Q1 2024 Abercrombie & Fitch Co Earnings Call
Good day, and thank you for standing by welcome to the Abercrombie <unk> Fitch fourth quarter fiscal year 2023 earnings call. Today's conference is being recorded at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to pass.
Star one on your telephone you will then hear that an automated message if I assume that your hand is raised to withdraw. Your question. Please press star one again I would now like to hand, the conference over to Mel Cooped up. Please go ahead.
Speaker Change: Thank you.
Good morning, and welcome to our first quarter 2024 earnings call.
Joining me today are Fran Horowitz, Chief Executive Officer, and Scott Lukowski, Chief Financial Officer, and Chief operating Officer.
Earlier. This morning, we issued our first quarter earnings release, which is available on our website at corporate Abercrombie Dot com under the investors section also available on our website is an investor presentation.
Keep in mind that we will make certain forward looking statements on the call. These statements are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions. We mentioned today. These factors and uncertainties are discussed in our reports and filings with the.
Securities and Exchange Commission and.
In addition, we will be referring to certain non-GAAP financial measures during the call additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and Investor presentation issued earlier this morning.
Finally references to Abercrombie brands includes Abercrombie <unk>, Fitch, and Abercrombie kids and references to Hollister brands includes Hollister and Gilly Hicks with that I'll turn the call over to Fran.
No.
Speaker Change: Good morning, and thank you for joining us to discuss what has been a very busy and productive start to 2024.
I'm happy to report that our sales trends remained strong throughout the first quarter exceeding the expectations. We provided in early March.
Net sales of $1 billion in operating income of 130 million, where both the best first quarter results in the history of the company.
First quarter sales grew 22% year over year with broad based growth across regions.
And direct channels.
I'm also pleased to share that women's and men's divisions grew across our brand families in the quarter, we entered the year in a clean inventory position and maintain that discipline to Q1.
Allowing for fewer promotions, which contributed to gross profit rate improvement.
With a strong top line and improved gross profit rate, we achieved a 12, 7% operating margin for the quarter.
While also funding strategic investments across marketing.
Digital and technology and global expansion.
These are simply outstanding results, adding yet another proof point of our global teams ability to execute at the highest standard.
Always looking forward, we are laser focused on showing continued growth through 2024, which is reflected in our increased full year net sales growth and operating margin outlook.
Speaker Change: Before I dive deeper into the first quarter I'd like to zoom out and share more context on where we are in our journey.
Fiscal 2023, it was a defining year for our company we.
We delivered 16% revenue growth and operating margin over 11%.
These results would not have been possible without the hard work and dedication of our team to transform our operating model and our playbook.
Well there is no finish line, we have developed an extensive global platform to support our brands leveraging strong inventory discipline agile chase capabilities. We have further strengthened our operations by building our teams and modernizing our capabilities across digital and technology stores and data analytics.
We leverage these strengths to support and grow our global brand through 2023.
But also improving the gross profit rate on reduced promotions and clearance selling.
We further defined with each of our brand stands for and the customers. They serve presenting a significant global addressable market opportunity there are capitalizing on with relevant assortments and compelling brand voice.
Both brand families are contributing nicely to our business results, while expanding their customer base to increase marketing spend improved omnichannel customer experience.
Abercrombie brands, especially the double digit net sales growth CAGR from 2019, and Hollister brands returned to growth in 2023 in the midst of a challenging teen apparel environment.
We enter 2024 with momentum and the objective of producing sustainable profitable growth.
We believe we have the pieces in place to deliver global brand growth. This year in our first quarter results are further evidence that we are off to a strong start.
Diving into those results, we saw great progress across regions in Q1.
With the Americas business, which continued to show strength with 23% net sales growth outside of the Americas I am proud of how our teams are executing in EMEA and APAC.
In EMEA, we delivered 19% net sales growth led by U K and Germany.
Our teams continue to localize, our Assortments and operations and we've made strategic investments in marketing to drive brand awareness in these two key EMEA markets.
We saw great digital engagement conversion from new marketing campaigns, along with the benefit of new store experiences, particularly in greater London.
