SG&A cost will increase alongside our revenue.We anticipate total CapEx spend in fiscal 2018 to be between $60 million and $65 million. Overall, we continue to make strong progress on our strategic initiatives and we remain on track to meet or exceed our stated 2021 performance targets. With that overview of our third quarter, I will now turn it back to our Founder, CEO and Chairman before we welcome questions.
As a final note, I want to address the statement in our press release regarding my decision to voluntary cancel my stock options. As illustrated by my recent share purchase and my current ownership, I remain fully committed to leading the Aritzia team for this foreseeable future. I want to provide greater flexibility within the option pool from which to further incentivize our current management. I believe we have an amazing future ahead of us, and I want both our team and our shareholders to benefit from our long-term value creation. With that, we will now welcome questions from analysts. Operator?
[Operator Instructions] Our first question comes from John Morris of BMO Capital Markets.
Parsing a little bit and it sounds like outerwear is, I'm inferring, is doing significantly better than it was when we were exiting the second quarter. So maybe a question a little bit more, first of all, for Brian on performance of other classifications. I assume it was broader and you feel better about the assortment overall. Maybe you'd give us some color there on the performance you've seen over holiday.
Yes. It was really -- it was interesting because it was super warm and then it got super cold. And one of the things we pride ourselves in is just how balanced our collection is on a regular basis. I mean, I think we're experts in everything, in outerwear, in T-shirts, in pants, blouses, everything. So we've had -- we've seen considerable growth in all our categories. And the outerwear was slow to start, but then it picked up meaningfully towards -- once it got cold as we expected it would get cold. And so we had a great season overall. I don't think anything really stood out. I mean, I think perhaps, the sweaters are performing slightly higher. But nothing really stood out. We have a -- once again, a real balanced collection that we think we're expertise in everywhere. And we just -- and that's what we saw in our sales.
And as a follow-up, Todd, this one for you a little bit. Momentum continuing, I think given how last quarter momentum exiting Q2 was lower than -- was forecasted to be lower in Q3 than in Q2 and yet, here we finished with a plus 6. Can we infer that comps are running a little ahead of that rate of a plus 6 because of the logic there?
John, again, I think we continue to be pleased with the momentum in the business. We're seeing strong year-over-year growth and we expect to report a strong fourth quarter.
Our next question comes from Drew North from Baird.
It's nice to see the continued comp momentum in eCommerce business. I was just wondering, specifically as it relates to stores, were comps still running positive in Q3 and through the kind of quarter-to-date period. And then also wondering if you could talk a little bit about some of the various drivers to your comp, including traffic conversion or average basket size.
We continue to see a landscape shift, where there is a higher mix of eCommerce, especially during sale periods. However, we did see a strengthening of revenue performance both in our stores and online in the back half of the third quarter as the weather became more seasonal, as Brian discussed. And we're agnostic to where our customers shop as the line between in-store and eCommerce are becoming increasingly blurred. eCommerce continues to meaningfully drive -- grow and drive our comp, but we continue to be pleased with our in-store performance and again, the continuing momentum in our eCommerce.
Our next question comes from Lorraine Hutchinson of Bank of America.
I was hoping for some comments on the performance of the new and expanded stores if you are pleased with those. And then also, wondering if you could quantify the impact of cannibalization on those 8 existing stores.
I'll take the first part of that question and I'll leave the numbers and cannibalization to Todd here. Yes, we're extremely pleased with our new store openings right across the board. We set the bar high because our sales per square foot performance is such -- so high compared to the rest of the industry. And we're seeing the same performance in our new stores as well, which is a very high level of performance in all our new stores. So we're on track to be where we want to be with our new stores and just thrilled with the openings and how they look and the customer service levels and the merchandising levels. And we're just thrilled. I don't know if you had the chance to see our new San Francisco store, it's fantastic. So we continue to be thrilled with everything we're doing on the new store basis. Todd, you want take that?
