Aritzia Inc. says its “operational pivot” to shift all fulfillment of American orders to its expanded distribution centre in Ohio sets it up to handle the United States removing its de minimis rule, which happened just two days before the end of the Canadian retailer’s second quarter.

The loophole, which ended on Aug. 29, was advantageous for international

e-commerce businesses because it allowed for duty-free shipments to the U.S. for packages valued at less than US$800.

“Despite headwinds from the elimination of the de minimis and higher reciprocal tariff rates on Vietnam and Cambodia, our proactive mitigation strategies and strong revenue growth have positioned us very well,” Aritzia chief executive Jennifer Wong said on an earnings call with analysts.

“Previously, under the de minimis exemption, we utilized our existing

supply chain network in Canada to fulfil a portion of U.S. e-commerce orders.”

The Vancouver-based retailer had already expanded its Ohio distribution centre to 560,000 square feet, more than double its previous size, before the trade war started, which it said will allow it to handle U.S. order volumes for the next two years.

Chief financial officer Todd Ingledew said the headwinds related to de minimis and tariffs led Aritzia to forecast 280 basis points of gross margin decline for the full fiscal year, though its forecast for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the fiscal year remains unchanged at 15.5 per cent to 16.5 per cent.

He said the company expects to “fully offset” the tariff and de minimis pressures based on the strength of its business and actions such as cost sharing with suppliers, lowering the percentage of products sourced from China to the mid-single digits, and its ongoing “smart spending” cost-saving initiative and multi-year initial markup (IMU) improvement.

For the quarter ending Aug. 31, Aritzia said year-over-year net revenue grew 32 per cent to $812 million due to broad-based growth across its retail and e-commerce operations and all geographies.

Aritzia said its business in the U.S. continues to drive results, with net revenue there growing 40 per cent year over year to $486 million, a bit less than 60 per cent of its overall net revenue. Half of Aritzia’s retail footprint is now located south of the border, as well as 68 of its 134 stores.

The company previously identified the potential to have up to 150 U.S. stores, but Wong said that might be closer to 180 to 200 over the long term.

“We still see that there’s a lot of runway there, a lot of white space, and our strategy is clearly proven and strong,” she said. “The great news is that we have a pipeline of stores that are identified and we see that this is something that we can really capitalize on over the next few years.”

Net revenue in Canada increased 20 per cent to $326 million, an “impressive performance in a mature market,” Martin Landry, an analyst at Stifel Nicolaus Canada Inc., said in a note.

Ingledew said investments in digital marketing, strong traffic growth and the “halo effect” from new store openings helped e-commerce net revenue increase 26 per cent to $240 million.

The Aritzia mobile app will become the retailer’s “digital flagship” when it launches at month’s end, Wong said. The company also debuted an international e-commerce website in August that “meaningfully exceeded” expectations in the first six weeks after launching.

“We’re confident we’ll hit our target of triple sales within two years or less,” Wong said.

Aritzia’s real estate expansion strategy and new stores “are the most predictable driver of top-line growth,” she said, as retail net revenue increased 34 per cent to $571 million. Comparable sales, a metric that measures performance in existing stores, grew 22 per cent.

“Accelerating contribution from the international website, the launch of the digital app by the end of October and the opening of several new stores — including the Flatiron NYC flagship before Black Friday — should support sales growth momentum,” CIBC Capital Markets analyst Mark Petrie said in a note.

Aritzia said it had strong liquidity at the end of the second quarter, with $352 million in cash, no debt and no money drawn from its $300-million revolving credit facility.

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Based on continued outperformance in the U.S. and the strength of its business in Canada, Aritzia updated its net revenue guidance to between $3.3 billion and $3.5 billion for the full fiscal year, up from the $3.1 billion to $3.25 billion it forecasted during its first-quarter earnings report in July.

“We continue to navigate macro developments from a position of strength,” Wong said. “The fact that we’re still growing our margins this year in spite of these developments speaks to our ability and ability to execute with excellence.”