In APAC, we saw similar things played out with 10% net sales growth led by China.
We believe we have more runway ahead in both regions in the first quarter was another proof point that our playbook is working.
Shifting to the brand side and continuing the theme of broad based growth both brand families delivered double digit net sales growth.
Abercrombie brands momentum continued growing 31% on top of 14% growth in the first quarter of 2023.
Both womens and mens contributed nicely to this result, showing balanced growth across categories.
Both AUR and units continue to contribute nicely to growth.
With AUR improvement coming from category and style mix as well as reduced promotions.
Customer acquisition remains a key focus for the brand and we increase global marketing investments year over year to help build community and brand affinity.
Abercrombie as a result, this quarter were driven in part by our continued focus on building and growing concepts within the brand to speak to customers needs in a relevant authentic way.
This quarter, we launched the wedding shop, a curated set of dresses and other apparel to outfit our customers from bachelorette parties to honeymoon to the big day itself.
The wedding shop with a successful extension of our best dress gas collection, which has been a part of the assortment for a few years.
We let the wedding shop at the mix of styles, including new fashion items, while also showcasing products that has performed and grown over several seasons.
Congratulations to our team on a great initial reception.
I'm excited by the continued opportunities for the wedding shop as we approach peak wedding season, this summer and into the fall.
At Hollister, we saw progress with both women's and men's contributing to the 12% first quarter sales growth and acceleration from the 9% we saw in the fourth quarter of 2023.
The men's division returned to growth led by fleece tops and bottoms as well as pants, which all did well throughout the quarter.
Women's contributed nicely to the growth acceleration with balance across categories.
We increased hollister marketing in the back half of 2023.
Also increase year over year investment this quarter.
We saw improved traffic trends across both stores and digital channels, which helped show teen customers of changes we have made to the assortment.
Importantly, the Hollister team continue to seek opportunities to reduce discounts and promotions, while tightly managing inventory levels.
Further supporting AUR and gross profit rate expansion in the quarter.
A really great effort on all fronts, and we entered the second quarter with inventory flexibility and momentum as we build to the back to school season later in the quarter.
Across brands regions and genders, we had an outstanding start to the year carrying great momentum from 2023 to produce record first quarter results. We did this while also investing globally to attract and retain our target customers further strengthening our brand portfolio.
Our team remains focused on following up of defining fiscal 2023, leveraging the power of our brands and operating model to deliver sustainable long term growth and profitability.
After an impressive record setting first quarter and a strong start to Q2 across regions and brands. We have a high degree of confidence that we can accomplish our 2024 goals, while also building and investing in the tools technology and people to realize the long term ambitions, we've previously shared and with that I'll hand, it over to Scott.
Thanks, Brian I'd like to thank our global teams for their continued strong execution throughout the first quarter, helping to drive record first quarter net sales and operating income.
For the quarter total net sales of $1 billion were up 22% compared to last year with growth across regions and brands.
This is the first time in the history of the company, we have delivered sales of $1 billion in the first quarter.
On a reported basis, we saw 120 basis point benefit from the calendar shift from the 50 <unk> week in 2023.
Comparable sales growth for the quarter was 21%.
By channel, we saw double digit growth in both stores and digital.
On a regional basis, we delivered double digit growth in each region.
Net sales grew 23% in the Americas, 19% in EMEA, and 10% and APAC on.
On a comp basis sales grew 21% in the Americas, 23% in EMEA and 22% and APAC.
In the Americas, we saw balanced growth across markets in EMEA. The growth was driven by the UK and Germany to markets, where we are accelerating our increasingly localized marketing efforts.
And APAC growth was driven by China.
In APAC, we saw a larger spread from constant net sales growth, which was primarily driven by foreign currency and a few store closures.
From a brand perspective, Abercrombie brands delivered another stellar quarter of growth at 31%, while Hollister brands grew 12%.
On a comp basis, Abercrombie grew 29% and Hollister grew 13%.
Taking a look at gross profits, we delivered record first quarter gross profit dollars driven by both a strong top line in a healthy gross profit rate.