Yes. So we are experiencing again some expected pressure on stores that are impacted by the new and expanded and repositioned stores. No, I think it's important to note that we will be lapping this headwind as the stores roll back into comp over the coming quarters. And then on an incremental basis, our new and expanded and repositioned stores are meeting our expectations. I think the best example or the most recent is the Babaton store in Pacific Centre where we opened a Babaton and the Aritzia store itself is experiencing some pressure. And that's because we've had -- we have a certain portion of our clientele that leans towards Babaton, and we have a beautiful, brand-new store that they can shop, and it is reducing somewhat the sales of the Aritzia store and we are seeing some cannibalization. But if you look at Pacific Centre as a whole, we are up incrementally and are having a strong payback for that investment.
And then, truthfully, as that -- I mean, ideally, you want to open the store and not see any cannibalization, but that's really the intention is that we have a Pacific Centre store that's grossly undersized at 6,500 square feet. You need to be meaningfully a lot bigger. It's in a such great location that we don't want to move it. And so we opened the Babaton store to take pressure off that store. And the idea is, is that when we're looking at our pro formas and things, we're looking at the incremental dollars to making sure they make sense for us. But in effect, yes, we are cannibalizing that Pacific Centre store, and that is the intention, to cannibalize it, because we don't think the shopping experience, particularly during peak periods, is what it should be for Aritzia. And we actually think it's dragging on our brand a little bit when somebody comes into the store and they have to wait for 20 minutes to get a changing room in the store. So the whole idea is opening up these stores in these shopping centers and adding more square footage to the shopping center. And we're really pleased with these new centers that Todd point -- new stores that Todd pointed out. So for instance, in Toronto Eaton Centre, we have 4 stores; and in Pacific Centre, we have 3 stores; and in Square One, we actually have -- about to have 3 stores; and we're shutting down a 10th store. So the whole idea was rather than getting growth in Canada through opening in suburb -- in far suburban locations and in tertiary malls that we would open more square footage in primary malls with the idea that we would put a bit of pressure on our existing stores, and that's what we're doing. And it is going as to plan and we're thrilled with the results so far.
Our next question comes from Mark Petrie of CIBC.
Clearly, the POS system sets you up to do a lot more both in-store and online. And I know you've been building teams and data analysis and eCommerce. But in terms of capabilities, maybe where have you made the biggest improvements in the last 6 months? And what are your priorities into fiscal 2019 from an organizational standpoint?
Mark, it's Jennifer. Are you asking about priority organizationally or within the point-of-sale implementation?
I guess both, but sort of view those as a bit intertwined but however you want to answer it.
Well, maybe I'll just finish off with the point-of-sale implementations. As I've mentioned in the past, it was what we call Phase 1. Phase 1 was to put in successfully and seamlessly a point-of-sale across all of our stores, which was a pretty big endeavor. And so as Brian indicated, he's really proud of the team, so am I. It was probably about as close to 10-of-10 execution as you can get on these types of things. And so first order of business is to put in that foundational piece. We have some enhancements that will come through for Phase 2, things such as credit card and debit card integration, payment integration, verified return, more operationally oriented things that will make us more efficient and make the customer experience that much better as well as give us some more controls within our business. And the big strategic piece of it all is to put in this foundation for our omni-channel capabilities as well as our clienteling capabilities. And so in the meantime, what we're doing is we have to stabilize the system. There's generally a stabilization period that we have to work on. And then we've got the same team assembled who are going to put together a list of scope of work for Phase 2 and start building on the foundation itself. Moving forward, though, the big platinum project for us is the distribution center that I mentioned that we're building in the Vancouver area. It's our largest capital project in history. So while it might not be as cross-functional as some of these systems implementation, it is our largest capital project. It involves 4 streams of work. Not only is it a facility build-out and an office build-out, but it's a distribution center build-out. If you can imagine going from 83,000 square feet to about 200,000 square feet of warehouse alone, it's pretty impressive. So that's a big focus for the team. But the WMS upgrade that goes along with it, it's essentially like a whole WMS implementation. So that's essentially a whole systems implementation in and of itself. And then the transition and relocation is the fourth stream of work. So that's a pretty big project we have on-the-go. In addition to that, our next big systems implementation, which we haven't talked about, but we did start planning on last year with our product life cycle management system implementation, so there's a whole separate team of product, business, people as well as technology folks who are right now, I think, they are just passed the strategic and planning phase and they're looking to do a vendor selection for a PLM. And that will probably be the second -- we're calling them anchor projects for the year as well as continuing to build out the eCommerce capabilities and all of the things that we've mentioned in the past that go along with that, including the analytics. So we're pretty excited about some of these infrastructure projects that we have going on for 2018.
