Abercrombie & Fitch Company

Good day, ladies and gentlemen, and welcome to the Abercrombie & Fitch Third Quarter Fiscal Year 2023 Earnings Call. Today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 1 on your touchtone phone. You will then hear an automatic message advising your hand is raised. At this time, I would now like to turn the call over to Mo Gupta. Please go ahead.

Thank you. Good morning, and welcome to our third quarter 2023 earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer, and Scott Lopesky, Chief Financial Officer and Chief Operating Officer. Earlier this morning, we issued our third quarter earnings release, which is available on our website at corporate.abercrombie.com under the Investors section. Also available on our website is an investor presentation. Please keep in mind that we will make certain forward-looking statements on the call. These statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission. In addition, we will be referring to certain non-GAAP financial measures today during the call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and investor presentation issued earlier this morning. Finally, references to Abercrombie Brands includes Abercrombie & Fitch and Abercrombie Kids, and references to Hollister Brands includes Hollister, Gilly Hicks, and Social Tourist. With that, I will turn the call over to Fran.

Thanks, Mo. Good morning, and thank you all for joining us. We are excited to report outstanding third quarter results which is a testament to our global team delivering on our goal of aligning product, voice, and experience to our customers' needs at each brand. We continued to build on the momentum from Q2, with sequential acceleration in both sales growth and profitability. On the top line, growth trends were strong throughout the third quarter, driving sales results above our expectations. For the quarter, net sales increased 20% with growth across all regions, brands, and direct selling channels, including both stores and digital. We also exceeded expectations on the bottom line with a 13.1% operating margin driven by 570 basis points of gross profit rate expansion and operating expense leverage on higher sales. The 13.1% operating margin was an expansion of over 1,100 basis points compared to third quarter 2022. For the year-to-date period, net sales were up 13% to last year with an operating margin of 9.3%, over 900 basis points better than 2022 through the third quarter. These results show the powerful response from our customers as we continue to execute on our playbook. I am so impressed with what our team has delivered, pushing boundaries and challenging ourselves to grow while staying close to our customers and remaining agile. As we enter the fourth quarter, We are poised to continue this momentum with our brands and regions strategically positioned to win. As such, we are raising our sales and operating margin expectations for 2023, capping off a significant year of improved growth and profitability for the company. I'm proud to share it with a strong quarter across our brand portfolio, and the time we've spent reinvigorating Hollister brands is resonating with our customer. With a refreshed brand aesthetic and evolved assortment, Hollister Brands achieved 11% growth for the third quarter, showing nice progress as we comp a disappointing 2022 back-to-school season at what remains a dynamic teen apparel environment. Hollister delivered growth in all regions, showing balance as we further localized our assortment experience. We continue to prioritize driving a healthier business in Q3, improving the growth profit rate on lower freight costs and higher AUR from lower promotions. consistent with the first half of the year. As we enter the peak holiday season, our inventory is in a significantly better place compared to last year, giving us the opportunity to be strategic with promotions.