Groupe Dynamite Inc. (GRGD.TO) Q2 2026 Earnings Call Transcript

Operator: Good morning, ladies and gentlemen. And welcome to Group Dynamite Second Quarter Vishal 26 Resolved Conference Call. At this time, lines are in listen only mode. And the conference is being recorded. Following management's prepared remarks, there will be a question and answer session with financial analysts. If at any time during the call you require immediate assistance, please press 0 for the operator. On today's call are Andrew Lutfy, chief executive Officer and Chair of the Board, Stacie Beaver, president and chief operating officer and Jean-Philippe D. Lachance, Financial Officer. This morning, Groupe Dynamite released its financial results for the 13-week period ended 08/01/2026. The press release and related disclosure documents are available in the Investors section of the company's website at groupedynamite.com and on SEDAR+. A replay of the webcast will be available shortly after the conclusion of the call. Before management begins, please refer to Slide 2 of Q2 26 investor presentation for the company's full statement on forward looking information. And to the appendix for a reconciliation of non IFRS financial measures to the most directly comparable IFRS financial measures. The call will now be turned over to the chief executive officer and chair of the board, Andrew Lutfy, Please go ahead.

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

Stacie Beaver: Thank you, Andrew, and good morning, everyone. Andrew spoke about the strength of the model. What I want to focus on is how that model translates into execution in Q2. The story of the quarter was our ability to see, respond, and execute quickly. We entered Q2 with an opportunity to bring greater newness into our assortment. We recognized it early, acted decisively, and used the speed of our operating model to adjust product and season. The response was clear. Sales strengthened throughout the quarter, and we exited Q2 with good momentum. That is an important distinction about Groupe Dynamite. We do not have to make every decision months in advance and hope the customer agrees with us. We stay close to her, read the signals, and move. Our advantage is not simply speed. It is speed with precision. And, increasingly, we have the infrastructure to support that speed at greater scale. Our US distribution center is reducing last mile friction and strengthening our ability to move inventory closer to where demand is strongest. Turning to source, Our physical fleet remains 1 of our most powerful customer acquisition vehicles and the fullest fixed price expression of our brands. This quarter, sales per square foot reached 1.06 thousand. Up 28.9% year over year. That productivity matters because our strategy is not simply to operate more stores, It is to operate better stores in better locations generating greater productivity. We opened 7 stores during the quarter across The US and UK. Early results from The UK openings of Bluewater Shopping Centre and Oxford Street are very encouraging. And we are already applying what we are learning to inventory allocation and localized marketing. That is how we intend to scale internationally. Learn quickly, localize intelligently, and maintain the discipline that has driven our North American success. Turning to digital, eCommerce sales increased 31.5% in Q2, supported by healthy growth in both traffic and conversion. But we see digital as much more than another transaction channel. It is increasingly the connective tissue of our customer experience. Our road map is focused on greater personalization, removing friction, stronger social integration, and extending our brands to customers well beyond our physical footprint. We recently expanded shipping to 9 additional countries across Europe and Australia. Meaningfully increasing our global reach. And with Henry Spear joining as chief customer officer we now have dedicated leadership focused on personalization, friction, and increasing customer lifetime value. Now to the most important driver of our business, product. Our teams are staying extremely close to culture, and, equally importantly, to the customer signals that tell us where to move next. At Garage, our off duty lifestyle continues to perform strongly. Our Wild Tempo campaign with Hailey Bieber generated significant brand heat. While our green envy drop was a great example of the model working in real time. Our community asked for it Our teams listened. We responded. At Dynamite, Q2 delivered strong momentum led by dresses and supported by culturally relevant brand activations. From inserting Dynamite into the Montreal Grand Prix conversation to an influencer self-shot campaign in the South of France, we continue to elevate how and where the brand shows up. The objective is not simply awareness. It is to translate brand heat into product demand, full price selling, and stronger customer relationship. And that brings me to the customer. Across the business, transactions grew in both stores and online. Our active customer base continued to expand year over year. Supported by stronger retention and increasing value per customer. And importantly, as customers engage with us across channels, we are seeing growth in their average customer lifetime value. That is ultimately what omnichannel should do. Not simply move a transaction from 1 channel to another, but creating a more valuable relationship with the customer. As we enter the second half our priorities are clear. Stay close to the customer, Move quick on product, increase the productivity of every customer touch point, and scale without compromising the discipline that got us here. We have strong momentum, increasingly productive stores, a growing digital business, and significant white space ahead of us. But none of that happens without our people. I want to thank our field associates and our head office employees. Your ownership curiosity, agility, and passion are what allow us to operate at this pace and bring Garage and dynamite to life. Every day. With that, I will turn it over to JP to walk you through the financial results.

