A&F(ANF) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net sales grew 16% in Q2 2023, reaching $935 million, with comparable sales up 13% [16][17] - Operating margin improved to 9.6%, a significant increase from a roughly breakeven quarter last year [6][20] - Gross profit rate for the quarter was 62.5%, compared to 57.9% in 2022, reflecting a 460 basis point improvement [17][18] Business Line Data and Key Metrics Changes - Abercrombie brands saw a net sales increase of 26%, marking the highest second quarter sales since 2011 [5][7] - Hollister brands returned to growth with an 8% sales increase, exceeding internal expectations [10][14] - Both men's and women's segments in Abercrombie brands posted double-digit sales growth, with notable strength in pants and dresses for women and knit tops for men [9][10] Market Data and Key Metrics Changes - The Americas region led with 19% sales growth, while EMEA and APAC regions saw growth of 4% and 18%, respectively [14][17] - Sales growth continued into early August, indicating strong momentum across all regions [8][13] Company Strategy and Development Direction - The company is focused on maintaining tight inventory levels, finishing Q2 with total inventory down 30% year-over-year [6][19] - A regional operating model has been implemented to better support local customers, which is seen as a key growth enabler [15][16] - The company plans to open approximately 35 new stores, remodel 20, and close 30, indicating a net increase in store presence [22][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of 2023, expecting continued sales growth across brands and regions [25][40] - The company raised its full-year sales growth outlook to around 10%, up from a previous estimate of 2% to 4% [22][25] - Management highlighted the importance of evolving brand positioning and assortment to meet customer needs [12][39] Other Important Information - The company reported a net income per diluted share of$ 1.10, compared to an adjusted net loss per share of $0.30 last year [21] - Cash at the end of the quarter was$ 617 million, with liquidity of $974 million [21] Q&A Session Summary Question: What drove the impressive momentum at Abercrombie? - Management noted that the brand is no longer just a jeans and t-shirt brand but has evolved into a lifestyle brand, with strong performance in various categories [28] Question: How is AUR expected to trend in the second half? - Management indicated that there is potential for further AUR growth, particularly in Hollister, as they have reduced promotions and improved product offerings [30][32] Question: What is the outlook for Hollister's performance? - Management expressed confidence in Hollister's growth trajectory, citing improved assortments and customer engagement [39] Question: How is the supply chain performing? - Management reported significant improvements in supply chain stability, allowing for better inventory management and responsiveness to trends [45] Question: What are the marketing strategies for the back half of the year? - The company plans to ramp up marketing efforts, particularly for Hollister, to attract new and lapsed customers [50][51] Question: How is the performance in EMEA and the U.K.? - Management noted that both regions are showing positive signs, with a focus on evolving brand positioning to capture market share [64] Question: What is the operating margin outlook for the brands? - Management indicated that Abercrombie's operating margin is higher than Hollister's, with expectations for continued improvement across both brands [71]