Abercrombie & Fitch Company

Okay, and thank you for standing by. Welcome to the Abercrombie and Fitch fourth quarter fiscal year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After this week's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mo Gupta, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our fourth 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 fourth quarter earnings release, which is available on our website at corporate.abercrombie.com under the Investor 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 during the call. Additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and the investor presentation issued earlier this morning. Finally, references to Abercrombie brands include Abercrombie & Fitch and Abercrombie Kids, and references to Hollister brands include Hollister and Gilly Hicks. With that, I'll turn the call over to Fran.

Good morning, and thank you for joining us to discuss our fourth quarter and full year results. Since our business update in early January, we had a strong final month of the year, leading fourth quarter sales and operating margin above the high end of our outlook. From start to finish, 2023 was a defining year for our company. We saw top line growth across regions and brands, resulting in sales of $4.28 billion, up 15.8% to 2022, and our second highest annual sales level in our history. On profitability, we achieved an operating margin of 11.3%, our best in 15 years. Importantly, while achieving these financial milestones, we made critical investments to strengthen our brands and company. These investments included increased marketing to drive customer acquisition and brand loyalty, approximately 60 new in-store experiences to reach new and current customers, technology to improve the customer and associate experience, and talented team members to drive growth today and into the future. 2023 was also a defining moment for our teams who have worked so hard over the years to evolve our operating model and what we stand for as a company. Our offices around the globe are electric with energy from all we have accomplished. But as I say regularly, there is no finish line and we see tremendous opportunity ahead. While the decade-high results are certainly worth celebrating, what really stood out to me and our team is the progress we've made against our own expectations for this growth phase of our journey. In June 2022, we shared our Always Forward plan, a strategy that marked the entry into a growth-focused era for Abercrombie & Fitch Co. Our strong 2023 results are at or above our 2025 financial targets of $4.1 to $4.3 billion in sales at an operating margin at or above 8%. We are now setting our sights on demonstrating the sustainability of our operating model and profitability profile by repeating our success. For us, 2024 should be a proof point of our ability to balance pursuit of new growth opportunities while also maintaining strong financial discipline. We believe we can continue our trajectory into 2024, growing across regions and brands, building to our longer-term ambition of $5 billion in global sales. Clearly, 2023 has given us confidence that we are on the right path. We're excited to be at this point in our growth journey. To give some context on how we got here, I'll respond to a question we commonly get from both new and long-time followers. What are you doing to drive this great performance? Our response has been consistent. There is no silver bullet. It has been about having thousands of associates across the world aligned and executing a focused playbook every single day. One that is rooted intimately in knowing our customer and then meticulously building the product, voice, and experience to match their needs. This is so much easier said than done. When we refer to our years of transformation work, we're most proud of how we built the trust and the experience within our team to push boundaries as it relates to evolving our assortment, end-to-end supply chain, enhancing our marketing, and creating digital and physical experiences that exceed our customers' expectations. Our global customer is responding, and we can see proof points in both the customers we've retained and the millions we've added to our brands this past year. From kids to teens to adults, our brand portfolio has something for them, and we have increasing confidence that we are at a stage where we can focus on capturing more customers across the globe. Recapping further on 2023, our growth was broad-based, with each of our regions growing in the fourth quarter and full year. The Americas led our strong growth results at an impressive 18% from 2022. We saw outsized growth in Abercrombie brands in the region, and we were pleased to see Hollister brands grow off 2022 levels. In EMEA, we delivered 4% sales growth for the year in a difficult macro environment with some acceleration in the back half of the year. Our team distorted investments and focus to those markets where we had the highest customer awareness, mainly the UK and Germany, and we saw positive results in both countries. Our regional team was there for our MAIA customers and made great strides by localizing assortments, distorting inventory, fine-tuning price, and adjusting product set timing and promotional cadence. This is an important foundation that we'll look to build on moving forward. In APAC, we finished the year up 16% to 2022. We continued to build our team in Shanghai and reconnected with customers as COVID restrictions were lifted across the region. Our team is approaching the business with a startup mentality, testing different strategies to grow the business through targeted store and marketing investments, and bringing our brands to life in locally relevant ways. Looking at our brand portfolio, 2023 was a year of great progress for Hollister Brands. Today, the brand is a healthy, growing business because of the focus and decisive work we started in the middle of 2022. I applaud our team who showed a relentless drive to reset the assortment, brand imagery, and brand voice to meet the needs of today's team. For the year, Hollister brands grew 6%, a good turnaround from down 9% in 2022. Our growth was led by women throughout the year, delivering its third consecutive quarter of double-digit growth in Q4. On the men's side, we continue to see progress and we're optimistic that we'll catch up with what we're seeing in women's in the quarters to come. While we saw growth in both channels, stores outperformed digital, with around 70% of Hollister sales