Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Abercrombie & Fitch Co (ANF, Financial) reported record net sales of $1.1 billion for the second quarter, a 21% increase year-over-year.
- The company achieved an operating margin of 15.5%, significantly higher than the previous year.
- Abercrombie & Fitch Co (ANF) saw balanced growth across regions, brands, and genders, with notable performance in the Americas, EMEA, and APAC regions.
- The Abercrombie brands experienced a 26% increase in net sales, driven by strong performance in categories like seasonal shorts, swims, skirts, and dresses.
- The company has successfully reduced clearance levels and maintained lean inventory, contributing to higher average unit retail (AUR) and improved gross profit margins.
Negative Points
- Higher freight costs partially offset the benefits from improved product costs and higher AUR, impacting gross profit margins.
- Despite strong performance, the company faces ongoing challenges in managing promotional activities, which remain a necessary part of their business strategy.
- The APAC region showed only a 3% increase in net sales, indicating slower growth compared to other regions.
- The company anticipates continued elevated freight costs into the fourth quarter, which could impact future profitability.
- Abercrombie & Fitch Co (ANF) has a cautious outlook for the fourth quarter, expecting sales growth to be lower compared to the third quarter, partly due to the calendar shift from the 53rd week in 2023.
Q & A Highlights
Q: Fran, if you think about the back-to-school selling season and the AUR growth, what have you seen in each brand, how does it differ by category?
A: (Fran Horowitz, CEO) Thrilled with back-to-school, both as we came out of the second quarter and how we started the third quarter. We are seeing continued AUR growth driven by product acceptance and financial control of our inventories. The growth is balanced across brands and categories.
Q: Scott, unpacking the operating margin guide for the third quarter of the 13% to 14%. Is it the gross margin with the freight expenses or the reduction of the lower cotton costs?
A: (Scott Lipesky, CFO) We have a little bit of freight hurt and some AUR growth in the quarter. We are also making significant long-term investments in the business, which may moderate OpEx leverage a bit. Overall, we are excited about the guide for Q3 and the full year.
Q: On the growth at Abercrombie, could you talk about how you think about the various growth vectors for the Abercrombie brand and which of those growth vectors do you think could be most sizable over time?
A: (Fran Horowitz, CEO) We are seeing growth driven by staying close to the customer. The Wedding Shop and NFL partnership have exceeded expectations. YPB is also growing well. We test, learn, and continue to add categories and build on momentum.
Q: Could you highlight what you're seeing from a digital perspective?
A: (Scott Lipesky, CFO) Digital has been doing well with double-digit comps. We have made significant investments in the digital experience across apps and mobile web, which is setting up our digital business for continued growth.
Q: Could you elaborate on the clear excitement across brands and category trends into early fall and back-to-school?
A: (Fran Horowitz, CEO) We are seeing balanced growth across brands, regions, and genders. Categories like tops, bottoms, and dresses are performing well. We have also added new categories like suiting for men to complement the Wedding Shop.
Q: Scott, how best to think about incremental margin expansion opportunities multi-year?
A: (Scott Lipesky, CFO) We believe we have opportunities across the P&L. We see growth potential in the Americas and international markets. We are focused on AUR growth, inventory management, and long-term investments to drive operating leverage.
Q: Can you talk about the progression of sales throughout the quarter and what you saw from a promotional perspective?
A: (Scott Lipesky, CFO) We saw double-digit growth in each month of the quarter. Promotional levels are based on our business needs and have come down considerably over the years. We are not seeing anything extraordinary in promotions at this point.
Q: Fran, can you talk about your decision to partner with an external company to grow Abercrombie Kids?
A: (Fran Horowitz, CEO) We signed a partnership with Haddad to grow Abercrombie Kids, particularly outside of North America. This speaks to the long-term opportunities ahead for us.
Q: Scott, any sense of the year-end cash balance and what you want to keep on the balance sheet in terms of minimum cash?
A: (Scott Lipesky, CFO) We are excited to have a strong balance sheet with $700 million in cash and $1.2 billion in liquidity. We will focus on share repurchases with excess cash and continue to invest in the business for long-term growth.
Q: Could you talk about what kind of growth you saw in the UK and Germany?
A: (Scott Lipesky, CFO) The UK and Germany are our largest and fastest-growing countries in Europe. We have increased marketing spend and product distortions in these countries, and we are seeing great results from these efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