The gross profit rate for the quarter was 66, 4% up 540 basis points compared to the 61% rate in 2023.
We saw year over year benefits from lower cotton costs and slightly lower freight costs.
We also saw benefits from lower discounts and clearance selling across brands and continued strong inventory management.
We leveraged our chase capabilities across brands during the quarter and each brand was in a position to chase entering the second quarter.
Moving onto expenses operating expense, excluding other operating income was $550 million for the quarter compared to adjusted operating expense of $474 million last year.
On top of higher variable expenses on strong sales growth the year over year increase was driven by inflation and increased investments in marketing digital and technology and people.
For marketing the first quarter spend was around 5% of sales compared to around 4% in the first quarter of last year.
As a reminder, we pulled back on Hollister marketing last year as we worked through our assortment and brand projection evolution.
Even after these investments we delivered solid expense leverage with operating expenses as a percentage of sales of 53, 8% compared to 57, 3% last year.
Operating income was $130 million or 12, 7% of sales compared to adjusted operating income of $38 million or four 6% of sales last year.
Net income per diluted share was $2.14 compared to adjusted net income per diluted share of <unk> 39 last year.
This quarter, we've introduced an additional performance measure of non-GAAP EBITDA to our results.
For Q1, EBITDA totaled $168 million or 16% of sales compared to adjusted EBITDA of $74 million or 9% of sales last year.
Please refer to our press release for disclosures on EBITDA, adjusted EBITDA and other non-GAAP metrics.
On the balance sheet, we ended the quarter with cash of $864 million and liquidity of approximately $1 2 billion.
We delivered operating cash flow of $95 million and have $39 million of capital expenditures.
We repurchased $15 million worth of shares ending the quarter with $217 million remaining on our current share repurchase authorization.
We also purchased $9 million of senior secured notes at par value on the open market ending the quarter with $214 million of notes outstanding.
In the second quarter, we will continue to focus on debt and share repurchases as the primary options to put excess cash to work pending business performance share price and our ability to increase investments in the business.
For share repurchases, we continue to expect to buy back shares to offset dilution from stock compensation at a minimum.
On the store fleet, we ended the first quarter with 753 stores.
During the quarter, we opened one new store remodel 13 stores and closed 13 stores.
Speaker Change: For the full year, we have updated and increased our store investment plan to deliver approximately 60, new stores 65, Remodels right sizes and 40 closures.
Moving on to our expectations for the rest of fiscal 2024 from.
From a total company perspective, we had a strong start to the year delivering record Q1 results as.
As we said last quarter, we believe we are executing well on those areas in our control across product voice and experience.
Speaker Change: For the second quarter, we expect net sales growth in the mid teens compared to the second quarter of 2023 level of $935 million.
This expectation includes a year over year benefit of around $30 million or 320 basis points for the quarter due to the calendar shift from the 50 <unk> week in 2023, as we pick up a peak back to school week in Q2, this year compared to Q3 last year.
Speaker Change: We expect growth across regions and brands and a slight adverse impact from foreign currency.
We expect operating margin to be in the range of 13% to 14% compared to nine 6% in 2023.
We expect the year over year operating margin improvement to be primarily driven by a higher gross profit rate on continued year over year cotton benefits and some AUR growth combined with modest operating expense leverage.
And we expect an effective tax rate in the mid twenty's with the rate being sensitive to the jurisdictional mix and the level of income.
For the full year, we are increasing our expectations primarily based on the actual results from the first quarter and the outlook for the second quarter we.
Speaker Change: We are leaving the back half outlook consistent with the levels implied in the outlook given in March.
Speaker Change: We expect net sales growth of around 10% from the 2023 level of approximately $4 3 billion, an increase from the previous outlook of up 4% to 6%.
This outlook continues to include an adverse impact of around $50 million from the loss of the 50 <unk> week in 2023.
We also expect the growth rate to be higher in the first half of the year, partially due to the calendar shift from the 50 <unk> week in 2023, and a loss of the 50 <unk> week in the fourth quarter of 2024 compared to 2023.
