Abercrombie & Fitch Company

Good day, and thank you for standing by. Welcome to the Abercrombie & Fitch Second Quarter 2024 Earnings Conference Call. 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 need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today. Mo Gupta, please go ahead.

Thank you. Good morning and welcome to our second quarter 2024 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 second 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'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 the investor presentation issued earlier this morning. Finally, references to Abercrombie brands include our Abercrombie & Fitch and Abercrombie Kids brands, and references to Hollister brands include our Hollister and Gilly Hicks brands. With that, I will turn the call over to Fran.

Thanks, Mo, and thank you all for joining us this morning. I am incredibly proud to report our financial results exceeded the expectations we provided in May and set second quarter company records for both net sales and operating profits. We delivered strong second quarter net sales growth of 21%, reaching $1.1 billion with an operating margin of 15.5%. We achieved these outstanding results while also funding long-term growth priorities across regions and brands. After a historic success in the first half, our teams are energized, and we've entered the second half ready to deliver for our global customers. I am thrilled with our start to August and we are raising our full year sales growth and profitability expectations. For more context, in 2024, we've set out to demonstrate sustainable, profitable growth on top of a defining fiscal year result in 2023. I'm so proud of how we're showing up for our customer, and we are clearly seeing them respond. In addition to record second quarter sales, This was our seventh consecutive quarter of net sales growth in a dynamic, often uncertain consumer environment, which underlies the strength of our brands, our team, and our playbook. We work every day to satisfy new and returning customers' needs across product, voice, and experience. I believe our global brand portfolio is as strong as it's ever been. Combined with an agile, modern supply chain and a culture of financial discipline, We believe we have all the pieces in place to deliver on our goals across a variety of macro environments. Sharing a bit more detail on Q2, I want to call out a consistent theme we've demonstrated over the last five quarters. We are delivering strong, top-line results while also maintaining balance in how we're growing. Our second quarter sales growth was broad-based, fueled by expansion across regions, brands, and genders. We also saw growth in both units and AURs. consistent with the past five quarters. There's balance in our product, too, with growth across key categories, as our teams are delivering lifestyle assortments with increasing relevance to our local customers. On the gross profit line, we saw 240 basis points of rate expansion compared to last year. This was driven by higher AUR and improved product costs, partially offset by higher freight costs. We also delivered operating leverage in the quarter while funding important marketing, digital, technology, and people investments to support our long-term aspirations. All this great work led to operating income of $176 million for the quarter, nearly double the second quarter result from the prior year. Continuing the theme of balance, we delivered growth across regions in the second quarter. The Americas continued to lead the way with 23% net sales growth. consistent with the first quarter. The Americas grew across markets with nice increases in traffic across direct selling channels. In Emmaus, putting aside a pandemic-related sales rebound in early 2022, we demonstrated growth on growth for the first time in over 10 years, delivering 16% growth on top of 4% in the second quarter of 2023. Customers in both the UK and Germany continue to respond to the localized assortments and we're engaging with them to increase marketing and brand presence. Finally, APAC grew 3% in the quarter on comparable sales growth of 21%, where we continue to be led by our focused markets of China and Japan as we engage that customer in new and different ways. We are energized to see the progress we've made to localize our playbook across regions this quarter, but we know there's more runway ahead of us. On to the brands. Abercrombie Brands had another outstanding quarter, with net sales growth of 26% on top of 26% growth in the second quarter of 2023. Balance growth continued in men's and women's and across categories, with seasonal shorts, swims, skirts, and dresses performing well. We also saw balance growth in both AUR end units, as well as new and existing customers. As a follow-up to our highlights in the first quarter, The wedding shop continued to contribute nicely and has proven to be a great assortment extension. The reaction from customers has exceeded our expectations and we have now entered the men's side with some suiting options to complement our dresses. We continue to prioritize customer acquisition in Abercrombie, funding effective marketing campaigns across digital and social channels. We're excited to enter the back half with more customer activations planned. In the U.S., we released our latest NFL collection. further expanding on what has been a great partnership. Related to the collection, we have a number of exciting social and digital campaigns planned throughout the season to drive engagement. It's just one example of how Abercrombie Brands is working to win with both new and current customers in the second half of the year. Moving on to Hollister Brands, we continue to build momentum. Net sales growth of 17% exceeded our expectations and accelerated sequentially from 12% growth in Q1. Importantly, the balance continues from first quarter with both men's and women's growing, as well as expansion both unit sales and AUR, the latter driven by lower promotions. On the product side, women saw balanced growth across categories with particular strengths in skirts and dresses. In men's, we saw shorts and graphic tees contribute to the growth. With the additional week of back-to-school selling in the second quarter, we were pleased to see consistent growth trends, and I'm very happy with how back-to-school is going for us so far. With Great Product, our goal now is to amplify the brand. On top of new store locations and refreshed store experiences, we're investing in incremental marketing to increase engagement and reintroduce Hollister brands to our target audience. This increased marketing investment spans across digital and social channels, as well as through authentic real-life experiences and activations. One example is our Feel Good Fest, which is a concert and festival put on in partnership with high schools across the country. More recently, as back to school and fall school sports have kicked off, we launched the Hollister Collegiate Graphic Shop. The collection of quality basics, including crew neck sweatshirts, hoodies, and tees, touting vintage-inspired university logos and graphics, represents more than 30 universities across the United States. Hollister Brands is building nice momentum, and we believe product collections like this can help bring new customers into the brand. As we reflect on our team's success and strong second quarter results, I'm as confident as ever in our global growth potential and our ability to make continued progress on growth and profitability in 2024, as reflected in our increased expectation for sales and operating margin. As we enter the back half, our team remains on offense while looking forward to the holiday season, and I'm thrilled with what we've seen in the third quarter so far. Looking further out, with a strong family of brands, a proven playbook, and an evolving regional operating model, I believe our relationship with the customer continues to improve And we all see tremendous opportunity ahead. We continue to further strengthen all aspects of the customer journey, developing a consistent, enduring business that can grow and succeed even in these dynamic and often uncertain times. A huge thank you to our associates around the world whose hard work, dedication, and support of our customer have put us well on our way to sustainable, profitable growth in 2024. And with that, I'll hand it over to Scott.