Abercrombie & Fitch Company

Good day and thank you for standing by. Welcome to the Abercrombie & Fitch fourth quarter fiscal year 2023 earnings call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear that an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Mo Gupta. Please go ahead.

Thank you. Good morning, and welcome to our first quarter 2024 earnings call. Joining me today are Fran Horowitz, Chief Executive Officer, and Scott Lopesky, Chief Financial Officer and Chief Operating Officer. Earlier this morning, we issued our first 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. 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'll 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 investor presentation issued earlier this morning. Finally, references to Abercrombie Brands includes Abercrombie & Fitch and Abercrombie Kids, and references to Hollister Brands includes Hollister and Gilly Hicks. With that, I'll turn the call over to Fran.

Thanks, Mo. Good morning and thank you for joining us to discuss what has been a very busy and productive start to 2024. I'm happy to report that our sales trend remained strong throughout the first quarter, exceeding expectations we provided in early March. Net sales of $1 billion and operating income of $130 million were both the best first quarter results in the history of the company. First quarter sales grew 22% year over year with broad-based growth across regions, brands, and direct channels. I'm also pleased to share that women's and men's divisions grew across our brand families in the quarter. We entered the year in a clean inventory position and maintained that discipline through Q1, allowing for fewer promotions, which contributed to gross profit rate improvement. With a strong top line and improved gross profit rate, We achieved a 12.7% operating margin for the quarter, while also funding strategic investments across marketing, digital and technology, and global expansion. These are simply outstanding results, adding yet another proof point of our global team's ability to execute at the highest standard. Always looking forward, we are laser focused on showing continued growth through 2024 which is reflected in our increased full year net sales growth and operating margin outlook. Before I dive deeper into the first quarter, I'd like to zoom out and share more context on where we are in our journey. Fiscal 2023 was a defining year for our company. We delivered 16% revenue growth and operating margin over 11%. These results would not have been possible without the hard work and dedication of our team to transform our operating model and our playbook. While there is no finish line, we have developed an extensive global platform to support our brands, leveraging strong inventory discipline and agile chase capabilities. We have further strengthened our operations by building our teams and modernizing our capabilities across digital and technology, stores, and data analytics. We leverage these strengths to support and grow our global brands through 2023, while also improving the gross profit rate on reduced promotions and clearance selling. We've further defined what each of our brands stands for and the customers they serve, presenting a significant global addressable market opportunity they are capitalizing on with relevant assortments and compelling brand voice. Both brand families are contributing nicely to our business results, while expanding their customer base through increased marketing spend and improved omnichannel customer experience. Abercrombie Brands has shown a double-digit net sales growth CAGR from 2019, and Hollister Brands returned to growth in 2023 in the midst of a challenging teen apparel environment. We entered 2024 with momentum and the objective of producing sustainable, profitable growth. We believe we have the pieces in place to deliver global brand growth this year and our first quarter results are further evidence that we are off to a strong start. Diving into those results, we saw great progress across regions in Q1, starting with the Americas business, which continued to show strength with 23% net sales growth. Outside of the Americas, I am proud of how our teams are executing in EMEA and APAC. In EMEA, we delivered 19% net sales growth, led by UK and Germany. Our teams continue to localize our assortments and operations, and we've made strategic investments in marketing to drive brand awareness in these two key EMEA markets. We saw great digital engagement and conversion from new marketing campaigns, along with the benefit of new store experiences, particularly in Greater London. In APAC, we saw similar themes played out with 10% net sales growth led by China. We believe we have more runway ahead in both regions, and the first quarter was another proof point that our playbook is working. Shifting to the brand side and continuing the theme of broad-based growth, both brand families delivered double-digit net sales growth. Abercrombie Brand's momentum continued, growing 31% on top of 14% growth in the first quarter of 2023. Both women's and men's contributed nicely to this result, showing balanced growth across categories. Both AUR and units continued to contribute nicely to growth. with AUR improvement coming from category and style mix, as well as reduced promotions. Customer acquisition remains a key focus for the brand, and we increased global marketing investments year-over-year to help build community and brand affinity. Abercrombie's results this quarter were driven in part by our continued focus on building and growing concepts within the brand to speak to customers' needs in a relevant, authentic way. This quarter, we launched the Wedding Shop, curated set of dresses and other apparel to outfit our customers from bachelorette parties to honeymoons to the big day itself. The wedding shop was a successful extension of our Best Dressed Guest collection, which has been a part of the assortment for a few years. We led the wedding shop with a mix of styles, including new fashion items, while also showcasing products that have performed and grown over several seasons. Congratulations to our team on a great initial reception. I'm excited by the continued opportunities for the wedding shop as we approach peak wedding season this summer and into the fall. At Hollister, we saw progress with both women's and men's contributing to the 12% first quarter sales growth, an acceleration from the 9% we saw in the fourth quarter of 2023. The men's division returned to growth, led by fleece tops and bottoms as well as pants, which all did well throughout the quarter. Women's contributed nicely to the growth acceleration with balance across categories. We increased Hollister marketing in the back half of 2023, and we also increased year-over-year investment this quarter. We saw improved traffic trends across both stores and digital channels, which helped show team customers the changes we have made to the assortment. Importantly, the Hollister team continued to seek opportunities to reduce discounts and promotions while tightly managing inventory levels, further supporting AUR and gross profit rate expansion in the quarter. A really great effort on all fronts. and we entered the second quarter with inventory flexibility and momentum as we build to the back to school season later in the quarter. Across brands, regions, and genders, we had an outstanding start to the year, carrying great momentum from 2023 to produce record first quarter results. We did this while also investing globally to attract and retain our target customers, further strengthening our brand portfolio. Our team remains focused on following up a defining fiscal 2023 leveraging the power of brands and operating model to deliver sustainable long-term growth and profitability. After an impressive record-setting first quarter and a strong start to Q2 across regions and brands, we have a high degree of confidence that we can accomplish our 2024 goals while also building and investing in the tools, technology, and people to realize the long-term ambitions we've previously shared. And with that, I'll hand it over to Scott.