We've included a table in the press release to provide more detail on expected sales and comparative growth impacts by quarter and for the full year.
For operating margin, we expect to be around 14% an increase from the previous outlook of around 12%.
We expect the year over year improvement to be driven primarily by gross profit rate expansion from the combination of lower cotton costs, and AUR expansion on lower promotions and clearance selling slightly offset by higher freight costs.
Based on the updated first half expectations. We also now expect some full year expense leverage that will contribute to operating margin.
We expect to continue to use our agile funding process to find ways to increase investments over the remainder of the year.
We expect an effective tax rate in the mid to high twenties and capital expenditures of approximately $170 million.
To close it up it was another quarter of progress as we delivered strong financial results managed inventory well and continue to strengthen the foundation of our company. We have plenty of hard work ahead, but we believe each of our brands is in a position to deliver for our customers in the summer selling season, keeping us on track to deliver sustainable profitable growth. This year, operator, we're now ready for questions.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
And our first question comes from Dana Telsey of Telsey Advisory Group. Your line is open.
Hi, good morning, everyone and congratulations on the terrific results.
As you think about the merchandise assortment for each of the brands key drivers for men and women did you see non improve what do you think the women how is the denim impact and then Scott. If you think about the drivers of gross margin what was the AUR uptake in the first quarter, how you're thinking a bit going forward and.
And to the benefit from any lower freight and raw material costs. Thank you.
Hey, Dan Good morning, So I'll kick off on the first one.
Pretty incredible quarter, so super excited to have reported a record quarter for us and what's great about it is that it was very balanced driven across both brands.
Across genders channels regions et cetera.
So what we did see was a very balanced growth by category. The probably biggest standout I would talk about would be abercrombie women's dresses at the launch of this wedding shop has clearly.
Our expectations from the beginning and the wedding season Hasnt been technically started yet right. We got out ahead of that and got that in early.
Men's Abercrombie business also a very strong contributor.
Super excited to see the guys Hollister business returned to positive comps that helped drive that acceleration in total to up 12, and denim specifically, we are seeing some new trends happening in denim, which is exciting the rise is actually going back down a little bit. So this low rise baggy is.
Coming in pretty strong wildlife jeans are happening, but the biggest lesson that we learned from Covid and the words everybody knows on campus I love, which is balance.
<unk> is very important to our business. It always has been but striking a balance on our assortments as most important.
Dan: Hey, Dan I'll pick up the gross margin side. So yeah nice gross margin performance in Q1, so up around 540 basis points to last year couple of factors, we've talked about the cotton.
We're finally, there it's been it's been a couple of years, we've been talking about that cotton drag they've gotten to the good side of it. So that was a nice pick up here in Q1, and then we did see some some AUR benefit in Q1 and it came from reduced promotions as well as less clearance selling obviously with the top line results strong above our expectations, we are chasing throughout the quarter.
Good place to be so we were able to pull back on some promotions and then reduce that clearance selling you are thinking about the go forward expect cotton to be a benefit here again in Q2, and then just kind of moderate in the back half thinking about freight specifically a little bit of a help in Q1 that will flip to a little bit of a hurt I think Q2 through the end of the year.
<unk>, we've seen those rates pick up a little bit more recently on the ocean side and then we're keeping our eyes on the air rates, so a little bit of friction coming there all of that said <unk>.
To see that gross profit rate expansion this year and that'll be kind of a key driver of our operating margin expansion that we put out there that 14% versus that nine 6% last year.
Thank you.
Hi, Dana.
One moment for our next question.
Yeah.
And our next question will be coming from Matthew boss of Jpmorgan Matthew Your line is open.
Great Thanks, and congrats on another nice quarter. Thanks.
Thanks.
So two part question Fran could you elaborate on drivers of the same store sales acceleration that youre seeing at Hollister across mens as well as women's and any change in current business momentum across the organization and then Scott just maybe relative to 2020.
<unk> operating margin guide of 14%.
You see as the right long term margin target for the business.