Jean-Philippe D. Lachance: Thank you, Stacie and good morning, everyone. Total revenue for the second quarter increased by 29.8% to $423.6 million brick-and-mortar comparable store sales grew 10.3% or 12.3% on a constant currency basis. That compares with a 28.6% increase in Q2 last year and on a 2-year basis, is a stack of 38.9% up from 35.6% in the first quarter. We also had meaningful contributions from stores opened over the past year, including 3 locations in The UK and continued momentum across both banners. By geography, revenue in The United States increased 52.2% to $271.6 million. Canada was $145.1 million down 1.9% on a fleet that is 13 stores smaller. For the first half of the year, Canada is up 2.1%. The UK contributed $6.9 million in revenue in the quarter. Our Canadian business is mature. The United States is earlier in its penetration and The UK earlier still. So we expect brick and mortar growth to come primarily from The United States and in due course from The UK. That is purposeful. Those are the markets where we are investing where we are opening stores, where our most profitable stores sit, and where we are building momentum. Moving to digital. Top line growth was also supported by online revenue, which increased by 31.5% to $61.4 million reflecting continued strength in the channel with balanced growth across both stores and ecommerce. As a reminder, our long term target for online revenue is 25% of total revenue. As we continue to generate momentum in brick and mortar, and from new stores, online penetration has to grow faster still. We aim to add roughly 1 to 1.5 percentage points of online penetration a year toward that 25% goal. On the trailing 12-month basis, penetration moved from 17.5% to 18.5%. Turning to profitability. Gross profit increased by 40.5% to $291.6 million. Gross margin expanded 520-basis-points to 68.8%. That figure excludes the $9.4 million recovery of tariff refund claims which appears as its own line on the P&L. Most of that improvement is the lapping of the elevated tariffs that hit the first half of last year. Gross margin also benefited from our disciplined initial markup a pricing strategy that carries limited reliance on markdowns and logistics efficiency, from our US distribution center. Taken together, those are structural advantages rather than cyclical ones. Mark stayed at historically low levels. Roughly 95% of gross sales go at full price. Inventory turned 7.72x in the quarter, against 7.25x last year. We chased more than half our receipts in season. That is how we read demand and react inside a quarter. On expenses SG&A increased 21.8% to $106.8 million from $87.7 million. Wages and salaries were most of the increase. Selling and marketing rose to support growth. Admin costs rose on IT and software. As a percentage of sales, adjusted SG&A decreased 210-basis-points to 24.6% from 26.7%. That is operating leverage with revenue scaling faster than SG&A. Moving down the P&L. Operating income increased 60.5% to $156.2 million Adjusted EBITDA increased 55.9% to $187.9 million, and adjusted EBITDA margin of 44.3% our highest since we began reporting under IFRS. That is an improvement of 740 basis points, underscoring the strength and scalability of our luxury inspired business model. That strength flowed through to earnings. Net earnings increased 77.5% to $113.4 million. Adjusted net earnings increased 68.1% to $108.9 million. Adjusted diluted earnings per share increased 68.7% from $0.57 to $0.96. Turning to cash flow and the balance sheet. Free cash flow was $109.5 million against $72.6 million last year. From a balance sheet perspective, net leverage was 0.89x. We ended with $31.9 million of cash, $312 million available under our credit facilities. We repaid in full the $20 million drawn at the end of the first quarter and extended our credit agreement by 2 years to May 2030. From a capital efficiency perspective, return on assets reached 38.9% from 24.1% last year. Return on capital employed increased to 73.5% from 45% in the same quarter last year. Turning to capital allocation. During the quarter, we repurchased 994 thousand shares under our NCIB at an average price of $63.50 for approximately $63.1 million. The framework has not changed. Capital expenditure comes first, because the fleet and the platform earn our highest returns. Beyond that, we have been consistent buyers of our own stock, and we remain so. Looking ahead to the remainder of fiscal 26, we are raising total revenue growth guidance to a range of 25% to 27% from 22% to 25%. We are also raising the bottom of our brick and mortar comparable sales range by a point to a range of 12% to 14%. New store performance is what moved the revenue guide. Those openings are not in the comparable base which is why the revenue range moved more than the comparable sales range. We raised the bottom of the comparable sales range on the continued shift of the network toward our best locations as well as passage of time with half the year now behind us. As a reminder, on the second half, the brick and mortar comparable sales range implies 9.5% to 13% growth over last year. We are happy with how the third quarter has started. We exited Q2 slightly stronger than we began it, and we continue to run around that level today. The updated annual outlook we established today balances the dynamics of continuing momentum in the business with the toughest comparisons of our year which are immediately in front of us. From a real estate perspective, we now provide guidance independently of closures. We continue to expect 24 to 26 openings in fiscal 26 including 5 total in The UK. The cadence of openings is weighted toward the back half of 2026. Openings and closures are not symmetrical. A store closure has effectively no impact on our EPS. Even several closures together are immaterial. A new store is roughly 4x to 5x the revenue of 1 we close and the profitability gap is wider still. We have established a target of 350 stores by the end of 2028 across both banners. Our total addressable market is likely much larger. Looking at Garage specifically, we have 96 stores in Canada and 139 in the U.S. The United States market is more than 8x the size of Canada by population. We believe there is significant opportunity beyond 2028 to grow our store footprint in The US and internationally. From a margin perspective, we are increasing our adjusted EBITDA margin outlook to a range of 39.5% to 40.5% from 38.25% to 39.5%. This increase comes from 3 drivers. First, gross margin. Concentrated in the first half. Second, continued SG and A leverage as we scale revenue. and third, greater efficiency from our US distribution center, which is now fully ramped. Once again, we are not including the recovery of tariff refund claims in adjusted EBITDA. As we move into the back half of the year, We have now lapped the tariff impacts that affected the first half of last year. That comparison alone accounts for most of the expansion you saw in Q2. The back half is a clean comparable period. We expect gross margin ahead of last year again but by a much smaller amount and against a cleaner comparison. In closing, this quarter is a story about the strength and durability of our financial profile. We raised guidance across revenue, brick and mortar comps, and margin today and we did it without leaning on any 1 off items. The tariff refund recovery sits outside. Of our adjusted results entirely. Taken together, expanding margins, strong cash generation, and a healthy balance sheet give us a financial profile that funds its own growth. Those margins are structural rather than cyclical and they continue to expand as we scale. That is the foundation we build the next several years on. With that, I will turn it back to the operator to now take questions from the financial analysts.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2. If you are using a speakerphone, please lift your handset before pressing any keys. First question comes from Irene Nattel with RBC Capital Markets. Your line is now open.

