Groupe Dynamite Inc. — Management Reports 2024

Dec 18, 2024

GDI | DYNAMITE GARAGE

GROUPE DYNAMITE INC.

Management’s Discussion and Analysis
Third quarter ended November 2, 2024

The following Management’s Discussion and Analysis (“MD&A”) for Groupe Dynamite Inc. is dated December 16, 2024 and provides information concerning our results of operations and financial condition for the 13-week and 39-week periods ended November 2, 2024 and October 28, 2023. You should read our MD&A in conjunction with our financial statements and the notes for the 13-week and 39-week periods ended November 2, 2024, as well as with the audited consolidated financial statements and the related notes for the year ended February 3, 2024. Our audited consolidated financial statements as at February 3, 2024 and January 28, 2023 and for each of the years ended February 3, 2024, January 28, 2023 and January 29, 2022 (the “Annual Financial Statements”) have been prepared in accordance with IFRS. Our unaudited condensed interim consolidated financial statements for the 13-week and 39-week periods ended November 2, 2024 and October 28, 2023 (the “Interim Financial Statements”) have been prepared in accordance with IAS 34, “Interim Financial Reporting”. Our Interim Financial Statements have been prepared on a basis consistent with the Annual Financial Statements. All amounts in this MD&A are in Canadian dollars unless otherwise indicated. In this MD&A, all references to “GDI”, “Groupe Dynamite”, the “Company”, “we”, “us” or “our” refer to Groupe Dynamite Inc. together with its subsidiaries, on a consolidated basis. Additional information about Groupe Dynamite is available on our website at www.groupedynamite.com.

Our fiscal year ends on the Saturday closest to January 31 of each year. This approach is adopted to ensure operational consistency. It creates variations in the actual closing date each year. All references to “Q3 2024” are to the Company’s 13-week period ended November 2, 2024; “YTD 2024” are to the Company’s 39-week period ended November 2, 2024; “Q3 2023” are to the Company’s 13-week period ended October 28, 2023; “YTD 2023” are to the Company’s 39-week period ended October 28, 2023; “Fiscal 2023” are to the Company’s fiscal year ended February 3, 2024; and “Fiscal 2022” are to the Company’s fiscal year ended January 28, 2023.

Cautionary Note regarding Forward-Looking Information

This MD&A contains forward-looking information within the meaning of applicable Canadian securities legislation. Forward-looking information may relate to our future financial outlook and anticipated events or results and may include information regarding our business, brand positioning, brand awareness and brand expansions, our expectations on our ability to continue creating accessible fashion and delivering on-trend products, our expectations regarding the expansion and optimization of our store footprint, our expectations regarding reinvestment in our business, our financial performance, financial position and use of liquidity, the remodeling and relocation of existing stores in top-tier locations, the increase in our e-commerce penetration level relative to our total revenue and the growth in our e-commerce business more generally, and our expectations regarding our growth rates and growth strategies. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding possible future events or circumstances. Forward-looking information is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Our assumptions underpinning

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forward-looking information include, but are not limited to, the following: expected short-, medium- and long-term discretionary spending and overall economic trends; successfully maintaining and enhancing our brands; marketing efforts, store enhancements and store expansions will be successful and drive our revenue; maintaining our supplier relationships and a steady, cost-effective supply of inventories; successfully managing expenses and driving gross margin improvements; growing our e-commerce business and making headway in our international expansion efforts; successfully retaining key personnel including our chief executive officer; the absence of material changes to taxes, duties, tariffs and interest rates; the absence of material disruptions in the international trade; the economy generally; and the absence of any other factors that could cause actions, events or results to differ from those anticipated, estimated, intended or implied.

Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Forward-looking information is also subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information. Risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Company's Supplemented PREP Prospectus dated November 20, 2024 (the "Prospectus"). If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The risks, uncertainties, opinions, estimates and assumptions referred to elsewhere in this MD&A should be considered carefully by readers. Accordingly, readers should not place undue reliance on forward-looking information. To the extent any forward-looking information in this MD&A constitutes future-oriented financial information or financial outlook, within the meaning of applicable securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future-oriented financial information and financial outlook, as with forward-looking information generally, are based on current assumptions and subject to risks, uncertainties and other factors. Furthermore, the forward-looking information contained in this MD&A represents our expectations as of the date of this MD&A (or as of the date it is otherwise stated to be made) and is subject to change after such date. We disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable Canadian securities legislation. All of the forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements.

Overview

With a luxury-inspired mindset, our vision is to create accessible fashion that inspires style-conscious individuals to feel good in their skin to fulfil our mission: Empowering you to be you, one outfit at a time.

We are a fashion house that operates retail stores and e-commerce platforms under two complementary and spirited banners: Garage and Dynamite. Garage is a casual street-active aesthetic brand that inspires rewriting the rules, breaking boundaries and owning your individuality, because your style should be as limitless as your passions. Dynamite believes that every day is the perfect occasion to look and feel exceptional, outfitting modern women to seamlessly flow between the demands of their day to the energy that fills their night.

We have an intense focus on building an emotional connection with our customers that informs our design and merchandising strategy, omnichannel distribution model and marketing strategy.

This emotional connection with our customers begins with our muses, Alex and Rachelle, the conceptual inspirations for our design teams. Alex and Rachelle epitomize customers of Garage and Dynamite respectively, and we embark through them on style journeys that allow us to rapidly address ever-evolving fashion preferences. Our teams then aim to create must-have, unique and on-trend products for our customers' ever-changing world.

Both of our distinctive brands have their own dedicated design and merchandising teams focused on creating on-trend products while leveraging the support of our multidisciplinary teams that promote company-wide strategic alignment and allow us to leverage insights and learnings across both brands.

We connect with our customers through an aspirational, omnichannel shopping experience that extends across our retail stores, e-commerce platforms, mobile applications and loyalty program. As of November 2, 2024, we

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operate 185 stores in Canada, with retail locations in all Canadian provinces, and 114 stores in the United States, with retail locations across 37 U.S. states. Our retail store footprint allows us to develop brand-enhancing experiences for our customers, with use of technology and an innovative approach to empowering our store associates to be brand ambassadors and stylists creating an optimized shopping experience for our customers. Our two dedicated e-commerce sites, Garageclothing.com and Dynamiteclothing.com, give us control of the presentation of our brand and relationships with our customers, while providing customers with a seamless omnichannel experience. Our Garage and Dynamite loyalty program and apps further enable us to provide her a fun and personalized experience with access to the latest products, and help drive repeat purchasing behavior.

Our omnichannel distribution model is supported by our nimble design, sourcing and supply chain process. We have long-term and strategic relationships with suppliers that enable us to secure production capacity and facilitate in-season order placement. We have an accelerated product cycle from fabric production to order fulfillment that allows us to quickly pivot to the latest trends or go deeper on in-season trends. Our flexibility increases our open-to-buy opportunity in a given season, allowing us to test, deploy and react to trends more quickly, more accurately plan inventory, reduce markdowns and minimize fashion risk.

We support our brands with a disciplined and data-driven approach to marketing, utilizing a proprietary attribution model that analyzes and supports efficacy of our marketing spend in real-time and provides insights that inform our longer-term strategy. We deploy a multi-faceted marketing strategy across multiple channels focusing on driving brand awareness and growing the community of Garage and Dynamite customers, with strategic use of social media and influencers, events, and partnerships.

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Q3 2024 Financial Highlights

• Revenue increased to $258.8 million in Q3 2024 from $220.1 million in Q3 2023, representing an increase of $38.7 million or 17.5%. The increase was driven by several factors reflecting the success of our real estate and marketing strategies such as:
• Comparable store sales growth(1) of 10.1% in Q3 2024, above comparable store sales growth of 9.8% in Q3 2023;
• Revenue from new stores impacted by the opening of 25 gross new stores (10 net new stores) over the last 12-month period (6 new stores in Q3 2024, no closures), with most new store locations in the higher-growth U.S. market;

• Online revenue growth of 22.9% in Q3 2024 compared to Q3 2023, supported by our focus on delivering an aspirational omnichannel shopping experience to our customers.