Hey, Matt I'll kick off so Hollister, we were super excited to see the men's business turn around a bit faster than we had anticipated I mean, we've been as you know working hard on testing and chasing in meeting into that business. We see a lot of success in the bottoms business over the past several quarters and I would say this season the biggest accelerated.
Dan: The tops business says.
Im excited to see that there is a proportion happening and changing a bit and guys. They're wearing these bag. Your genes involved looser tops different proportions. So that was probably the biggest change in the accelerator, but overall hollister and Abercrombie nice success across the genders in a pretty well balanced category business Hey, Matt on the.
Operating margin, yes, so great to put that 14% out here for the year up from the 12% original outlook really nice growth in the first quarter Youre seeing that growth would continue into the second quarter here not talking about long term at this point, we've talked back in our Investor day about getting to that double digit operating margin that's been proven by some of our peers.
In the industry, where there which is exciting but right now we've been focused 2024 is about sustainable profitable growth and so far so good as we've come through the first quarter and into the second quarter and Thats. Our focus right now will talk a little bit more about the long term in the future.
Great Best of luck.
And one moment our next question.
Yes.
And our next question will be coming from Marni Shapiro of the retail tracker. Your line is open.
Hey, guys congratulations.
Could you talk a little bit about the marketing side, you've done an exceptional job on the Abercrombie side as the brand is you'll come back to strength and continues to put growth on top of growth now that Hollister is on solid ground will you follow that same kind of path.
Dan: Even though it's a younger customer could you talk a little bit about what that could look like and what the spend will look like over the next couple of months.
Hey, Marty good morning, so what's exciting about our current marketing spend is that we're actually with the strength of the brands are able to spend that marketing over the bottom middle and top of funnel. So to your point, yes. It was a build in abercrombie over the years starting at the bottom in the middle of now doing lots of top of funnel to make sure that we acquire those customers we will follow that.
Same pattern for Hollister.
We've started to reinvest as we mentioned earlier in the script today, just last week, we had a terrific top of funnel events for Hollister a festival that we.
Did it one of the schools that in California to really bring brand awareness. So we will definitely follow a similar playbook, but one that is focused on the teen consumer Hey, Marty as we think about spend over the next few months same story, we'd like this 5% of sales. It's something we've talked about here for a couple of years. The great thing is with the top line growing that 5% equals more dollars. So we're putting.
More dollars to where it.
It is good to see Hollister I'll kind of turn that back on we slowed that marketing a little bit in the front half last year as we were.
Getting that assortment right and getting that brand projection right. We feel both of those things are in a good place. So we're continuing to sell our accelerate that hollister marketing like France had up and down the funnel which is great.
You can drive the business short term, but you also want to drive that business long term and we're super focused on customer acquisition and getting people into our brands, we love our offering at this point. So we will continue to get that spend around that 5% and find more customers.
Great. Thanks, guys.
One moment for our next question.
Our next question will be coming from Alex Stratton of Morgan Stanley. Your line is open.
Yes.
Great. Thanks for taking my questions. Just a couple here one just on the full year sales guidance raise it looks like you guys have a pretty big back half slowdown built then is that just a function of compares or can you talk to us about the rationale there and then secondly, just on Asia Pac.
Jack can you just elaborate on what Youre seeing there for the brand in that geography as well as your view on the consumer there. Thanks a lot.
Well, let's go ahead, Scott, let's kick off with I'll go with the first one so let's talk about the full year guide, yes. So obviously a strong start to Q1 it was amazing to deliver $1 billion in revenue for the Q1, we've never done that as a company so really nice to see better balance across the quarters for the year. So super exciting start good start to Q2 here and then you were thinking of.
Q2, it's more back weighted we'll see that build in the back half of the quarter for Hollister and kids. So it comes to learn as we go through the next couple of months into that build and so as we think about the back half sitting here today, there's still a lot of uncertainty out there lots of learnings for us coming here in Q2. So we're excited to get through back to school.
We will know a lot more in August and then we'll talk about the back half once we get there.
Yes, and then just real quick on the APAC piece.
This Alex but it's a very small piece of our business is tied at 3% at this point in time, but we were excited to deliver 10% net sales growth.