Okay. And then I guess just related to that. Todd, you reiterated the comment about SG&A growing in line with revenue and it seems a relatively cautious view just given how you progress through 3 quarters. Is it sort of supporting all these projects that kind of leaves you with that view at this point?
Yes, that's exactly right. We have -- we're obviously pleased with what we've been seeing from a leverage perspective with our SG&A. But it's -- which is being driven by, really, the eCommerce growth and the leverage on the retail labor that, that drives. About half of the 100 basis point improvement is coming from that and then the other half is coming from leverage on our support office cost. However, we are in the process of meaningfully building out our eCommerce group as well as investing in other groups across the organization that both Jen and Brian have spoken to. And we feel that it's -- we are going to continue to grow our SG&A with our revenue consistent -- keeping a consistent percent of revenue for the near term. And then once we're finished making those investments, we will -- we believe we will start to see some leverage.
Okay, that's helpful. And sorry if I could just ask one more. Brian, you talked about the sort of very attractive real estate opportunities? Could you just sort of refresh us on your expectations for store growth in fiscal 2019 and sort of the balance between Canada and U.S., and any other anecdotal comments you could provide?
Yes. So all our deals for 2019, fiscal 2019, aren't complete yet. And so I have to be somewhat cautious as to take our negotiating out. But we do have a number of signed deals. We've identified a few of them that were happening early on. We have some other deals that are on the final stages and probably will be signed prior to the end of this fiscal year. And we have a whole bunch in the hopper. And all of which are extremely exciting opportunities for us, all of which are primarily grade A, AAA locations and slanting a little bit more towards the United States than we have in the past. So we're thrilled with it. We could open if we so choose, we could open numerous stores beyond what we have forecasted. But I think for negotiations and everything else and because of the climate, we have to be selective and we have to be able to say no to some landlords until they sharpen their pencils a little bit more. So we will be meeting all our goals for our store targets. We are in a position to increase those targets if we so choose. I'm not convinced that we're going to at this point in time, but we are certainly in a position. There's no lack of opportunities for us out of there. We just have to -- we're going to continue to be selective as we have in the past, continue to grow our business in a controlled manner as we have in the past and just making sure we're making very good quality real estate decisions throughout.
Our next question comes from Irene Nattel of RBC Capital Markets.
I'm just kind of listening to the timing on a bunch of things, including sort of, I guess, the physical, the DC and everything that goes along with that, the data analytics. Really, does all of that start to come together for you in F '19 in terms of the next leg up in your capabilities, calendar 2019 rather.
Irene, it's Brian, nice hearing from you. Are you referring to start to come together from an eCommerce perspective or from a corporate perspective?
Well, from a perspective, Brian, of taking some of that data analytics and being able to use that with more customer outreach and then more efficient use of, I guess, some of the infrastructure, all of that kind of thing. So bringing all the pieces together to really drive the business forward in a different kind of way maybe.
Okay, I'm going to leave the data analytics question to Jen, but I might -- we've gone through now some fairly in-depth discussions around our eCommerce and the opportunities of omni-channel, both as it relates to our eCommerce and our retail. And we have a list of projects that will certainly keep us busy for the next sort of 5 years really. I mean, there's improvements we can make, and they're both based database. But there also, as you just mentioned, a distribution base. There's retail base-enabled initiatives that will help eCommerce and vice versa. So we have a whole list of things whether it'll be marketing base and all sorts of different initiatives that we think that will help us continue to grow our eCommerce at the accelerated growth rate it has been growing at. And these projects, I would imagine we're going to get through numerous of them over the next few years. And that list, I would imagine though, will not be getting smaller, it will be getting bigger. But I'll pass on the analytics specifically to Jennifer here.
