A&F(ANF) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net sales for Q2 2021 reached $865 million, up 24% year-over-year and up 3% compared to Q2 2019 [25][26] - Gross margin rate increased by 450 basis points year-over-year and 590 basis points compared to Q2 2019, achieving the best Q2 gross margin since 2009 [10][29] - Operating income for the quarter was$ 116 million, compared to $22 million in the previous year, marking the best Q2 operating income since 2008 [31] Business Line Data and Key Metrics Changes - Hollister brand net sales increased by 20% year-over-year, while Abercrombie brand net sales rose by 30% [26] - Digital sales remained steady compared to last year and grew 52% from Q2 2019, representing 44% of total sales for the quarter [25][29] - Gilly Hicks brand saw sales rise approximately 30% year-over-year, marking the fifth consecutive quarter of double-digit total sales gains [16] Market Data and Key Metrics Changes - U.S. sales increased by 31% year-over-year and 11% compared to two years ago, despite having fewer stores and less square footage [26][27] - EMEA sales rose 11% year-over-year but were down 5% compared to two years ago, reflecting ongoing COVID-related restrictions [27] - APAC sales were down 1% year-over-year and down 39% compared to Q2 2019, with traffic challenges persisting in the region [28] Company Strategy and Development Direction - The company is focused on a digital-first, omnichannel retail strategy, with significant investments in technology and marketing [6][14] - The Global Store Network Optimization initiative aims to align with shifting customer shopping behaviors, including the closure of underperforming stores [9][24] - The company plans to continue leveraging its strong balance sheet for share repurchases and investments in growth opportunities [33][38] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for Q3, noting strong back-to-school season performance in the U.S. and improvements in EMEA [23][24] - The company is proactively managing supply chain disruptions and inflationary pressures while maintaining inventory discipline [29][36] - Management anticipates a longer back-to-school season and expects to surpass the previously stated 5.8% operating margin goal for the year [24][38] Other Important Information - The company repurchased approximately 2.4 million shares for$ 100 million during the quarter, with a total of about 3.5 million shares repurchased year-to-date [32][33] - The company opened 14 new stores in the quarter, bringing the total to 18 for the year-to-date period, while closing 12 stores [33] Q&A Session Summary Question: Insights on Gilly Hicks brand and promotional environment - Management highlighted the positive momentum for Gilly Hicks, emphasizing its brand purpose and customer resonance, while maintaining tight inventory control for the promotional environment [40][42][43] Question: Gross margin sustainability and expectations for Q3 - Management expressed confidence in maintaining improved gross margins, although Q3 is expected to see a slight decline due to increased freight costs [45][46] Question: Denim category growth and marketing investments - Management noted a significant trend in denim styles and expected continued growth, while increasing marketing investments to drive engagement across brands [48][50] Question: Sales guidance and European market performance - Management indicated cautious optimism for sales growth in Europe, while addressing inventory challenges impacting Q3 performance [58][60] Question: Store productivity levels and supply chain constraints - Management confirmed stronger productivity in the U.S. compared to EMEA and acknowledged ongoing supply chain challenges affecting future quarters [66][70]