• Retail sales per square foot(1) reached $713 at the end of Q3 2024 compared to $581 at the end of Q3 2023, representing an increase of 22.7%.

• Gross profit increased to $162.9 million in Q3 2024 from $138.2 million in Q3 2023, resulting in gross margin(1) improving to 63.0% from 62.8% over this same period, driven by higher average unit retail prices and lower markdowns.

• Operating income increased to $63.1 million in Q3 2024 from $53.3 million in Q3 2023. The increase was driven by higher gross profit, partially offset by higher SG&A, and by higher depreciation and amortization.

• Adjusted EBITDA(1) increased to $87.2 million in Q3 2024 from $72.0 million in Q3 2023, resulting in adjusted EBITDA margin(1) increasing to 33.7% from 32.7% over the same period last year. This growth of 21.0% is mainly attributed to higher revenue, higher gross margin and operating leverage.

• Net earnings increased to $40.4 million in Q3 2024 from $34.9 million in Q3 2023, representing an increase of $5.5 million or 15.9%. Adjusted net earnings(1) increased to $43.7 million in Q3 2024 from $35.8 million in Q3 2023, representing an increase of $7.9 million or 22.2%.

• Inventory turnover(1) ratio was 6.09 at the end of Q3 2024 compared to 5.49 at the end of Q3 2023, reflecting the effectiveness of our market-leading inventory management system and contributing to the reduction in markdowns.

• Return on assets ratio ("ROA")(1) increased to 23.8% at the end of Q3 2024, up from 15.4% in the same period last year. This significant improvement in the ROA is driven by growth in adjusted net earnings over the last 12-month period, which was partially offset by an increase in average total assets.

• Net leverage ratio(1) decreased to 1.41x in Q3 2024 compared to 2.26x in Q3 2023. This improvement is primarily due to the increase in adjusted EBITDA, coupled with long-term debt repayment, which has mitigated the rise in lease liabilities and enabled the Company to deleverage more effectively.

Note:
(1) Refer to "Non-IFRS Measures including Non-IFRS Financial Measures, Non-IFRS Ratios, Supplementary Financial Measures and Retail Industry Metrics" in this MD&A for further details concerning these measures including definitions and reconciliations of each non-IFRS financial measure to the relevant reported IFRS financial measure. Non-IFRS financial measures and non-IFRS ratios do not have a standardized meaning under IFRS, which is used to prepare the Company's financial statements and might not be comparable to similar financial measures presented by other entities.

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Recent Events

New Directors

Prior to, and in connection with, the IPO (as defined below), we expanded our board of directors, appointing Peter Iliopoulos (effective September 3, 2024), Linda Drysdale (effective September 23, 2024), Angelic Vendette (effective October 16, 2024) and Hollie S. Castro (effective November 1, 2024) to our board of directors.

Amendment to the credit agreement

On November 20, 2024, the original credit agreement dated November 10, 2022 (the "Original Credit Agreement") which was amended and restated on March 25, 2024 (the "Amended and Restated Credit Agreement"), was amended and restated again for a second time (the "Second Amended and Restated Credit Agreement"). Under the terms of the Second Amended and Restated Credit Agreement, the outstanding balance of the term loan ($86.8 million) was fully repaid by using proceeds from the repayment of the Promissory Note (as defined below), reducing the term loan commitments to $nil. The outstanding balance of the revolving credit facility ($7.0 million) was also fully repaid, reducing the commitment to $nil. Under the Second Amended and Restated Credit Agreement, the Company can borrow up to an aggregate amount of $312 million in the form of a revolving credit facility, with up to $30 million of letter of credit availability under the revolving credit facility, and swingline facilities of up to $30 million under the revolving credit facility.

Pre-Closing Reorganization

On or about November 20, 2024, the following reorganization was implemented (the "Pre-Closing Reorganization"):

• Extension of Expiry Date of Legacy Options – We extended the expiry date of options that were outstanding under the employee stock option plan that was established in 2021 (the "Legacy Option Plan") and that were held by non-U.S. taxpayers such that each such option now has a term of 10 years from its original grant date.
• Redemption of Class “C” Shares – We redeemed for cash proceeds equal to $3,000,200 all of the issued and outstanding Class “C” shares, held by 10644579 Canada Inc, a parent company (“ParentCo”).
• Net Increase to Stated Capital – We (i) increased the stated capital of the Class “A” shares in an aggregate amount of $222 million and immediately thereafter (ii) decreased the stated capital of the Class “A” shares in an aggregate amount of $15.6 million and returned such capital to certain shareholders by issuing non-interest bearing demand promissory notes (the “Refund Notes”). The stated capital increased triggered a tax refund to the Company in an amount equivalent to the principal amount of the Refund Notes.
• Creation of Subordinate Voting Shares and Multiple Voting Shares and Conversion of Class “G” Shares – We amended our articles to:
• create the preferred shares, the multiple voting shares and the subordinate voting shares;
• re-designate our issued and outstanding Class “A” shares as multiple voting shares on the basis of 4.249 Class “A” shares per multiple voting share (the “Share Consolidation”);
• re-designate all of our issued and outstanding Class “G” shares, then held by Mr. Lutfy’s children, having an aggregate redemption value equal to approximately $500,000, for such number of multiple voting shares as was equal to the aggregate redemption value divided by the IPO price of $21 per share.
• remove the Class “A” shares, Class “B” shares, Class “C” shares, Class “D” shares, Class “E” shares, Class “F” shares, Class “G” shares and Class “H” shares from our authorized capital; and
• make other amendments to conform our articles to the terms described in the Prospectus.
• Conversion into Subordinate Voting Shares – 16084915 Canada Inc., 16084958 Canada Inc. and 16084834 Canada Inc. converted 14,285,715 multiple voting shares into subordinate voting shares to satisfy their obligations under the underwriting agreement entered into in connection with the IPO.
• Increase to Stated Capital – We increased the stated capital of the subordinate voting shares in an aggregate amount of $18 million prior to completing the IPO.
• Legacy Options – The options to acquire Class “H” shares that were outstanding under the Legacy Option Plan as at the closing of the IPO (each, a “Legacy Option”) were amended such that each Legacy Option

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entitles the holder thereof to acquire 0.235 subordinate voting shares at an exercise price equal to 4.249 times the current exercise price, reflecting the Share Consolidation.

• Repayment of Promissory Note Receivable from ParentCo – Following receipt by the selling shareholders of the proceeds of the sale of the subordinate voting shares to the underwriters, the selling shareholders caused the promissory note receivable from ParentCo in the amount of $110 million to be repaid (the "Promissory Note"). The Company then used the repayment proceeds to repay the outstanding balance of the term loan outstanding under the terms of the Second Amended and Restated Credit Agreement.

Initial Public Offering ("IPO")

On November 26, 2024, we successfully closed our initial public offering of our subordinate voting shares. The selling shareholders, controlled by Andrew Lutfy, sold an aggregate of 14,285,715 subordinate voting shares to the underwriters at an offering price of $21 per share, for aggregate gross proceeds of approximately $300 million. The subordinate voting shares are listed for trading on the Toronto Stock Exchange under the symbol "GRGD".

The selling shareholders have also granted the underwriters an over-allotment option to purchase up to an additional 2,142,857 subordinate voting shares at a price of $21 for additional gross proceeds of approximately $45 million if the over-allotment option is exercised in full. Underwriting fees were paid by the selling shareholders and we incurred other expenses related to the IPO.

Summary of Factors Affecting our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us. These factors are also subject to a number of inherent risks and challenges. For a detailed description of risk factors associated with the Company, refer to the "Risk Factors" section of the Prospectus, which is available on SEDAR+ at www.sedarplus.com.

Our Brands

Our two complementary and spirited banners have been conceived and developed over nearly 50 years with distinct brand positioning in both age and lifestyle that we believe strike the right emotional chord with our target customers. Our multi-brand strategy drives product differentiation, assortment flexibility and a natural progression through our muses, Alex and Rachelle.