With the analytics -- if your question is about when are we going to start seeing the benefits in our analytics? In some ways, I think we already are because it's a longer-term vision in terms of our analytics and reporting and insight capabilities. And I think even just with the point-of-sale implementation, we're already getting a whole slew of reports that we weren't getting before and that's going to help us make some better business decisions. As I said, we're still in the early days in terms of foundational pieces. The whole intention was to put in a system like a point of sale to build upon for clienteling capabilities. We do hope that through fiscal '18, we'll continue to build the back end of our customer analytics. I've mentioned we've hired a couple of folks that are very well versed on that. And so now it's about putting the front end and the back end together and then leveraging -- and leveraging those systems. So I think we're well poised to execute on that. Keep in mind, we are a long-term view organization. And so when we put something in, we put it in with a great deal of thought and planning because we don't like to make mistakes. And so I believe that with that, we continue with that methodology and ensuring that we're always looking to capitalize as we go, we'll start to see benefits as we go. I think even just, for example, in digital marketing and with e-mail marketing, we're finding all kinds of opportunities here that we can capitalize on with our existing system. So it's -- we're going to benefit as we go as well as for the longer term. With the DC, one of the conclusions I've come to is that I wouldn't have said this before, we did a lot of outsourcing of our distributions. But I would say, over the last 5 years, in particular, I actually think that distribution and fulfillment, particularly as we are doing more and more eCommerce fulfillment, it's actually becoming a competency of ours. And so as we build out our own DCs and as we analyze insource versus outsource, I do think that we will continue to invest in that infrastructure. The DC here is required to enable our growth going forward. It's been 10 years since we -- it was 10 years ago when we move into the 83,000 square-foot DC. It was 5 years ago when we put in the warehouse management system. So I think as we continue to invest in our business as we go in this 5-year sort of outlook is appropriate for the kind of business that we foresee. So I'm very optimistic.
That's really helpful. And just one other question, if I may. Just in terms of buying behavior and shopping patterns, as you expand your footprint in the U.S., still finding that the assortment really is addressing the slightly different buying patterns, south of the border and continuing to see very strong uptake.
Yes, Irene, I'll take that. Yes, we're still seeing incredible affinity to our brand in United States. We think it started off meaningfully different. If you -- 5, 10 years ago. 10 years ago we're in the U.S., the Canadian market is starting to resemble more of the United States now with the various -- we were late on the eCommerce front. Canada is catching up on the eCommerce front. We didn't have the Black Friday sales. We do now. So we think Canada started to resemble United States. It's actually making our life a lot simpler. Our -- we still almost have to run 2 different parallel approaches and now it's very, very similar as far as how we're approaching our United States and Canadian business. And we're continuing to see our customer gravitate towards our products and our brand in the United States, and we're constantly getting comments that we have the best customer service in the industry and our store environments are as good as they are out there. So we're continuing to see strength in the U.S. and is making -- we're very encouraged what we're seeing in the United States. And as I mentioned, things just seem to be getting simpler for us as far as the 2 different markets.
Our next question comes from Camilo Lyon of Canaccord Genuity.
This is Pallav Saini on behalf of Camilo. Can you provide us some -- an update on the international part of your business? You've had international shipping to about 220 countries for a little over a year now. So what are some of the learnings that have come out of it? And what is the opportunity there? And how close are you to taking the next steps?
Thank you for asking that question. Yes, we do have some learnings. One of the learnings and the conclusion so far, the early conclusion so far is that rather than trying to be an international retailer to hundreds of different countries that we're going to now focus on a handful of countries that drive the vast majority of our sales. And then, we think by doing that, we'll be able to better service those markets from an international perspective. So that's sort of the first conclusion that we've drawn is that we're not going to be all things to all people right across the whole globe and that we're going to focus on some of these countries, and they're probably fairly obvious to most out there. But we're going to focus on these handful of countries that we think are going to move the needle for us for many years to come. It doesn't mean we're going to shut off the other eCommerce business, doesn't mean we're going to ignore it, we're not. But I think our next focus in the next push internationally is a focus on the people that are actually moving the needle for us.
And you've talked about your increased focus on denim. You brought in a denim expert. Can you give us an update on how that is progressing? Have you started testing any of the products yet?
