A&F(ANF) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2022, the company reported net sales of $880 million, down 3% compared to the previous year on a reported basis, but flat on a constant currency basis [22] - The gross profit rate decreased to 59.2% from 63.7% the previous year, impacted by adverse exchange rates and higher product costs [24] - Operating income was approximately$ 21 million, significantly lower than $79 million in the previous year, with net income per diluted share dropping to$ 0.01 from $0.86 [26][27] Business Line Data and Key Metrics Changes - Abercrombie brands, including Kids, saw net sales grow 10% compared to 2021, and 13% on a constant currency basis, while Hollister's sales declined 12% or 9% on a constant currency basis [22][23] - Abercrombie adults achieved its best Q3 sales since 2014, with women's assortments delivering the highest Q3 sales levels since 2007 [8][9] - Hollister's performance improved slightly, but the brand continues to face challenges with lower conversion rates and basket sizes compared to 2021 [11][12] Market Data and Key Metrics Changes - Net sales increased 3% in the U.S. but declined 18% internationally, with EMEA down 22% and APAC down 26% on a reported basis [23] - The company noted significant inflation impacting global consumers, particularly affecting the Hollister customer base [5][6] Company Strategy and Development Direction - The company is focused on three strategic pillars: focused brand growth, digital evolution, and financial discipline, aiming to leverage these for the holiday season [7][20] - Plans to open approximately 60 new stores globally, marking a net store opening for the first time in over a decade, with a focus on enhancing customer experience [15][28] - The company is committed to managing inventory tightly and adjusting forward receipt plans to align with sales trends [20][25] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for the holiday season, with sales running consistent with Q3 levels and healthy inventory on hand [21][29] - The company anticipates continued inflationary pressures on consumer demand but expects to see significant relief on product costs in 2023 [31] - Management highlighted the importance of digital transformation and omnichannel experience as pivotal for future growth [30] Other Important Information - The company repurchased 510,000 shares for approximately$ 8 million during the quarter, with a remaining authorization of approximately $230 million [27][28] - The company expects to see a benefit from lower cotton prices in the latter half of 2023, while freight costs are anticipated to provide a tailwind in Q4 [24][38] Q&A Session Summary Question: Can you expand on the enhancements that you've been making to Hollister and how you expect the brand to unfold in progress going forward? - Management noted sequential improvement in Hollister and emphasized the importance of adjusting inventories and focusing on categories that are performing well [35] Question: How do you see product cost opportunities with supply chain in the first half of '23 compared to the second half? - Management indicated that while cotton prices will remain a pressure in the first half, they expect benefits from lower freight costs throughout the year [38] Question: Can you talk about the health of the inventory going into the holiday? - Management confirmed that 92% of the inventory is current and expressed confidence in the inventory strategy set for the holiday season [42] Question: How do you think about the promotional environment as we head into the holiday? - Management stated that their promotional strategy is based on internal performance rather than competitors, and they expect promotions to be consistent with last year [44] Question: What about A&F men's performance? - Management reported growth in the men's segment, indicating positive consumer response to Abercrombie's offerings [67]