Strengthening and growing our brands is critical to our continued success. Any loss of brand appeal may adversely affect our business and financial results. We structure our business to strengthen and grow our brands through, among others, our (i) dedicated concept, design, merchandising and planning and marketing teams focused on creating distinct on-trend products, supported by our multidisciplinary teams, (ii) nimble design, sourcing and supply chain process, (iii) expansion and optimization of our store network in North America, (iv) plans to grow our e-commerce capabilities and (v) omnichannel go-to-market platform.

On-Trend Products and our Design, Sourcing and Supply Chain Process

We aim to create on-trend products that are in demand and strengthen and grow our brands, which drives our revenue. Our product design and development process builds on historically successful items, inspired by our muses, while incorporating new fashion, cultural and social trends, with the goal of creating fashion must-haves.

We buy initial quantities of merchandise that allow us to quickly gauge customer demand and follow up with larger orders when proven successful, allowing us to increase sales while reducing inventory risk. Approximately 50% of the purchasing decisions are made after a season begins, allowing us to respond to trends in real-time, either buying further into a trend or pivoting, while we optimize our inventory, resulting in fewer markdowns and exhibiting brand health and relevance.

Access to our suppliers and supply chain is key to the success of our business. As of the end of Fiscal 2023, we had over 45 suppliers across more than 100 factories, providing us with the flexibility to source high quality materials and products at competitive costs. Our production cycle's efficiency is underpinned by familiarity with key suppliers, with over 80% having been a partner of ours for over eight years, periodic quality control and refreshment of suppliers. Across this network of suppliers, the majority of our production volumes are sourced from China, with additional contributions from Bangladesh and Cambodia. Almost all of our suppliers have production capabilities in multiple

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countries. Additionally, based on our strong supplier relationships, we are able to reserve production capacity prior to purchase order placement, which ensures that we have dedicated production lines supporting our agile business model and reducing supply chain risk.

Expansion and Optimization of our Store Network in North America

Our business is heavily dependent on the revenue from our stores. We believe we have a significant opportunity to continue growing and optimizing our store network across North America. Underpinning the success of our retail revenue growth is the strategic placement of our locations in accordance with our store-level matrix strategy, under which we focus on opening new stores in top-tier locations (as qualified by premium co-tenants, peripheral concession and entertainment options, high visibility and high consumer traffic, among other factors). According to our standards, most assets in the shopping center universe are in tier 4-5 areas, while a small percentage are in tier 1-3 areas.

For the 12-month period ended November 2, 2024, our stores (which occupy approximately 3,700 square feet on average) produced retail sales per square foot of approximately $713. In addition to opening new stores, we have generated attractive returns on capital by optimizing our existing stores through carefully considered and accretive store remodels and relocations. We aim to selectively remodel and relocate 10 to 15 existing stores per year in top-tier locations. Through expanding our store footprint and optimizing our existing store base, we believe we can enhance our aesthetic, improve our in-store assortment, increase scale, drive comparable store sales growth and enhance company-wide operating margins.

Plans to Grow our e-Commerce Capabilities

Since pivoting to an omnichannel model in 2019, our e-commerce business has grown to represent approximately 18% of total revenue for the 12-month period ended November 2, 2024. This growth has been achieved through several initiatives, such as broadening our e-commerce assortment by releasing exclusive items, having in-store brand ambassadors and stylists to direct customers online for additional sizes and styles, and optimizing our website experience for our customers, including by increasing site speed, streamlining the checkout process and the fulfillment options and providing product reviews. We believe that further growth from our e-commerce business will be an important component of our performance, and we are currently targeting a long-term e-commerce penetration level of approximately 25% of our total revenue.

Omnichannel Go-to-Market Platform

We leverage both our physical store base and e-commerce sites to create an omnichannel customer experience with an integrated platform that allows our customers to transition seamlessly across channels and maintain a curated and personalized shopping experience. Our omnichannel platform also meaningfully reduces markdown occurrences through the use of an algorithm powered by our proprietary business intelligence, referred to as the Brain. The Brain identifies optimal inventory to fulfill e-commerce orders and improves customer service by seamlessly integrating online and offline retail channels. We are thus able to operate closer to an asset-light model that reduces warehouse expenses, drives a lead time advantage and increases overall assortment flexibility.

Foreign Exchange

The majority of our revenue is derived in Canadian dollars while a significant portion of our cost of goods sold is denominated in U.S. dollars, which exposes us to fluctuations in foreign currency exchange rates. Future fluctuations in the exchange rate of the Canadian dollar versus the U.S. dollar could materially affect our gross margins and operating results.

Seasonality

The apparel sector operates on a seasonal basis, with a higher proportion of revenue and operating income being realized in the third and fourth quarters of the fiscal year, coinciding with key shopping periods such as back-to-school and the holiday season. Additionally, our working capital demands escalate prior to the introduction of new seasonal lines, due to launching new seasons and acquiring new inventory. The following table is a breakdown of the quarterly distribution of annual revenue for Fiscal 2023 and Fiscal 2022:

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For the fiscal years ended

Annual Revenue	February 3, 2024	January 28, 2023
	%	%
First fiscal quarter	19	19
Second fiscal quarter	23	25
Third fiscal quarter	28	28
Fourth fiscal quarter	30	28
Fiscal year total	100%	100%

Components of our Results of Operations

Revenue

Revenue reflects retail and online sales, less returns and discounts, under the Dynamite and Garage brands across Canada and the United States.

The Company recognizes revenue when control of the goods or services has been transferred to a customer, which occurs at a point in time, for retail sales, at the time the sale is made to the customer, and for online sales, at the date of delivery to the customer. Revenue is measured at the fair value of consideration to which the Company expects to be entitled, including (i) variable consideration if any, to the extent it is highly probable that a significant reversal will not occur, and (ii) shipping fees. Revenue is measured net of discounts and an estimated allowance for returns. Reported sales exclude sales taxes.

Gift cards sold are accounted for as deferred revenue and revenue is recognized when gift cards are redeemed for merchandise. The Company estimates gift card breakage to the extent permissible under local laws, and recognizes revenue in proportion to actual gift card redemptions.

The Company has a loyalty points program that gives rise to a separate performance obligation as it provides a material right to the customer. The transaction price is allocated between the loyalty points and the goods on which the awards were earned based on their relative stand-alone selling prices taking into consideration the estimated redemption percentage. Loyalty points and awards granted under the customer loyalty awards program are recorded as deferred revenue until the loyalty points and awards are redeemed by the customer.

The Company grants rights of return on goods sold to customers. Revenue is reduced by the amount of expected returns, which is determined based on historical patterns of returns, and a related refund liability is recorded within accounts payable and accrued expenses.

Cost of sales

Cost of sales includes the cost of inventories purchased, shipping and transportation costs, warehousing, distribution costs and the variable and short-term occupancy costs that are excluded from the lease liability.

Since the Company purchases goods in currencies other than the Canadian dollar, our cost of sales is affected by fluctuations in foreign currencies against the Canadian dollar. We mainly import merchandise from suppliers in China and Bangladesh with U.S. dollars. Therefore, our cost of sales is impacted indirectly by the fluctuation of the Chinese renminbi and the Bangladeshi Taka against the U.S. dollar and directly by the fluctuation of the U.S. dollar against the Canadian dollar.

We generally use foreign exchange forward contracts to hedge some of our exposure to changes in the value of the U.S. dollar against the Canadian dollar, usually for a period of three to six months ahead, while leveraging natural hedge opportunities given our U.S. operations. However, we do not hedge our exposure to changes in the value of the Chinese renminbi and Bangladeshi Taka against the U.S. dollar.

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Gross profit

Gross profit reflects our revenue, less cost of sales.

Selling, general and administrative expenses

Selling, general and administrative expenses (or "SG&A") include store labour costs, which vary with our sales volume, as well as fixed costs such as store maintenance, corporate and field salaries and benefits, administrative office costs, professional fees, and other related expenses. Our store labour costs are affected by the statutory minimum wage, which is lower than our average store hourly wage rate. However, a significant rise in the minimum wage would increase our payroll costs unless we can improve our store productivity.

Depreciation and amortization

Depreciation and amortization represent the systematic allocation of the cost of the Company's tangible and intangible assets over their respective useful lives. Depreciation is charged on property, plant, and equipment, including capitalized leases classified as right-of-use assets, while amortization is recorded on intangible assets, such as software.