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

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

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

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

Irene Nattel: that is great. Thanks. I will pass off and get back into the queue. Thank you.

Operator: Your next question comes from Chris Li with Desjardins. Your line is now open.

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

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

Chris Li: Okay. that is helpful. And my follow-up is I am sorry if you disclosed this already, but can you share with us the breakdown in same store sales between AUR and traffic? This quarter?

Stacie Beaver: Good morning, Christian. I will take that 1. So AUR, as it has been over the last few years, is doing most of the work. While we have clearly stated in the past that we are targeting 2x inflation, I want to be very clear with all of you that is the output. The input is not taking a $20 top and charging $22 next year. The input is coming from an AUR strategy focused on brand elevation, a 3 metrics, which Andrew's touched on, but I will follow up with. 1, product mix. So our positioning of off duty and on duty that can enable a bra top to move from $26 to a $45 retail when it shifts to a performance fabric with technical capabilities. AUR is not just a higher ticket. it is elevating what we are actually offering, And our merchant and design teams know that we are not creating anything that anyone needs. We are creating things that people want. The second thing is our geography. So geography, as you guys know, we have mentioned we charge the same price in Canada and The US. So as both gentlemen have spoken to our success in The US just by penetration alone, we pick up AUR. Third is our real estate strategy. So as Andrew likes to mention, the smallest house on the nicest street. This is where actual units matter more than the actual transaction. Our order value rows in units, our price per unit rose. I said that backwards, sorry. But generally, what I am trying to say is if price is an issue, the units are going to fall first, and price and units are rising. So we continue to believe in this 2x inflation as a strategy, but know that is not actually the step we are taking. it is the 3 inputs I just mentioned.

Chris Li: Very helpful. Thank you, Stacie, and all the best.

Operator: Your next question comes from Mark Petrie with CIBC. Your line is now open.

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

Stacie Beaver: Yep. So Stacie, I will start with newness, and then I will take the markdown question. So newness is a factor we are hedging really hard on. We are watching it as a leading indication. Again, as I just mentioned, we cannot keep taking up retails if we do not invest in that quality and the offering that we are serving up to the customer. So we are paying close attention to what is going on culturally, or watching what the customer is telling us. And, we are trying to create an emotion of a want that she cannot pass it up when she walks in the store. there is too many options out there competitively on needs, which is why we are trying to focus or create 1. So with that, the team is very focused. And with it, if we can turn faster, create those wants, the AUR can come with it.