The team is hard at work getting close to that customer localizing, our assortments, making sure that our promotions are lined up with the.
With the with the calendar appropriately and we're going to continue to believe and invest in that in that.
Region.
And one moment for our next question.
Yes.
Our next question will be coming from Mauricio Serna of UBS Mauricio Your line is open.
Great Good morning, and congratulations on the results just a few questions from me maybe could you talk about in.
In Q1, what Youre seeing in terms of customer acquisition in Abercrombie are you seeing like any new customers coming into the brand specific age cohort or anything like that and maybe both.
So could you talk about.
The playbook.
Perfect.
Details about the playbook implemented in international markets, how are you seeing that.
In like what are you doing in UK and Germany to drive that strong growth and then just finally.
Just wondering like for Q2, sorry for the second half of the year are you baking any expectation of Opex leverage considering that there is an implied slowdown in the sales guidance. Thank you.
Alright, so back up to the top.
Customer acquisition, and so theres a lot of exciting things happening in the AF brand and if we continue to launch all of these new concepts. We are definitely seeing new consumers coming into the brand. We saw that through 2023 as an example, with all of our licensing that we did as an example, with the NFL for the first quarter. This launch of the wedding shop has brought in lots of new <unk>.
Customers. It's also the opportunity to add value to the customers that we already have built off extension of asbestos guests collection that we had already.
So we are seeing exciting acquisition by customer as we mentioned just a few minutes ago. We are investing in top of funnel, which is certainly helping to grow brand awareness.
For the second question.
Speaker Change: Our playbook is something that we're definitely exporting outside of North America, we had a terrific quarter in EMEA. In fact, we were just in London last week, we had my first international.
Board meeting in London, with the team and we're really excited about the opportunity that we see there.
We are focused on UK, and Germany, and exploring that playbook and making sure that we stay close to the customer it's about aligning that product voice and experience, which is working very well for us in North America and is now working well for us, particularly in those two countries.
And the third question over to Scott.
Would you break alright, so opex leverage in the second half the outlook that's out there that implied outlook from our last one there'll be minimal opex leverage as we think about approaching the back half now as we're coming through Q1 into Q2, and we're making investments. We're number one we're keeping that inventory agile and quick and using chase model, We're also making investments.
In marketing, we are making investments in stores with a good store plan here for the back half strong store planned for the back half with Remodels refreshes, new stores coming in as well as that end to end customer journey. So excited about the investments that we're putting into place and optimistic that will keep our growth trajectory going into the future.
Uh huh.
Got it understood. Thank you and congratulations.
Thanks, Larry.
And one moment for our next question.
And our next question will come from loss excuse me Paul Quinn.
Speaker Change: Andy Your line is open.
Yes.
Hi, This is Kelly on for Paul Thanks for taking our question.
First one is for Scott just a follow up on the AUR.
Did you say what AUR is we're up in the quarter I think your plan was for flat. So just curious.
How AUR, it's performed and any color by brand and how and what your assumption is for <unk> for the year now and then secondly for Brian I'm, just curious on new customer growth at Hollister I know previously you.
You said Hollister was somewhat more limited.
Just the age range of the Hollister customer relative to Anna just curious if any of your thoughts have changed about what.
What the ultimate customer acquisition opportunity is there. Thank you.
Alright, I'll just pick up the first one on AUR. So yes, nice nice growth in AUR didn't give a basis points impact there for Q1, but really saw AUR growth across brands and we continue to see that mix benefit in Abercrombie, we talked about the dress shop.
That launch here in the quarter, maybe first quarter really nice pickup there. So we're seeing a little bit of a mixed benefit in AUR, but again that doesn't exactly flow through to gross margin. When you think about those gross margin impacts nice pick up from just slightly reduced promotions as well as lower clearance selling again, we were chasing inventory throughout.
The quarter the Assortments have been well received specifically that spring summer assortment has performed well across those key categories. So we've been able to pull back promotions just a bit so as we think about Q2 and going forward expect to see some AUR pickup based on those trends coming out of Q1 and Q2 and then for the back half sitting here today will assume you mark.