Net financing costs

Net financing costs primarily consist of interest expenses on the Company's borrowings, including short-term and long-term debt as well as any short-term and long-term lease liabilities. These costs also include the amortization of deferred financing charges, interest income from cash and promissory note, and any gains or losses on derivative financial instruments.

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Selected Financial Information

In thousands of Canadian dollars, except per share data	13-week periods ended		39-week periods ended
	Nov 2, 2024	Oct 28, 2023	Nov 2, 2024	Oct 28, 2023
	$	$	$	$
Revenue	258,772	220,148	686,760	560,542
Cost of sales	95,845	81,958	245,477	214,907
Gross profit	162,927	138,190	441,283	345,635
Operating expenses
Selling, general and administrative expenses	80,030	66,622	226,134	197,973
Depreciation and amortization	20,027	17,903	54,509	50,940
Foreign exchange (gain) loss	(182)	383	(844)	34
Total operating expenses	99,875	84,908	279,799	248,947
Operating income	63,052	53,282	161,484	96,688
Net financing costs	5,982	6,126	17,716	19,814
Earnings before income taxes	57,070	47,156	143,768	76,874
Income taxes	16,630	12,254	39,034	19,653
Net earnings	40,440	34,902	104,734	57,221
Net earnings per share(3)
Basic	$0.38	$0.32	$0.97	$0.53
Diluted	$0.38	$0.32	$0.97	$0.53
Additional financial measures
Retail revenue	214,682	184,286	576,572	467,660
Comparable store sales growth(1)	10.1%	9.8%	13.4%	7.5%
Retail sales per square foot(1)	$713	$581	$713	$581
Adjusted EBITDA(1)	87,198	72,044	223,802	149,450
Adjusted net earnings(1)	43,706	35,761	111,200	59,043
Adjusted net earnings per share(1)(3)
Basic	$0.41	$0.33	$1.03	$0.55
Diluted	$0.41	$0.33	$1.03	$0.55
Gross margin(1)	63.0%	62.8%	64.3%	61.7%
SG&A as a percentage of sales(1)	30.9%	30.3%	32.9%	35.3%
Adjusted EBITDA margin(1)	33.7%	32.7%	32.6%	26.7%
Ratios and other metrics:
ROA(1)	23.8%	15.4%	23.8%	15.4%
ROCE(1)	43.3%	30.7%	43.3%	30.7%
Net leverage ratio(1)	1.41	2.26	1.41	2.26
Free cash flow(1)	42,193	39,031	108,398	50,488
Inventory turnover(1)	6.09	5.49	6.09	5.49
CAPEX(1)	17,826	13,433	50,681	24,501
Number of stores(2)	299	289	299	289

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In thousands of Canadian dollars	As at
	Nov 2, 2024	Feb 3, 2024	Jan 28, 2023
	$	$	$
Cash	12,558	8,135	33,694
Inventories	61,156	38,627	40,028
Total current assets	209,205	83,458	100,451
Property and equipment	100,350	65,419	37,132
Right-of-use assets	297,598	246,240	210,708
Total assets	624,784	516,476	471,631
Long-term portion of long- term debt	73,224	145,100	223,273
Long-term portion of lease liabilities	302,012	240,301	194,624
Total non-current liabilities	375,236	388,901	421,397
Total liabilities	519,655	511,548	547,585
Total shareholders' equity (deficiency)	105,129	4,928	(75,954)
Total debt(1)	424,205	433,275	469,183
Net debt(1)	411,647	425,140	435,489

Notes:
(1) Refer to "Non-IFRS Measures including Non-IFRS Financial Measures, Non-IFRS Ratios, Supplementary Financial Measures and Retail Industry Metrics" section of this MD&A for further details concerning these measures including definitions and reconciliations of each non-IFRS financial measure to the relevant reported IFRS financial measure. Non-IFRS financial measures and non-IFRS ratios do not have a standardized meaning under IFRS, which is used to prepare the Company's financial statements and might not be comparable to similar financial measures presented by other entities.
(2) Number of stores is as at end of period.
(3) Net earnings per share and Adjusted net earnings per share are calculated, after giving the effect, on a retrospective basis, to the Share Consolidation that occurred in connection with the Pre-Closing Reorganization subsequent to November 2, 2024.

Results of Operations

Summary of changes in our store portfolio

For the 39-week period ended November 2, 2024, we achieved the opening of 15 new stores in the United States under the Garage retail banner and 3 new stores in the Canada under both banners. We also completed 9 strategic store closures and 3 stores were effectively enhanced or re-located. For the 39-week period ended October 28, 2023, we accomplished the opening of 12 new stores, made 15 strategic store closures and 10 stores were effectively enhanced or re-located.

The following table presents a summary of changes in our store portfolio:

As of and for the 39-week periods ended

	November 2, 2024			October 28, 2023
	Canada	USA	Total	Canada	USA	Total
Stores at the beginning of the period	190	100	290	208	84	292
Store openings	3	15	18	1	11	12
Store closures	(8)	(1)	(9)	(14)	(1)	(15)
Stores at the end of the period	185	114	299	195	94	289
Store enhancements and relocations	-	3	3	6	4	10

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Results of operations for the 13-week and 39-week periods ended November 2, 2024 and October 28, 2023

Revenue

Total revenue for the 13-week period ended November 2, 2024 increased by $38.7 million or 17.5% compared to the 13-week period ended October 28, 2023. The majority of the increase is attributable to retail revenue, which increased by $30.4 million or 16.5% over the 13-week period ended October 28, 2023. This growth was mainly due to a 10.1% increase in comparable store sales and contribution from new stores. Online revenue for the 13-week period ended November 2, 2024 increased by $8.2 million or 22.9% compared to the 13-week period ended October 28, 2023.

Total revenue for the 39-week period ended November 2, 2024 increased by $126.3 million or 22.5% compared to the 39-week period ended October 28, 2023. The majority of the increase is attributable to retail revenue, which increased by $108.9 million or 23.3% over the 39-week period ended October 28, 2023. This increase was driven by comparable store sales growth of 13.4% and revenue from new stores. Online revenue for the 39-week period ended November 2, 2024 increased by $17.3 million or 18.6% compared to the 39-week period ended October 28, 2023.

Cost of sales and gross profit

Gross profit for the 13-week period ended November 2, 2024 increased by $24.7 million or 17.9% compared to the 13-week period ended October 28, 2023 which resulted in gross margin expanding to 63.0% in Q3 2024 from 62.8% in Q3 2023. This improvement is attributable to higher average unit retail prices favorably impacted by lower markdowns, and was partly offset by higher occupancy costs.

Gross profit for the 39-week period ended November 2, 2024 increased by $95.7 million or 27.7% compared to the 39-week period ended October 28, 2023 which resulted in the gross margin expanding to 64.3% YTD 2024 from 61.7% YTD 2023. This increase is attributable to the 22.5% revenue growth compared to the relatively lower increase in cost of sales of 14.2% which is due to controlled merchandise cost increases and lower markdowns. Markdowns are lower due to our improved flexibility and our ability to respond to trends in real time, which improve inventory planning. This is further reflected in the higher inventory turnover of 6.09 at the end of YTD 2024, compared to 5.49 at the end of YTD 2023.

Selling, general and administrative expenses

SG&A for the 13-week period ended November 2, 2024 increased by $13.4 million or 20.1% compared to the 13-week period ended October 28, 2023. This increase was mainly due to a $8.1 million rise in wages, salaries, and employee benefits, driven by higher labor costs as revenue grew and a larger proportion of stores were opened in the U.S., where labour tends to be more expensive than in Canada. In Q3 2024, selling and marketing expenses also increased due to the timing of certain marketing expenses compared to the same quarter last year and administrative costs were negatively impacted by $3.2 million of professional fees related to the IPO.

SG&A for the 39-week period ended November 2, 2024 increased by $28.1 million or 14.2% compared to the 39-week period ended October 28, 2023. This increase was mainly due to a $21.7 million rise in wages, salaries, and employee benefits, driven by higher labor costs as revenue grew and a larger proportion of stores were opened in the U.S., where labour tends to be more expensive than in Canada. YTD 2024 was also negatively impacted by $5.1 million of professional fees related to the IPO recorded in administrative costs.