Jean-Philippe D. Lachance: On the markdown question, that is correct. Our markdown rate has remained at or around 5%. Which was also consensus with the past couple of quarters. And in terms of what is being baked in our forecast, we effectively assume we will remain at or around these levels. Could be a point to the left, could be a point to the right, but broadly speaking, we assume status quo.

Analyst: Yeah. Thanks for that. Just a just a quick follow-up. I was hoping to get a little bit of an update on denim. I know it was a question point last quarter. Maybe if you can just give us-- let us know how that is trending and maybe as we look to the back half of the year. Thanks. the year. Thanks.

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

Analyst: Thanks a lot for your answers.

Operator: Your next question comes from Michael Glen with Raymond James. Your line is now open.

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

Jean-Philippe D. Lachance: Mike, So historically, when we open up a new store, it starts off really, really strong, and then and then it continues to be strong. We are not 1 of these retailers where we will start at, say, 80% of performance and work our way to 100%. In fact, the first month is usually incredibly strong. So as those stores eventually join the comp base, we are very excited by the dollar contribution that those stores are bringing because those are top tier assets. However, if you look at the comp or the gain year over year in percentage terms, it is very healthy. Do not get me wrong, but the rest of the network is also healthy. So in terms of contribution to the comp in percentage points, it is not going to hurt us. Let me be very clear. But it is not going to add, a lot of points to it either. It really on the dollar side of things where these stores make a noticeable difference.

Michael Glen: Okay. Thank you. And then just on gross margin through the back half of the year, I know that we are dealing with a lot of the tariff noise, but in a normal year, would your gross margin increase sequentially from Q2 to Q3? I am just trying to understand what that cadence looks like on a relative basis.

Jean-Philippe D. Lachance: Yep. I am happy to speak to that as well. So last year, in Q1 and Q2, tariffs were very topical, and we talked about that, which is why in Q1 and Q2 of this year, our gross margin year over year is up 25 basis points. So as we get to Q3, we are now on a level playing field. So the comparison is clean, and it is a real comparable base. To illustrate what I am saying, if you look at our LTM gross margin rate, at the end of Q2, we are at 66.3%. Effectively, that rate is Q3 and Q4 of last year. And Q1 and Q2 of this year. And as such, that number of 66.3% is not impacted by last year's crazy tariffs in the first half. That is clean comparable base to start with. Back to my earlier comments in the opening remarks, we believe there is further room for expansion in Q3 and Q4. However, the magnitude will be far smaller than what you have seen because we no longer get the benefit of comping those tariffs. What we are going to get in Q3 and Q4 are the benefits of our USDC on logistics, and that is expected to be incremental to the gross margin. So starting from your 66.3 LTM, which is a good solid clean base, We expect to grow that a little bit with passage of time, but certainly not with the same magnitude that you have seen in the first half of this year.

Michael Glen: Okay. Thank you for taking the questions. Thank you.

Operator: Your next question comes from Brian Morrison with TD Cowen. Line is now open.

Brian Morrison: Thank you. Good morning. Andrew, I think at the beginning of the call, you said that the AUR is doubled since a certain time frame. I did not get that. But then Stacie highlighted product mix and U. S. Parity and higher U. S. Mix. To justify some of that. At the beginning of the call, you said this reflects brand building and improved brand strength. I am just wondering, has this resulted in any changes to your consumer profile, the average age to a Garage customer?

