Release Date: November 26, 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 third-quarter net sales of $1.2 billion, a 14% increase over 2023, with strong comparable sales growth of 16%.
- Operating income grew 30% year over year to $179 million, with an operating margin expansion of 170 basis points to 14.8%.
- The company saw broad-based sales growth across regions, brands, and genders, driven by strong customer traffic and reduced promotions.
- Abercrombie brands achieved a third-quarter record for brand net sales, growing 15% on top of 30% growth in the third quarter of 2023.
- Hollister brands also delivered double-digit growth with a 14% increase in the quarter, driven by strong traffic and successful marketing strategies.
Negative Points
- The company faced higher freight costs due to increased air usage and higher freight rates, impacting gross profit margins.
- Inventory levels increased by 16% year over year, partly due to higher freight costs and proactive air shipments to mitigate potential shipping delays.
- Operating expenses increased to $609 million from $546 million last year, driven by higher variable expenses and increased investments in marketing and technology.
- The company anticipates a 100-basis-point adverse impact from foreign currency in the fourth quarter.
- Despite strong performance, the company faces ongoing challenges in navigating a dynamic shipping market and potential impacts from tariffs.
Q & A Highlights
Q: Congratulations on another successful quarter, and congratulations, Robert. Fran, if you look at the Hollister business, we saw such nice acceleration in comps not only from last year but from the second quarter. Where are you in the arc of that business as it continues to move forward? And is there any difference in the men's and women's performance?
A: Yes, I could not be more proud of the Hollister team, the incredible progress that they've made. We saw balanced growth across genders and categories, excited to see growth across regions as well. Our new collegiate collection is doing very nicely. We expect to continue to see growth.
Q: I wanted to ask about the drivers of the Abercrombie growth. Could you maybe unpack for us what you felt were some of the largest drivers of the growth in the quarter and where you're seeing any momentum?
A: Abercrombie has been on an amazing journey with 15 consecutive quarters of growth. We saw balanced growth across genders and categories. Product and marketing are aligned and working well. YPB specifically continues to grow nicely.
Q: Could you speak to global brand awareness and new customer acquisition that you're seeing overseas? And if you could elaborate on the strong early holiday response and current business momentum that you're seeing in November across brands?
A: We are seeing very balanced performance across brands and regions. Our teams in London and Shanghai are localizing assortments and marketing, and we're seeing a nice response. We are off to a strong start for the holiday season, with well-staffed stores and distribution centers.
Q: After the multiyear turnaround in Abercrombie & Fitch and the continued momentum, I'm curious what you see as the next act and opportunity for A&F?
A: We have changed our addressable market, becoming a lifestyle brand. We are welcoming new customers and continuing to please existing ones. We are delivering sustainable profitable growth and expect that to continue into the future.
Q: Your full-year guidance raise implies that you're more optimistic on 4Q sales and profitability than you were three months ago. Where have your assumptions changed most positively?
A: We are more bullish today than three months ago due to strong performance in back-to-school and fall selling seasons. We have had a strong start to the fourth quarter, and we feel great about our assortments and customer response across brands and regions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