Depreciation and amortization

Depreciation and amortization for the 13-week period ended November 2, 2024 increased by $2.1 million or 11.9% compared to the 13-week period ended October 28, 2023. Most of this increase is attributable to depreciation of property, plant and equipment and right-of-use assets, which increased by $2.0 million or 12.1%, driven by more store leases capitalized under right-of-use assets in Q3 2024 compared to Q3 2023.

Depreciation and amortization for the 39-week period ended November 2, 2024 increased by $3.6 million or 7.0% compared to the 39-week period ended October 28, 2023. Most of this increase is attributable to depreciation of property, plant and equipment and right-of-use assets, which increased by $4.8 million or 10.3%, driven by additional capitalized right-of-use assets in YTD 2024 due to the renegotiation and addition of leases. The increase was partially offset by a decrease in amortization of intangible assets as certain software projects were fully amortized.

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Net financing costs

Net financing costs for the 13-week period ended November 2, 2024 decreased by $0.1 million or 2.4% compared to the 13-week period ended October 28, 2023. This decrease is due to a decrease in finance expense of $0.1 million.

Net financing costs for the 39-week period ended November 2, 2024 decreased by $2.1 million or 10.6% compared to the 39-week period ended October 28, 2023. This decrease is due to a decrease in finance expense of $0.9 million as well as an increase in finance income of $1.2 million. The decline in interest expense was largely driven by lower interest rates and decreased average debt balances, partly offset by higher interest on lease liabilities.

Net earnings

Net earnings for the 13-week period ended November 2, 2024 increased by $5.5 million or 15.9% compared to the 13-week period ended October 28, 2023. This growth is attributed to higher revenue, a 20 basis points (bps) improvement in gross margin, along with lower depreciation expenses and net financing costs as a percentage of revenue. It was partially offset by higher SG&A expenses as a percentage of revenue, primarily due to $3.2 million in professional fees related to the IPO, as well as an increase in the effective income tax rate.

Net earnings for the 39-week period ended November 2, 2024 increased by $47.5 million or 83.0% compared to the 39-week period ended October 28, 2023. This growth is attributed to higher revenue, a 260 bps improvement in gross margin, along with lower SG&A expenses, depreciation and amortization expenses and net financing costs, in each case, as a percentage of revenue. It was partially offset by a higher effective income tax rate for the period.

Operating income and adjusted EBITDA

Operating income for the 13-week period ended November 2, 2024 increased by $9.8 million or 18.3% to reach $63.1 million in Q3 2024 compared to $53.3 million in Q3 2023. Similarly, adjusted EBITDA for the 13-week period ended November 2, 2024 increased by $15.2 million or 21.0% to reach $87.2 million in Q3 2024 compared to $72.0 million in Q3 2023. The adjusted EBITDA margin improved to 33.7% in Q3 2024, compared to 32.7% in the same period last year. This growth is attributed to a combination of higher gross margin and operating leverage.

Operating income for the 39-week period ended November 2, 2024 increased by $64.8 million or 67.0% to reach $161.5 million in YTD 2024 compared to $96.7 million in YTD 2023. Similarly, adjusted EBITDA for the 39-week period ended November 2, 2024 increased by $74.3 million or 49.8% to reach $223.8 million in YTD 2024 compared to $149.5 million in YTD 2023. The adjusted EBITDA margin improved to 32.6% in YTD 2024 compared to 26.7% in YTD 2023. This substantial increase is largely attributable to enhanced gross margin, with the remainder driven by operating leverage.

Analysis of cash flows for the 39-week periods ended November 2, 2024 and October 28, 2023

Cash flows

The following table presents cash balances, cash flows from operating, investing and financing activities:

In thousands of Canadian dollars	39-week periods ended
	November 2, 2024	October 28, 2023
	$	$
Cash – beginning of period	8,135	33,694
Operating activities	159,079	74,989
Investing activities	(50,681)	(24,501)
Financing activities	(101,872)	(42,890)
Effect of foreign exchange rate changes on cash	(2,103)	3,498
Net increase (decrease) in cash	4,423	11,096
Cash – end of period	12,558	44,790

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Operating activities

For the 39-week period ended November 2, 2024, cash generated from operating activities was $159.1 million compared to $75.0 million for the 39-week period ended October 28, 2023. The increase was mainly driven by higher net earnings for the period and a more favorable impact of changes in non-cash working capital components.

Investing activities

For the 39-week period ended November 2, 2024, cash used in investing activities was $50.7 million compared to $24.5 million for the 39-week period ended October 28, 2023. This increase is entirely due to a $26.2 million increase in CAPEX compared to the same period last year, driven by a higher number of store openings and planned expansions for the balance of the financial year.

Financing activities

For the 39-week period ended November 2, 2024, cash used in financing activities was $101.9 million compared to $42.9 million for the 39-week period ended October 28, 2023. This increase is due to a higher repayment of principal on lease liabilities of $29.3 million in YTD 2024 compared to $22.6 million in YTD 2023. Also impacting financing activities were the repayment of long-term debt of $79.5 million and proceeds from borrowings of $7.0 million in Q3 2024 compared to the repayment of long-term debt of $30.3 million and proceeds from borrowings of long-term debt of $10.0 million for the same period in the prior year.

Liquidity and capital resources

Our capital management strategy is to ensure sufficient liquidity to enable the financing of capital projects thereby facilitating our growth and maintaining a flexible capital structure that optimizes the cost of capital at an acceptable risk and preserves the ability to meet our financial obligations. The Company defines capital as its credit facilities, retractable shares and shareholders' equity.

We mainly use our funds for operating costs, to finance new stores and renovation projects, and debt payments. We believe that our cash generated from operating activities, along with our credit facilities, will be sufficient to finance new store and renovation projects and other investment projects. However, our future operating performance and funding ability will depend on various factors, some of which are beyond our control. We assess investment opportunities as part of our business and may make selective investments to execute our business strategy when we find suitable opportunities. In the past, we have financed any such investments from our cash generated from operating activities and/or our credit facilities.

Working capital

Our liquidity management involves ensuring that we have enough cash to pay our liabilities on time. We do this by tracking our cash flow and comparing our actual results with our budget regularly. Specifically, we have consistently achieved strong inventory turnover and cash conversion. As of the date of this MD&A, we also have $312 million in credit facilities that we can use to support our ongoing working capital needs. Our main cash needs are for investing in our store network optimization and geographic expansion. As of November 2, 2024, our current assets were $209.2 million, including cash of $12.6 million, and our current liabilities were $144.4 million. We believe that our existing cash and available credit facilities are enough to cover our current and short-term financial obligations. See a summary of our contractual obligations as documented below in this MD&A.

Inventories

Inventory, consisting of finished goods and finished goods that are currently in transit, is stated at the lower of cost and net realizable value. The use of proprietary business intelligence allows us to efficiently allocate inventory and to optimize our omnichannel operating model. We minimize our inventory costs through our agile product development and strategic sourcing capabilities which adjust production output to match demand fluctuations. As a result, we have achieved an inventory turnover ratio of 6.09 as of November 2, 2024, compared to 5.49 as of October 28, 2023, highlighting the effectiveness of our inventory management practices.

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Free cash flow

Despite a $4.4 million increase in CAPEX, primarily to fund the opening of new stores (rising from $13.4 million in Q3 2023 to $17.8 million in Q3 2024), the Company has continued to deliver strong free cash flow, achieving $42.2 million in Q3 2024, up from $39.0 million in Q3 2023.

For the 39-week period ended November 2, 2024, the Company generated free cash flow of $108.4 million, reflecting a strong financial position and an increase from $50.5 million in the same period last year. This year-over-year growth was driven by a $84.1 million increase in cash flow from operations, only partially offset by a $26.2 million increase in CAPEX.