Andrew Lutfy: Yeah. Great question. And yes. it is all changed. Yes. So what we spoke about or what I spoke about earlier was basically a doubling in the AUR over the last 6 years. JP's looking at me. And if you take it, if you think about where the brand was 6 years ago, I mean, our target customer was our target market, our muse, if you will. She was 16 years old, and mathematically, we would land best customer, best markets, would probably land around 14 years old. Today, our muse is 24 years old, and mathematically, we land at about 22 and a half years old. So for sure, the customer has aged up from 14 to 22. The customer's aged up. Even the end use, again, Stacie mentioned, I mean, we used to be a denim and a plaid shirt and, you know, and homecoming dress, that is kind of like what you could expect at a Garage 6 years ago. And today, you are wearing our proudly wearing our booty shorts and support top-- bare support tops into an active wear class, a yoga class, Pilates class, kickboxing class, And furthermore, we are addressing you in the right lifestyle to get you to and from class. So the brand has evolved completely. The customer's evolved completely. The real estate and the real estate strategy has evolved completely. And this investment grade real estate that we always talk about I mean it takes courage, right? To do a store in SoHo, these are big, big rents. They are Oxford between New Bond Street and Regent. These are big, commitments. You are playing with the world's best brands. So you need to be at that level, and that is really what we have been Quarter after quarter, that is what we keep doing is elevating that brand. Know, I know you are not asking, but I would like to follow-up even Irene's question, is what s really, really important, I do mention in my opening comments, we run a poll model, a pull inventory model. What that really means is we are not playing God. And allocating and where we send the inventory. We actually do not. We send a very small of the inventory, sprinkle it all over the place. And then we basically let the customer and ultimately, the demand coming out of those store locations dictate where the inventory is going to go. So when you have a store and as you think about these amazing stores that we are opening up in The US, right? And again, we are only 1/6th as penetrated in The US as we are in Canada. Let's not even talk about The UK that is over performing. These assets are pulling hard on the inventory, and we like engineered scarcity because I hate inventory. So as we keep pulling on this inventory, unfortunately, that store and Sudbury, Ontario, you know, in Churchill, Manitoba, or Sudbury, you know, may ultimately pay the price, right? And so, this is all part of a very deliberate and strategic evolution of the brand. And at the end of the day, if you look at our 6 year stack of numbers, it is continuous improvement in every single metric. Quite frankly, I like it. I like this idea of running a more science based engineered business that has greater predictability and resiliency. Sorry about that.

Stacie Beaver: No.

Brian Morrison: that is no problem. I mean, I was kind of curious if you have seen yet that age difference at some point. in my Yeah.

Stacie Beaver: Of years. Yeah. Yeah. Yeah. Yeah. Okay. Okay.

Andrew Lutfy: And then Sorry. Stacie was just agreeing. was just agreeing. It was intentional. Yes. It was targeted. That customer has aged up roughly about 2 years, and, listen, it is a much bigger addressable market, and that is strategically why we chose to go there.

Stacie Beaver: Yes. Yes.

Andrew Lutfy: Okay.

Brian Morrison: Follow-up, just in terms of the retail sales per store, I see the runway in growth in The US, but they look to be double or more of that in Canada. 40 percent or so is currency, and I understand the optimized real estate footprint. Can you provide to us what the average size 4 walls in the US or average size store in the US is relative to Canada?

Jean-Philippe D. Lachance: I am afraid no. I am afraid we will not go into these details. But I can say that certainly US stores versus Canadian stores average, are far more profitable. And when we look at new store openings these days, they are also accretive. To the chain average, and those are in US dollars. So certainly, we noticed the impact of those openings in The US market. Thank you.

Operator: Your next question comes from Stephen MacLeod with BMO Capital Markets. Your line is now open.

Stephen MacLeod: Lots of color on the call so far, so thank you very much. I just wanted to ask about just sort of some of the fuel inflation that we are seeing and have been seeing and how that impacts the guidance or how that is considered in the guidance. And whether you have more exposure to that factor just given your high level of inventory turns.

Jean-Philippe D. Lachance: Good morning. So, yes, certainly, the dynamics we are seeing around fuel inflation are considered into our guidance. So we are very much mindful of the situation out there. And we have taken conservative assumptions in our guidance to make sure that it reflects the current market conditions. So, this is a cost that we need to be thoughtful about, and you are absolutely right. We do turn our inventory very, very fast and at such, this cost would impact us sooner than later in the P&L. And yes, we have reflected it in our guidance.

Stephen MacLeod: Okay. that is great. Thanks, JP. And then just on the on the store mix, tier 1 to 3 versus tier 4 to 5, gave an updated number, Andrew, on kind of how that breaks down right now. I am just curious, when you think about the tiers-- tier 4 to 5 becoming closer to 100% of the store mix of the network mix, how do you what is the cadence of that growth? Yes, Stacie.

Jean-Philippe D. Lachance: I can take that question. As it stands today, in terms of stores, 57% of our stores are in tiers 1, 2, and 3, which we believe to be in investment grade. However, if you look at it in dollars, that percentage gets you to 72%. If you look at our target, which is 350 stores by the end of fiscal 28, we assume that 70% stores versus 57% today will be in investment grade locations, and as such, the dollars percentage will also go up So I think if you are thinking about it this way, moving from 57 to 70 in 2.5 years from today, let's say you would be in the right ZIP code.

Stephen MacLeod: Right. Okay. that is great. Thanks, JP. Appreciate the color. Thank you.

Operator: Your next question comes from Vishal Shreedhar with National Bank. Your line is now open.

