A&F(ANF) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2023, net sales increased by 20% year-over-year, reaching $1.056 billion, with a comparable sales growth of 16% [15][21] - The operating margin improved to 13.1%, an increase of over 1,100 basis points compared to Q3 2022, driven by a gross profit rate expansion of 570 basis points [5][19] - Year-to-date net sales were up 13% compared to the previous year, with an operating margin of 9.3%, which is over 900 basis points better than 2022 [5][21] Business Line Data and Key Metrics Changes - Abercrombie brands achieved a 30% sales increase year-over-year, marking the 11th consecutive quarter of growth, while Hollister brands grew by 11% [8][16] - Hollister's women's business led the growth, particularly in non-denim bottoms, while Abercrombie's growth was balanced across genders and regions [6][9] Market Data and Key Metrics Changes - The Americas region saw a 16% growth in comparable sales, EMEA grew by 15%, and APAC experienced a significant 32% growth [11][16] - Localization efforts in EMEA and APAC contributed positively to sales performance, particularly in the U.K. and Germany [12][16] Company Strategy and Development Direction - The company is focused on maintaining momentum into Q4 2023, with strategic positioning across brands and regions to capitalize on holiday sales [5][13] - Increased marketing investments are planned for Q4 to enhance customer acquisition and retention, despite a challenging macro environment [13][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver growth across brands and regions, emphasizing the importance of customer focus and execution of their playbook [13][21] - The company anticipates a low double-digit sales growth for Q4 2023, with expectations for an operating margin between 12% to 14% [21][22] Other Important Information - The company ended Q3 with cash of$ 649 million and liquidity of approximately $1 billion, indicating a strong balance sheet [19][20] - Inventory levels are significantly improved compared to last year, allowing for strategic promotional opportunities during the holiday season [6][18] Q&A Session Summary Question: What were the key drivers behind the growth in Hollister and how do you plan for promotions in Q4? - Management noted that women's categories, particularly non-denim bottoms, drove growth, and they are prepared for a competitive promotional environment in Q4 based on internal selling data [25][27] Question: What surprised you about Abercrombie's growth this quarter? - Management highlighted balanced growth across brands, genders, and regions, attributing success to a well-executed playbook and strong customer engagement [32][33] Question: How sustainable is the gross margin seen this quarter? - Management indicated that strong AURs and lean inventory levels contributed to the high gross margin, and they are focused on maintaining these levels moving forward [35][36] Question: What are the growth opportunities for Hollister internationally? - Management acknowledged the slow recovery post-COVID but noted positive trends in traffic and sales, particularly in localized markets like the U.K. and Germany [52][55] Question: What is the outlook for store growth next year? - Management confirmed plans to continue opening neighborhood stores, with a focus on testing and learning from customer responses [43][44]