Credit facilities

On November 10, 2022, the Company entered into the Original Credit Agreement with a syndicate of lenders including Canadian chartered banks, which was subsequently amended and restated on March 25, 2024 into the Amended and Restated Credit Agreement, and the maturity date was extended by one year to November 10, 2026. A closing term facility partial refinancing was made in the amount of $70.0 million (this amount was transferred from the term loan facility to the revolving facility). Therefore, and under the terms and conditions of the Amended and Restated Credit Agreement, the Company could borrow up to an aggregate amount of $326.3 million. The facilities were available in the form of (i) a revolving credit facility up to $230.0 million, with up to $30.0 million of letter of credit availability under the revolving credit facility, and a swingline facility of up to $10.0 million under the revolving credit facility, and (ii) a term facility up to $96.2 million. As at November 2, 2024, $104.4 million was drawn under these facilities.

Funds advanced under the Amended and Restated Credit Agreement bore interest at the Canadian bank prime rate and U.S. bank base rate plus a margin, or at the CORRA rate and SOFR plus a margin (previously bore interest at the Canadian bank prime rate and U.S. bank base rate plus a margin, or at bankers' acceptances rate and CDOR plus a margin). The margin was determined based on a financial ratio. Post June 28, 2024, CDOR rates were no longer being published. As a result, in the second quarter of Fiscal 2024, the Company entered into amendments that included the transition from the CDOR to the CORRA. Over the 39-week period ended November 2, 2024, the average interest rate was 7.12% including the margin (over the 39-week period ended October 28, 2023 the average interest rate was 7.32%).

As at November 2, 2024 and as at February 3, 2024, the Company was compliant with all of its financial ratio requirements, namely a leverage ratio and a fixed charged coverage ratio.

On November 20, 2024, the Amended and Restated Credit Agreement was amended and restated again for a second time. See the "Recent Events" section of this MD&A for the terms now in effect under the Second Amended and Restated Credit Agreement.

Net leverage ratio

For the 53-week period ended November 2, 2024, the Company's net leverage ratio decreased to 1.41x compared to 2.26x for the 52-week period ended October 28, 2023. This improvement is primarily due to the increase in adjusted EBITDA, coupled with long-term debt repayment, which has mitigated the rise in lease liabilities and enabled the Company to deleverage more effectively.

Financial ratios

The ROA of 23.8% for the 53-week period ended November 2, 2024, represents a notable increase from the ROA of 15.4% for the 52-week period ended October 28, 2023. This improvement indicates a significant boost in the Company's ability to leverage its assets more effectively than in previous periods. This suggests that recent investments or operational improvements have been successful in enhancing profitability relative to the asset base.

For the 53-week period ended November 2, 2024, our return on capital employed ratio ("ROCE") reached 43.3%, marking an improvement from 30.7% for the 52-week period ended October 28, 2023. This enhanced efficiency highlights the effectiveness of recent strategies and investments. The slower growth of average capital employed compared to adjusted operating income reflects strong capital utilization, enabling the generation of operating income. This positions the Company well to invest in new projects, open additional stores, and pursue other growth opportunities, all while maintaining profitability.

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Contractual obligations

The Company has the following contractual obligations as of November 2, 2024:

	Total	Less than 1 year	Between 2 and 3 years	Between 4 and 5 years	More than 5 years
	$	$	$	$	$
Accounts payable	77,164	77,164	-	-	-
Retractable shares	3,500	3,500	-	-	-
Lease liabilities obligations(1)	533,127	72,080	143,546	105,934	211,567
Long-term debt(1)	99,582	24,688	74,894	-	-
	713,373	177,432	218,440	105,934	211,567

Note:
(1) Lease liabilities obligations and long-term debt include interest and principal amounts.

Financial instruments

Our financial assets include cash, receivables and the Promissory Note that are classified as financial assets at amortized cost. Our financial liabilities, including accounts payable and accrued expenses, long-term debt, lease liabilities, and retractable Class C and G shares are classified as financial liabilities at amortized cost. Our derivative financial instruments are classified as financial liabilities at fair value through profit and loss and fair value through other comprehensive income. See the note 23 of our Annual Financial Statements for the liquidity risks associated with our financial instruments.

Subsequent to the date of the Interim Financial Statements and prior to the completion of the IPO, all of our retractable Class C shares were retracted, and the liability was reduced to $Nil. Following the completion of the IPO, there has been no further impact on our results of operations from the retractable Class C and G shares. Deferred tax liabilities related to the retractable Class C and G shares were also reduced to $Nil. See note 8 to the Annual Financial Statements.

Also, subsequent to the date of the Interim Financial Statements, the Promissory Note was repaid, as described in the "Recent Events" section of this MD&A.

Off-balance sheet arrangements

We have no off-balance sheet arrangements. Our commitments, contingencies and guarantees relate to the following:

Commitments

In the normal course of business, the Company granted irrevocable standby letters of credit issued by highly rated financial institutions to various third parties to indemnify them in the event the Company does not perform its contractual obligations. As at November 2, 2024, standby letters of credit outstanding amounted to $10,693 (US$7,710).

Contingencies

In the ordinary course of business, the Company is exposed to various proceedings and claims. The Company assesses the validity of these proceedings and claims. Provisions are made whenever a penalty seems probable and a reliable estimate of the amount can be made. Management believes that any settlement arising from claims will not have a significant effect on the Company's financial position or overall trends in results of operations.

Guarantees

Some agreements to which the Company is a party, specifically those related to the leasing of its premises, include indemnification provisions that may require the Company to make payments to a third party for a breach of fundamental representation and warranty terms in the agreements, with respect to matters such as corporate status, title of assets, environmental issues, consents to transfer, employment matters, litigation, taxes payable and other potential material obligations. The maximum potential number of future payments that the Company could be required to make under these indemnification provisions is not reasonably quantifiable as certain indemnifications are not subject

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to a monetary limitation. As at November 2, 2024, management does not believe that these indemnification provisions would require any material cash payment by the Company nor insurance coverage, estimated by management to be reasonable and sufficient, to minimize the previously mentioned risks.

As many of these guarantees will not be drawn upon, these amounts are not indicative of future cash requirements. No material loss is anticipated by reason of such agreements and guarantees, and no amounts have been accrued in the Company's consolidated financial statements with respect to these guarantees.

The Company indemnifies its directors and officers against claims reasonably incurred and resulting from the performance of their services to the Company and maintains liability insurance for its directors and officers as well as those of its subsidiaries.

Transactions between related parties

See note 20 to the Interim Financial Statements and note 26 to Annual Financial Statements for the Company's related party transactions and the "Recent Events" section above.

The Company is party to a lease agreement with AJL 5550 Ferrier Inc. and with 4450329 Canada Inc. for its head office at 5540, 5550 and 5592 Rue Ferrier, Mont-Royal, Québec H4P 1M2, Canada. Regarding its retail operations, the Company is party to a lease agreement with 9224-2239 Québec Inc., 9224-1892 Québec Inc., 4240073 Canada Inc. and 9171-9922 Québec Inc. for the locations at Units L08E-2, L11C and S8L in the Quartier Dix30 shopping centre, Brossard, Québec, Canada, as well as to a lease agreement with Quartier Royalmount Limited Partnership for Units E207 and E209 in the Royalmount shopping centre, Mont-Royal, Québec, Canada.

On November 10, 2022, 10644579 Canada Inc. issued the Promissory Note. Following the receipt of proceeds from the sale of subordinate voting shares to the underwriters under the IPO, the selling shareholders fully repaid the Promissory Note on November 26, 2024. The Company utilized the repayment proceeds to repay the outstanding balance of the term loan under the terms of the Second Amended and Restated Credit Agreement.

Significant accounting judgments, estimates, and assumptions

See note 5 to the Interim Financial Statements and note 4 to Annual Financial Statements for the Company's significant accounting judgments, estimates, and assumptions.

Future accounting standard changes

See note 4 to the Interim Financial Statements and note 3 to the Annual Financial Statements for a summary of future accounting standard changes.

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Summary of quarterly results

The following table sets forth selected quarterly statements of operations data for each of the eight fiscal quarters immediately preceding and including the fiscal quarter ended November 2, 2024. The information for each of these quarters has been prepared in accordance with IFRS and on the same basis as the Annual Financial Statements and the Interim Financial Statements. These quarterly operating results are not necessarily indicative of our operating results for a full-year or any future period.