Yes, we have a leather and denim initiative we have underway right now. 5 years ago if you ask me even 2 years ago, I would have told you -- 5 years ago, I would have suggested 5 to 10 years ago that denim is primarily a branded commodity. In the last sort of 5 years, I've sort of said it was dual. And now it's become less and less of a branded commodity and more in one which is sold vertically through vertical retail. And so we brought in a denim expert and we brought in other people to support her as well. We've been thrilled with the initiatives so far. We're in early stages, but we have lots of opportunity there as far as -- because we have been selling some denim through not really a basic 5-pocket program, but through our various fashion brands. And we just think -- it's being pointed out to us where our opportunities are and how we can be so much better and how we can be a leader in that marketplace. As far as the leather goes, we're going to be launching our leather actually in the spring season, late spring here, not summer, but not too early spring. And we'll be all set up and really at full steam by fall. And so we're really thrilled with what we have there. We think we have an exceptional supply chain, an exceptional quality product. I mean, I think we're going to be extremely competitive and it's going to be meaningful part of our business here. So we're quite thrilled with all the capacities and we're working on others, which, at this point in time, are a little too new and -- to on the drawing board here. But our initiative here is to open and create new brands, but it's also to create new categories that we can continue to drive our business and show difference in the marketplace.
Our next question comes from Meaghen Annett of TD Securities.
With respect to uses for excess capital, can you discuss how you're approaching balancing continued investments in growth in infrastructure that you'd mentioned with the potential NCIB? And just as a follow-up, do you have a targeted leverage ratio in mind that you're willing to share with us today?
Meaghen, we're very pleased, obviously, with the strength of our business and the continuous generation of excess cash flow that's left us now in a position where we have $105 million of cash and $118 million in our term loan. What we've said all along, I think, is that we're fairly happy with our current leverage ratios. But we are currently, management and the board, evaluating both share repurchase program in conjunction with the refinancing of that debt, and we will be making determination over the next quarter with where we do end up feeling comfortable with the leverage and whether we will then have a share repurchase program put in place.
Our next question comes from Patricia Baker of Scotiabank.
My questions have all been answered. But I am curious, Brian, what your thoughts are with respect to discussion you just had about denim and leather. And we look out long-term, do you envision a time when perhaps, Aritzia no longer has the Aritzia offer supplemented by a curated brand -- a curated assortment of other brands. Is that a possibility in the longer term?
I mean, everything is possible. When I brought the denim -- our denims expert in here, I asked her what percentage of denim she thought it could be at Aritzia, and she said 50%. And I smiled and looked at her. I said, "If it's 50%, you're going to be the new CEO of the company." So at the end of the day, I'm not sure what percent denim will make up. All I know is we have a huge opportunity. And in some people and the landscape and some people we compete with, maybe a little bit more indirectly. Leather is a huge part of their business, too. And so whether it be made well in denim or maybe [indiscernible] and leather, makes up a huge cornered portions of their business and we're just touching the iceberg -- tip of the iceberg on that. On one hand, you become an expert in something. You want to continue to go down that road, but truthfully, we've been buying denim and third-party denim for Aritzia for 33 years. And so I actually think that it's certainly a core competency of us buying third-party brands. And although the whole industry has gone vertical, we see a lot of collaborations and things out there with a lot of brands out there. So whether denim comes in the form of us carrying third-party brands or it comes in the form of collaborations with other brands, the third-party denim brands or -- I don't know what it would manifest itself into. But right now, we have some great partners in denim right now that, that we think it works for both parties. And so there's no reason to stop that relationship at this point in time, but who knows? Who knows if things change? And so we'll see what happens with that point in time. But based on the information I see now, I don't see any reason why we wouldn't just augment our existing strategy here versus replacing it completely.
This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Brian Hill for any closing remarks.
I'd like to thank everybody once again for joining us today and we continue to be thrilled about our business here and the prospects ahead. And we look forward to hearing from everybody in the near future and certainly 3 months from now when we're back on with our next quarterly update and year-end. Thank you very much everybody for taking the time today to speak to us.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.