Vishal Shreedhar: Hi. Thanks for taking my questions. I wanted more perspective on the Canada assortments change and the customer reaction in particular, since Q1, did you rotate the assortment back to the more traditional assortment, or is the intent to elevate the Canadian assortment along the lines of what you have done in The US? And secondarily, did the Canada performance on a same store basis, did that stabilize in Q2? And should we expect those trends to recover in Q3? Or you expect malaise to persist in Canada?

Andrew Lutfy: Regarding the second part, JP, why do not you take the second part, and I will take the first part.

Jean-Philippe D. Lachance: Sure. So on the Canada same store, as you know, Vishal, we do not disclose comps by geography nor by banner. In Andrew's opening statements, we did say that Canada in totality was down 2% with 13 fewer stores. And as such, Canada's same store performance was, call it, flattish. Now, we will not give you a Q3 to date number on that metric. And we will refer you to our annual guidance on comps which, again, has been increased this morning from 12% to 14%. On the candidate mix, I will leave it to Andrew to answer that question.

Andrew Lutfy: Yeah. So listen. So go back to the you know, to answer your question very, very clearly, no. there is there is really no change in strategy. there is only 1 strategy. there is always only been 1 strategy for all countries. So there is no change there. And listen, this is a brand that is deliberately in transition, and this transition has been taking place over the last 6 years. And every quarter, we keep nudging it up and nudging it up and up and up. And so what that means is if you think of, let's say, what we call casual street, which would have been denim, sweater, woven shirts, and so on and so forth. 6 years ago, order of magnitude, that could have represented 70% of sales, you know, and planned as such. Today, it might be I do not know, 15% of sales or something like that. And every quarter, we keep planning it down and down and down and down because ultimately, that is not where culture is going. That is not where premium brands are going, and that is not the white space that we want to address in the athleisure and activewear markets. So there will be, I guess, the good news is there is not much left to trim from that assortment. What I would say is I think the bigger thing at play is the pull model. Again, we have engineered scarcity. Right? We intentionally buy not enough inventory. What ends up happening is those stores, you think about an Oxford Street, right, like a locomotive store, SoHo or any of these we are going to be opening on 5th Avenue, right? These are high profile, high premium, top of the k shaped economy type of customer, they pull hard on the inventory. And, unfortunately, Canada at times ends up paying the price. So, I just put out there not all tier fives do the same volume, Luke this whole tier thing is ultimately based on a very rigid set of standards. None of them actually have to do with sales, right? it is more you know, is there luxury or is not there? Is there public transportation or subways or are not there? So I would venture to say a tier 5 in Canada performs far less than a tier 5 in The USA. So this is really the pool model at work. But at the end of the day, I would just, again, look at our 6 year performance, look at our growing EBITDA margin, look at our growing margin look at our same store sales that keep growing. And listen, we firmly advocate the strategy and are excited to keep on the same path.

Vishal Shreedhar: Thank you.

Operator: Your next question comes from Adrienne Yih with Barclays. Your line is now open.

Adrienne Yih: it is Mike Yee on for Adrienne, and thank you for taking our questions. So first, Stacie, thanks for all the color around the ecommerce channel. That was super helpful, and I know it is pretty important piece of the overall store. Out there. So I guess with that said, as you continue investing behind, you know, the digital to achieve that long-term e-com penetration goal, Where are you seeing the biggest opportunities to improve the customer experience and further strengthen that omnichannel model in general? And then, I guess, along with that, are you seeing any kind of changes or differences or resonance with the online shopping by geography versus another?

Stacie Beaver: Good morning. Thanks. Yes. On online, as you guys know, we have thrown out there, our goal is over time to hit a 25% penetration. it is not a date we have thrown out to hit it, but it is a ratio. We are trying to move it. It moved 20 basis points year over year for Q2. You also should just know that Q2 is our lowest and Q4 ends up being our highest. So when you are looking at penetration, you need to look at it year over year, but also quarter over quarter. We still know we have tremendous run room here on e-com. The thing that holds us back is a positive. it is a bigger denominator in the stores being so strong. So the ratio moves slowly because the stores grow just as much. They grew 30% this quarter, overall, and e com grew 31%. So it is hard to move that penetration number. But we are not targeted on it. What things are moving the needle here, as you just asked, was headless commerce. So we launched that on our app, and we opened The UK with it. On their website. It launches this month in North America, so we are excited about that. We are moving some of the friction points and how we are moving the customer through the journey. And we are really excited that Henry Spear joined us this month as a Chief Customer Officer. His clear mandate is personalization, removing friction, and lifetime customer value not just on digital, but that omni omnichannel customer. So we are excited about the growth of digital. Great.