In thousands of Canadian dollars, except per share data	13-week periods ended
	Nov 2, 2024	Aug 3, 2024	May 4, 2024	Feb 3, 2024(1)	Oct 28, 2023	Jul 29, 2023	Apr 29, 2023	Jan 28, 2023
	$	$	$	$	$	$	$	$
Revenue	258,772	239,104	188,884	240,291	220,148	186,810	153,584	196,993
Cost of sales	95,845	81,400	68,232	98,739	81,958	71,342	61,607	84,841
Gross profit	162,927	157,704	120,652	141,552	138,190	115,468	91,977	112,152
Selling, general and administrative expenses	80,030	79,871	66,233	74,365	66,622	67,231	64,120	62,370
Depreciation and amortization	20,027	17,728	16,754	18,430	17,903	16,797	16,240	20,842
Foreign exchange (gain) loss	(182)	(175)	(487)	254	383	(410)	61	(847)
Operating income	63,052	60,280	38,152	48,503	53,282	31,850	11,556	29,787
Finance expense	8,755	9,297	8,566	9,748	8,902	11,151	7,471	10,086
Finance income	(2,773)	(2,766)	(3,363)	(3,014)	(2,776)	(2,511)	(2,423)	(2,501)
Net financing costs	5,982	6,531	5,203	6,734	6,126	8,640	5,048	7,585
Earnings before income taxes	57,070	53,749	32,949	41,769	47,156	23,210	6,508	22,202
Income taxes	16,630	13,392	9,012	13,174	12,254	5,735	1,664	5,199
Net earnings	40,440	40,357	23,937	28,595	34,902	17,475	4,844	17,003
Basic & diluted earnings per share(2)	$ 0.38	$ 0.38	$ 0.23	$ 0.27	$ 0.32	$ 0.16	$ 0.05	$ 0.16

Notes:
(1) The quarter ended on February 3, 2024, comprises 14 weeks.
(2) Basic & diluted earnings per share are calculated, after giving the effect, on a retrospective basis, to the Share Consolidation that occurred in connection with the Pre-Closing Reorganization subsequent to November 2, 2024.

Non-IFRS Measures including Non-IFRS Financial Measures, Non-IFRS Ratios, Supplementary Financial Measures and Retail Industry Metrics

This MD&A makes reference to certain non-IFRS measures, including non-IFRS financial measures, non-IFRS ratios, supplementary financial measures and certain retail industry metrics. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS financial measures including "EBITDA", "adjusted EBITDA", "adjusted EBITDA (after rent equivalent expense)", "free cash flow", "adjusted net earnings" and "adjusted net earnings per share" and non-IFRS ratios including "EBITDA margin", "adjusted EBITDA margin", "adjusted EBITDA (after rent equivalent expense) margin", "return on assets", "return on capital employed" and "net leverage ratio". We also use supplementary financial measures including "inventory turnover", "retail sales per square foot", "comparable store sales", "gross margin", "operating margin", "SG&A as a percentage of sales" and "CAPEX" and other operating metrics commonly used in the retail industry. These non-IFRS measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses

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non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation.

Supplementary Financial Measures

Sales per square foot and retail sales per square foot

Sales per square foot is calculated as revenue divided by the average total square footage (i.e., retail footprint) of retail stores over the last 12 months, while retail sales per square foot uses revenue from retail stores (i.e., excluding revenue from our online channel) as the numerator. Average total square footage is determined by taking the sum of the last 12 months total square footage and dividing that sum by twelve. Sales per square foot and retail sales per square foot are considered useful supplementary measures as they are commonly used by issuers operating in the retail industry and help evaluate the Company's productivity of retail space.

Comparable store sales

Comparable store sales represent sales of retail stores relative to sales for the same period in the prior fiscal year. It provides insight on the performance of our portfolio of retail stores, hence on the success of our real estate strategy. We believe that the presentation of the comparable store sales metric contributes to the comparability of our performance with that of issuers operating in our industry. Stores must be open for at least 12 months and must not have been subject to any significant change in square footage to be comparable. A significant change in square footage means an increase or decrease by 20% of the total square footage.

Gross margin

Gross profit is calculated as total revenue less cost of sales and gross margin is the ratio of gross profit over total revenue. Gross margin is considered a useful supplementary measure as it outlines underlying trends in operating performance and contributes to the comparability of our financial results with that of issuers operating in our industry.

Operating margin

Operating margin is the ratio of operating income over revenue. Operating margin is considered a useful supplementary measure as it outlines underlying trends in operating performance and contributes to the comparability of our financial results with that of issuers operating in our industry.

SG&A as a percentage of sales

SG&A as a percentage of sales is calculated as SG&A over total revenue. SG&A as a percentage of sales is considered a useful supplementary measure as it outlines underlying trends in expenses relative to sales and contributes to the comparability of our financial results with that of issuers operating in our industry.

CAPEX

CAPEX represents the Company's capital investments, calculated as the total of additions to property and equipment combined with additions to intangible assets. This metric is important for readers of financial statements as it provides insights into a company's investment strategy and its commitment to growth.

Inventory turnover

Inventory turnover is the ratio of cost of sales sold over average inventory. Average inventory is determined by taking the sum of the current year's inventory and the inventory from 12 months ago, and then dividing that sum by two. It is considered a useful supplementary financial measure because it provides insight as to the Company's efficiency in converting inventory into revenue and contributes to the comparability of our financial results with that of issuers operating in our industry.

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In thousands of Canadian dollars

53-week and 52-week periods ended
November 2, 2024
October 28, 2023

Cost of sales	$	$
	344,216	299,748
Inventory same period prior year	51,906	57,357
Inventory end of period	61,156	51,906
Average inventory	56,531	54,632
Inventory turnover	6.09	5.49

Non-IFRS Financial Measures and Non-IFRS Ratios

Earnings before interests, taxes, depreciation, amortization ("EBITDA"), adjusted EBITDA and adjusted EBITDA (after rent equivalent expense)

EBITDA is calculated as operating income plus depreciation and amortization. Adjusted EBITDA accounts for other one-time or non-cash items. We consider EBITDA to be a valuable non-IFRS measure in assessing the Company's operating performance. Adjusted EBITDA helps users of the financial statements identify underlying trends by providing a measure of operating performance which excludes non-representative income or expenses, non-cash items, or variations in other items not related to day-to-day operations such as stock-based compensation expense and other professional fees in connection with the IPO. We believe that the presentation of EBITDA contributes to the comparability of our financial results as it is a measure commonly used by issuers operating in our industry.

Adjusted EBITDA (after rent equivalent expense) is calculated as adjusted EBITDA less a rent equivalent expense equal to the sum of depreciation of right-of-use assets and interest expense on lease liabilities. It is intended to provide users of our financial information with a view of the Company's adjusted EBITDA after the impact of depreciation on our right-of-use asset and interest expense on lease liabilities, principally for the purposes of assisting with comparability of the performance between the Company and that of issuers operating in the same industry with a significant retail footprint.

EBITDA margin, adjusted EBITDA margin and adjusted EBITDA (after rent equivalent expense) margin

The EBITDA margin, adjusted EBITDA margin and adjusted EBITDA (after rent equivalent expense) margin represent EBITDA, adjusted EBITDA and adjusted EBITDA (after rent equivalent expense) as a percentage of revenue.