done in stores in 2023. The teen consumer tends to start their journey digitally, but more often finishes in the store. Hollister brand's growth in 2023 is even more of an achievement because we significantly improved financial health. The brand was chasing inventory throughout the year, which allowed us to reduce promotions and clearance selling to improve AUR. Coupled with significant freight cost recovery, we greatly improved Hollister's gross profit rate compared to 2022. Exiting 2023, we now have a strong foundation and three-quarters of growth under our belt as we move into 2024. For Abercrombie Brands, it was a year of exceptional breakout growth, up 27% to 2022, but it's part of a much longer trend. Fiscal 2023 sales at Abercrombie Brands were up 50% to 2019 levels, an impressive 10% growth tagger, including three consecutive years of double-digit growth. I've said it many times, but I am so proud of what this team has done to reposition Abercrombie & Fitch and evolve the product, voice, and experience. In this new era for Abercrombie, we're actively engaging with customers through innovative collaborations and partnerships, broadening our reach and connecting with new audiences. Two recent events are great examples of where we're going. First, in January, we partnered with McLaren Racing to showcase their Formula One livery in our Fifth Avenue store. I was there, and wow, it was a great celebration of what has become an important partnership, something we had not done to this scale in our history. We also participated in the Super Bowl in February through a comprehensive media effort, culminating in a successful brand activation event in Las Vegas. These are just a couple of events that help us deepen our customer connections, and our Abercrombie team has even more planned in the coming quarters. As a company, we've been able to deliver financial results at or above our 2025 Always Forward Plan targets in our first year, a significant achievement. Beyond these benchmarks, we also owe our stakeholders consistency and sustainability of both sales growth and profitability. While we must acknowledge potential challenges we see from global macroeconomic and geopolitical instability, we have proven our ability to control what we can control. We aim to win in this new chapter for our company across a variety of consumer environments by sticking to our playbook and remaining close to our customers, all of which is in focus for us heading into 2024. For Abercrombie Brands, with their impressive multi-year growth trend, we are confident that our positioning and assortments are meeting the needs of our customers and we're focused on growing the global customer base. On product in 2024, we will continue to deliver compelling assortments with newness and depth across categories while continuing to build on key collections like our wedding shop, an extension of Best Dressed Guest, which launches this week. These collections have been successful in both attracting and retaining customers. We believe the customer is also our best advocate, and we expect to increase our investments in marketing, particularly social media. to position Abercrombie in an authentic, relevant way to more customers. Finally, on experience, we expect to be a net store opener while both expanding our successful neighborhood concept and filling in gaps in great shopping centers across the world. In Hollister Brands, we have recouped a portion of sales lost in 2022, and we plan on investing in key growth initiatives in 2024 to continue the momentum. We believe the assortment is well-aligned, that women's business is performing well, and we're seeing signs of improvement in men's. Both genders are executing our core principles of testing and chasing. With the assortment coming along, we increased marketing in the back half of 2023, and we expect that to continue into 2024. We also expect to continue to deliver new store experiences while investing in digital to support the teen's journey. As an update on Gilly Hicks, We transitioned the assortment to an active lifestyle in 2023, and the results have shown great promise, contributing to Hollister's growth results while offering a product category our customer has been asking for. Going forward, we intend to focus our go-to-market strategy primarily on Hollister-led selling channels, including Hollister Stores, Digital and App, and Hollister Gilly Side-by-Sides. While we see Gilly Hicks as a key growth category for Hollister as a company, We are prioritizing higher return growth opportunities at Abercrombie & Fitch and Hollister in the near term. We will maintain a couple of freestanding Gilly stores to continue learning about the assortment and customer potential. For social tourists, we've moved the brand to digital only in the back half of 2023 and will offer minimal SKUs in 2024. We've enjoyed our partnership with the D'Amelio family and appreciate the opportunity to develop product and social strategies with them. Global growth is a very important part of our Always Forward plan, and we intend to put greater emphasis on expansion of our EMEA and APAC regions. Over the past year, we've made significant progress building our local teams, responsibilities, and resetting the foundation across product, pricing, and inventory. In EMEA, we expect increased marketing across brands to drive awareness around the evolved brand positioning and product offering for each brand. Our marketing push will focus on the UK and Germany, our two largest countries in the region. In APAC, our goal is to continue to deliver focused growth across China and Japan. We expect to strategically add store locations in key cities to improve our density and brand awareness. From there, we will focus on driving digital growth across key platforms. We've entered 2024 in a position of strength with momentum across our global business. We are laser focused on building on the strength and the first quarter is off to a strong start. I am so proud of what our global teams have accomplished over the past few years. The hard work rebuilding our foundation and engaging with our customers is showing up in our financial results. In 2024, our goal is to deliver sustainable, profitable growth while making key investments in our people, brands, and operations to make our company faster and stronger, progressing to a longer-term $5 billion sales aspiration. A heartfelt thanks goes out to our global team that delivered such a fantastic year for our customers. And with that, I'll hand it over to Scott.