Adrienne Yih: And then as a follow-up, so as we were approaching holiday, how are you thinking about inventories, promotion, pricing, customer demand, and then, what are you accounting for in the back half of the year related to the overall apparel environment and how you are thinking about that?

Stacie Beaver: I can take that. Yeah. Again, regardless of the quarter, we are always looking to watch what the customer signals are, what is going on culturally, and create product that is exciting. We know she comes out in Q4 because there is generic reasons that she needs to shop, whether it is a holiday party, a company party. There are so many activities that women need to dress for that we call it moment in time where she's coming out. We need to be top of mind. So we are working on that in Q3 to grow our customer base, So we have more people to contact into Q4. But in most times, as Andrew just told you, he hates inventory. Q4 is no different time. He holds that across all 4 quarters. But also, we also hate promotions. So again, we are putting all of our effort into what is new, what is exciting, what is she going to want. And when she wants something, price really does not matter. And when she does not want something, also price does not matter, which is why we do not play the POS or the up and down game. Or try to drive revenue off of markdowns.

Adrienne Yih: Got it. Thank you so much. Thank you.

Operator: Your next question comes from Martin Landry with Stifel. Your line is now open.

Martin Landry: Congrats on your results. I want to touch on the gross margin. They were extremely high this quarter, near 69%. I am just trying to understand what point do you think, okay, we are comfortable with these margins. the rest of the increase we want to pass on to our customer in the form of more value in our products. Because I have got to think that at some point when your margins are growing that much, you know, is there a risk that a customer sees less value in your products?

Andrew Lutfy: Morning, Martin. Listen. I think it was Stacie actually who mentioned Part of this is also mix, right? As we do less business in Canada as a percent of the whole and more business in The US and even the UK, and the UK being modeled after The USA. Right? You are naturally going to see expansion in margin. it is just math, right? So that is part of the story. The other part of the story is this. As I mentioned in my opening remarks, roughly about 28% of our revenue came out of what I would call investment grade assets that might address that might address, you know, a upper top quartile consumer in terms of discretionary income. Today, it is 72%, and every quarter it keeps going up. The eightytwenty rule of life will probably be at 80% at a certain point. So you have got the smallest house, on the best street You have got a mixed conversation between the countries taking place. So it is not as egregious as it would seem from a customer standpoint. And I will remind you our competitors are actually, I have been warned not to mention who our competitors are, so I will not mention my other competitors. But you could think of best in class North American activewear athleisure brands out there, right? Those are our competitors. And their prices are anywhere from 50% to 250% more expensive than us. So even if they raise their prices at the rate of inflation, right, I do not see them compressing their margins. As they keep raising the prices at the rate of inflation, and if we raise at twice the rate of inflation, it could take like 25 to 50 years to actually catch up to them. So I am very comfortable with the strategy, and I hope that answers your question.

Martin Landry: Yeah, it does. And maybe just as a follow-up, you have increased shipping to destinations to more countries this quarter. Just how many countries do you ship now internationally, and is there further room to open up other countries in the near future?

Stacie Beaver: Yes. I will answer that. We have opened up shipping to 9 additional countries across Europe and Australia. We are reading this to see where the demand is for a further road map for brick and mortar to open up down the road. But yes, we will also open up digitally first as we go down this path. But first and foremost, these first 9 locations are off to a pretty good start and very telling of who is resonating or who has already a strong awareness of the brand.

Martin Landry: Okay. So 9 countries plus Canada, US, UK. So available in 12 countries right now. Is that correct?

Stacie Beaver: Yes. I would have to check my UK, Europe, mapping there, but yes.

Martin Landry: Okay. Thank you. Good luck.

Operator: Your next question is from Mauricio Serna with UBS. Your line is now open.

Mauricio Serna: Great. Good morning. Thanks for taking my question. I was just wondering on the Q2 comp sales performance. I guess it implies an acceleration versus what you were seeing quarter-to-date. Could you elaborate on what drove that acceleration? Traffic, AUR, conversion, so forth? And then quarter-to-date, how should we think about the that plan? Look, is it still-- is it fair to say, like, a low double digit is the quarter to date at this point? Thank you.

Stacie Beaver: Yeah, I will start, which I addressed in my opening comments, but Q2 did pick up each month of the quarter. Again, we identified early on or even coming out of the tail end of Q1 that there was an opportunity for more newness. So if you guys are Garage closely, you can see the color drops work very well for us. I also called out that the green color that we dropped was an actual customer request that came through our social channels. So we were for things that were resonating, but we probably were missing a little newness as we were depending on color of similar items to keep going. So there was a strong injection at the beginning of Q2 to drive more newness, and that really resulted in top line sales So we know the momentum we are on there, and we are excited by it. And JP is going to take the second part of your question.