Rating AUR growth in the back half and we'll pick that up when we talk in August.
And then just for clarity on the second question Kelly.
I think what we said was that the addressable market for Abercrombie is a bit larger than the addressable market for hollister, because its a teens specific consumer as opposed to now what we look at it for Abercrombie, which is coming into the brand and the early twenties and sang.
Well well past their forties, so theres always opportunity for new customers and the fact that we are now investing increased marketing across all parts of the funnel will always help us bring new customers and theres lots of exciting things happening within the brand I just mentioned a few minutes ago on the top of funnel activities that we're doing through the high schools.
So new customers are always an opportunity it just the addressable market specifically that was a bit different between the two brands, yes, Kevin just to add on for Hollister and when you think about that customer very different than the abercrombie customer a lot of transactions happen in store, but they start the product search online so for us it's about a balanced investment in store locations.
Obviously, we have a lot more stores for hollister that abercrombie because of that fact, but we're also increasing that digital marketing for hollister because theres. So much discovery that happens with that team before they come in store. So looking at that kind of a store in rents plus marketing is our way to acquire customers and Hollister.
Okay.
Thank you best of luck.
Kim.
One moment for our next question.
And our next question will be coming from Janet Kloppenburg of J J K Research Associates. Your line is open.
Good morning, everyone and congratulations really nice quarter.
I wondered about.
Hey.
So youre comparing against.
Still again Pi promote.
And clay on class at Hollister.
I'm wondering.
If you expect that to be a furniture for the year.
And.
Also let me think.
The international business.
I think.
That you're in early innings.
In terms of our recovery plan. So I wondered if you thought that comps.
Could be maintained at the kind of level, we saw in the first quarter and just lastly on planned expansions with a wedding dress shop do you see opportunities for.
Additional brand extensions.
Both brands as we look forward. Thank you.
Hey, Janet let me get the first one out of the way. So when you think about those promos at Hollister, Yes, if we look back into history.
Brand was over inventoried coming through 2022. After we saw that drop off in kind of the mid 2022 range. We cleared through most of that in 2022, a little bit of an overhang. There in Q1 of 'twenty. Three so we got that benefit here in Q1 of 2024 and that benefit moderates as we go forward I would say like I just said in the second quarter, we'll see some benefit we're going to see.
It's going to moderate in the back half the great thing is I kind of bringing it current and into the present all brands are chasing we're chasing into the summer at this point in late summer and the back to school. So an exciting place to be for each brand and that gives us the chance to hold the AUR or maybe get some growth.
Yes go ahead.
Okay.
We're very excited to report, obviously nice progress in both APAC and EMEA.
We've talked for a few quarters now actually for a couple of years now building those teams and we're really building the muscle exploiting this playbook is working and the opportunity to start investing in marketing is working and all of the content that is built into the outlook that we put out today.
And then just regarding.
Growing brand extensions I mean that is what we do the team is busy and hard at work always listening to the customer trying to see what opportunities are out there that.
The wedding dress up is clearly an opportunity that came from our customer telling us that they spend long weekends away with their friends and he's weddings have become 234 day events, where they need to outfit throughout the weekend for that.
Providing this now actually for both men and women, which is exciting. So we're going to continue to stay focused on listening to them and hearing what the opportunities are and there will certainly be new things in fleet as we move ahead.
Okay, and one more if I could.
Scott.
I was wondering John.
Outlook, given the sales acceleration for that back half is doing outlook for.
SG&A leverage in that.
For the year or leverage.
What would that pace look like in the back half of the year.
Yes at this point, what the implied outlook out there we wouldn't see much SG&A leverage in the back half it would be more front half weighted obviously the growth rates higher here in the front half versus that implied in the back half. So a lot of that full year leverage would come from the front half.
But not to levels in the back half, yes, we will see.
Speaker Change: Bounce around leverage deleverage basis points here and there.
Okay. Thanks, so much.
Thanks Janet.
I would now like to turn the conference back to Fran for closing remarks.
Thanks, everyone for joining the call today, and we look forward to providing some more updates in the future.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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