In thousands of Canadian dollars	13-week periods ended		39-week periods ended
	Nov 2, 2024	Oct 28, 2023	Nov 2, 2024	Oct 28, 2023
	$	$	$	$
Operating income	63,052	53,282	161,484	96,688
Depreciation and amortization	20,027	17,903	54,509	50,940
EBITDA	83,079	71,185	215,993	147,628
EBITDA margin	32.1%	32.3%	31.5%	26.3%

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	13-week periods ended		39-week periods ended
In thousands of Canadian dollars	Nov 2, 2024	Oct 28, 2023	Nov 2, 2024	Oct 28, 2023
	$	$	$	$
EBITDA	83,079	71,185	215,993	147,628
Adjustments to EBITDA
Stock-based compensation expense	900	859	2,740	1,822
Professional fees related to the IPO	3,219	-	5,069	-
Total adjustments	4,119	859	7,809	1,822
Adjusted EBITDA	87,198	72,044	223,802	149,450
Adjusted EBITDA margin	33.7%	32.7%	32.6%	26.7%
	13-week periods ended		39-week periods ended
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In thousands of Canadian dollars	Nov 2, 2024	Oct 28, 2023	Nov 2, 2024	Oct 28, 2023
Adjusted EBITDA	87,198	72,044	223,802	149,450
Depreciation of right-of-use assets	(13,502)	(11,696)	(39,416)	(33,794)
Interest expense on lease liabilities	(6,052)	(4,999)	(17,323)	(14,110)
Adjusted EBITDA (After Rent Equivalent Expense)	67,644	55,349	167,063	101,546
Adjusted EBITDA (After Rent Equivalent Expense) margin	26.1%	25.1%	24.3%	18.1%

Adjusted net earnings

Adjusted net earnings is calculated as net earnings plus or less non-recurring items and their ensuing tax impact, as applicable. The adjustments are made to exclude stock-based compensation expense and other professional fees in connection with the IPO. We consider adjusted net earnings to be a valuable non-IFRS measure as it contributes to the comparability of our financial results with that of issuers operating in our industry.

In addition to adjusted net earnings, we may present certain metrics and ratios with respect to adjusted net earnings including but not limited to adjusted net earnings per share. Adjusted net earnings per share are calculated, after giving the effect, on a retrospective basis, to the Share Consolidation that occurred in connection with the Pre-Closing Reorganization subsequent to November 2, 2024.

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In thousands of Canadian dollars, except per share data	13-week periods ended		39-week periods ended
	Nov 2, 2024	Oct 28, 2023	Nov 2, 2024	Oct 28, 2023
	$	$	$	$
Net earnings	40,440	34,902	104,734	57,221
Adjustments to net earnings
Stock-based compensation expense	900	859	2,740	1,822
Professional fees related to the IPO	3,219	-	5,069	-
Income tax (recovery) expense on taxable items above	(853)	-	(1,343)	-
Total adjustments	3,266	859	6,466	1,822
Adjusted net earnings	43,706	35,761	111,200	59,043
Adjusted net earnings per share
Basic	$0.41	$0.33	$1.03	$0.55
Diluted	$0.41	$0.33	$1.03	$0.55

Return on assets or ROA is the ratio of adjusted net earnings over average total assets and is a non-IFRS ratio. Average total assets is determined by taking the sum of the current year's total assets and the total assets from twelve months ago, and then dividing that sum by two. It is considered a useful non-IFRS ratio because it provides insight as to the Company's productive use of its assets and contributes to the comparability of our financial results with that of issuers operating in our industry.

In thousands of Canadian dollars	53-week and 52-week periods ended
	November 2, 2024	October 28, 2023
Adjusted net earnings	140,777	76,772
Average total assets	591,475	497,347
Return on assets	23.8%	15.4%

Return on capital employed or ROCE is the ratio of (i) the result of adjusted EBITDA reduced by depreciation and amortization over (ii) average capital employed, and is a non-IFRS ratio. Average capital employed is determined by taking the sum of the current year's total capital employed and the total capital employed from twelve months ago, and then dividing that sum by two. We calculate the capital employed by subtracting total current liabilities, excluding the short-term portion of long-term debt and lease liabilities, from total assets. It is considered a useful non-IFRS ratio because it provides insight as to the degree to which the Company's capital investments contribute to its profitability and contributes to the comparability of our financial results with that of issuers operating in our industry.

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23

In thousands of Canadian dollars	53-week and 52-week periods ended
	November 2, 2024	October 28, 2023
	$	$
Adjusted EBITDA	291,717	200,805
Depreciation and amortization	(72,939)	(71,782)
Adjusted EBITDA reduced by depreciation and amortization	218,778	129,023
Capital employed
Average total Assets	591,475	497,347
- Average total current liabilities	(138,120)	(125,317)
+ Average short-term portion of long-term debt	19,797	15,285
+ Average short-term portion of lease liabilities	32,068	32,460
Average total capital employed	505,220	419,775
Return on capital employed	43.3%	30.7%

Free cash flow

Free cash flow is calculated as cash flow generated from (used in) operating activities less cash used on the additions to property, equipment and intangible assets. We consider free cash flow to be a valuable non-IFRS financial measure as it provides users of the financial statements an indicator of our ability to generate cash to support future growth, debt repayment and potential distributions to shareholders.

In thousands of Canadian dollars	13-week periods ended		39-week periods ended
	Nov 2, 2024	Oct 28, 2023	Nov 2, 2024	Oct 28, 2023
	$	$	$	$
Cash from operating activities	60,019	52,464	159,079	74,989
Additions to property and equipment	(15,424)	(11,588)	(44,079)	(22,280)
Additions to intangible assets	(2,402)	(1,845)	(6,602)	(2,221)
Free cash flow	42,193	39,031	108,398	50,488

Net leverage ratio is the ratio of net debt, which is calculated as long-term debt (including current portion) plus lease liabilities (including current portion) less cash, over adjusted EBITDA. We consider net leverage ratio to be a valuable non-IFRS ratio as it is an indicator of the Company's ability to meet financial obligations and contributes to the comparability of our financial results with that of issuers operating in our industry.

In thousands of Canadian dollars	53-week and 52-week periods ended
	November 2, 2024	October 28, 2023
Net debt	$	$
Long-term debt including current portion	92,987	223,287
Lease liabilities including current portion	331,218	275,056
- Cash	(12,558)	(44,790)
Total net debt	411,647	453,553
Adjusted EBITDA	291,717	200,805
Net leverage ratio	1.41	2.26

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24

Risk Factors

We believe that achieving our goal of driving long-term sustainable growth and creating stakeholder value depends on a variety of factors. While these factors present significant opportunities for our business, they also bring important challenges. The risks and uncertainties we face include, but are not limited to, those discussed in the "Financial Risk Management" section of our Annual Financial Statements, as well as other risk factors. These risks encompass, but are not limited to, the following categories: economic conditions, merchandise offerings, brand and image, technology risks, human resources, store locations, growth strategy, and competition.

For a detailed description of risk factors associated with the Company, refer to the "Risk Factors" section of the Prospectus, which is available on SEDAR+ at www.sedarplus.com.

Disclosure Controls & Procedures and Internal Control Over Financial Reporting

As a result of the IPO, the Company is exempt from representations relating to the establishment and maintenance of disclosure controls and procedures and internal controls over financial reporting, as defined in Regulation 52-109 respecting Certification of Disclosure in Issuers' Annual and Interim Filings.

In accordance with securities legislation, the Company will begin making the required representations for the fiscal year ended February 1, 2025.

Share Information Prior to the Completion of the IPO

Prior to the completion of the IPO, our authorized share capital consisted of an unlimited number of Class "A" shares, Class "B" shares, Class "C" shares, Class "D" shares, Class "E" shares, Class "F" shares, Class "G" shares and Class "H" shares, of which entities owned or controlled, directly or indirectly, by Andrew Lutfy were holding in aggregate all 456,977,801 issued and outstanding Class "A" shares and all issued and outstanding 3,000,200 Class "C" shares, and Mr. Lutfy's children held all 499,999 Class "G" shares. Prior to the closing of the IPO, the Pre-Closing Reorganization was implemented as described in the "Recent Events" section of this MD&A.

Current Share Information

As of December 16, 2024, an aggregate of 14,309,525 subordinate voting shares, 93,263,779 multiple voting shares and no preferred shares are outstanding. All of the issued and outstanding multiple voting shares are held or controlled, directly or indirectly, by Andrew Lutfy.

Additional Information

Additional information relating to the Company, including the Interim Financial Statements, and the Annual Financial Statements and interim consolidated financial statements for the 13-week and 26-week periods ended August 3, 2024 and July 29, 2023 filed with the Prospectus, is available on SEDAR+ at www.sedarplus.com. The Company's subordinate voting shares are listed for trading on the TSX under the symbol "GRGD".