Jean-Philippe D. Lachance: Yeah. So I guess the second part of your question was on Q3 to date. So look, I think what we are comfortable saying here is that Q3 to date is off a good start. We are happy with how Q3 is going so far. That is reflected in the full year guidance that we gave you this morning, 12% to 14%, which was increased and that is as far as we will go at this time.

Operator: Your next question comes from Jon Keypour with Goldman Sachs. Your line is now open.

Jon Keypour: Hi, guys. Thank you for the question. Knowing that you guys will not disaggregate comp by geography, I am just curious if you could size the magnitude of the closures in Canada. Just ignore the renovations and relocations. Just wondering what, like, the actual sales drop from those from those closed doors was.

Jean-Philippe D. Lachance: Yeah. Thank you for the question, John. So look, we will not break that down unfortunately. What I am comfortable saying, though, is that store closures are, financially speaking, immaterial to the P&L, to the bottom line, to the earnings per share. The overall revenue of stores that we close versus stores that we open the magnitude is very large. Think of it as 4x to 5x. Sometimes even larger. And as such, when we close, 13 stores in Canada in the last 12 months, the impact on revenue is negligible. And the impact on earnings per share is virtually nil. And that is as far as I can go this morning, but, hopefully, that gives you good color on the side that store closures are really not impactful to our earnings per share.

Operator: Your next question comes from John Zamparo with Scotiabank. Your line is now open.

John Zamparo: Thanks very much. Good morning. I will keep it to 1 question because I see we are past the hour. I wanted to come back to the USDC, and I wonder if you can say broadly, JP, what that contributed margin expansion in the quarter. I think it was up over 500 basis points on a gross margin basis. I wonder if you can give a sense of what the USDC is contributing and are USDC sales' margins on those close to in-line with those?

Jean-Philippe D. Lachance: Good morning, John. So in Q2, year over year, the gross margin, expanded by 520 basis points. So I would say there is 3 drivers here. The first 1 is by far the biggest 1, and more than half of it. So that would be the tariffs that we faced last year. So that is by far the biggest. And then the other 2 factors would be IMU expansion. So through a stronger AUR, which we have talked about in earlier, responses on this call, And the third factor would be your USDC. So I do not think we will give you a hard number in terms of the contribution, but it would be a very small fraction of the 520 basis points, and it would be factor number 3 in the pecking order.

Operator: There are no further questions at this time. I will now turn the call over to Andrew Lutfy for closing remarks.

Andrew Lutfy: Thank you, and thank you, everyone. I appreciate everyone's time. So listen, I just want to take a step back. And if I can maybe close out and, you know, I have given a lot of thought over last couple of months as to you know, reaction to some of the earnings and some of the comments. And sometimes we kind of get like, locked up in front of a tree, and we do not see the forest anymore. And so I just want to close out and really talk about how strategic we are and ultimately the forest. 6 years ago, we made a deliberate decision to evolve the brand. And, you know, we strategically chose to address a customer acknowledge a K-shaped economy, address a customer that is a global customer in the top quartile, if you will, in terms of disposable income, and in a leisure world that is gaining market share, it is a tide that is rising, right? So we made these deliberate choices. We also as a result, deliberately over the last 8 years, 6 years, deliberately shut down tons of stores and invested more importantly in these high profile global locations with amazing success, amazing success. And at the same time, like I do like predictability and to me, science and engineering and creating rigorous processes support that. I do not like inventory. Inventory comes with fashion risk, right? Because the more inventory you have, the more further out you have made a commitment. And honestly, it is hard to predict fashion a year or 2 years out. As Stacy mentioned, you know, we had an early feedback on green. The customer wanted green, and it was You know what? That makes a lot of sense. We were able to act on that in a couple of months. So, we run a whole model that creates scarcity. We, by design, want to have as much in season flexibility and open to buy as possible. And as we fill the pipe, right, based on information, on knowledge, leveraging AI, AI predictability, I gotta tell you, like, 9 out of 10 times, we are right. So listen. Strategically positioned in terms of a customer, the economy, disposable income, global brands with a strong science based engineered solution. So I am very comfortable about the business and very excited as to where we are going to be, not in the next quarter, but where we are going to be in 3 years from now, 5 years from now, and 7 years from now. that is ultimately my obsession. I have been doing this for 40-odd years. So 3 to 5 years seems near term. So with that, again, thank you so much, and I will leave it at this. Have a wonderful day.

Operator: Thank you. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. Please disconnect your lines.