Q2 2024 Abercrombie & Fitch Co Earnings Call

Speaker Change: Good day and thank you for standing by. Welcome to the Avocarami Fits second quarter 2021 earnings conference call.

Operator: Participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised today's conference is being recorded.

Speaker Change: At this time, all participants are on a listen-only mode. After the speaker's presentation, they'll be of course in an answer session.

Mohit Gupta: To ask a question during the session, you need to press star 1 on your telephone, you'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 on again. Please be advised today's conference being recorded. I would like to end the conference over your speaker today. Mohit Gupta, please go ahead.

Unknown Executive: I would like to end the conversation over your speaker today.

Mohit Gupta: Mohit Gupta, please go ahead.

Unknown Executive: Thank you.

Unknown Executive: Good morning and welcome to our second quarter, 2024 Ernie's call. Joining me today on the call are Fran Horowitz, Chief Executive Officer, and Scott Lapesky.

Mohit Gupta: Thank you.

Speaker Change: Good morning and welcome to our second quarter 2024 earnings call. Joining me today in the call are Fran Horowitz, Chief Executive Officer and Scott Lipesky, Chief Financial Officer and Chief Operating Officer.

Scott Lipesky: I'm Steve, Chief Financial Officer and Chief Operating Officer. Earlier this morning, we issued our second quarter Ernie's release, which is available on our website at corporate.abacrombie.com under the investor's section. Also available on our website is an investor presentation. Please 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.

Speaker Change: Earlier this morning, we issued our second quarter earnings release, which is available on our website at corporate.abricrammy.com under the investor section. Also, available on our website is an investor presentation.

Speaker Change: Please 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 security's litigation reform act of 1995, and are subject to risk and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mentioned today.

Scott Lipesky: In addition, we'll 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 the investor presentation issued earlier this morning.

Speaker Change: The factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission.

Speaker Change: In addition, we'll be referring to certain non-gap financial measures during the call. Additional details and reconciliation of gap to adjusted non-gap financial measures are included in the release and the investor presentation issued earlier this morning.

Scott Lipesky: Finally, references to Abercrombie brands include our Abercrombie and Fitch and Abercrombie Kids brands, and references to Hollister brands include our Hollister and Gilly Hicks brands.

Fran Horowitz: Finally, references to Abercrombie brands include our Abercrombian Fitch and Abercrombian Kids brands, and references to Hollister brands include our Hollister and Gilly Hicks brand. With that, I will turn the call over to Fran.

Fran Horowitz: With that, I will turn the call over to Fran.

Fran Horowitz: Thanks, Moe, and thank you all for joining us this morning. I am incredibly proud to report our financial results exceed the expectations we provided in May and set second quarter company records for both net sales and operating profit. We delivered strong second quarter net sales growth of 21%, reaching $1.1 billion with an operating margin of 15.5%. We achieved these outstanding results while also funding long-term growth priorities across regions and brands. After a historic success in the first half, our teams are energized and we've entered the second half ready to deliver for our global customers. I am thrilled with our start to August, and we are raising our full-year sales growth and profitability expectations.

Fran Horowitz: Thanks, Mohit, and thank you all for joining us this morning. I am incredibly proud to report our financial results to see the expectations we provided in May and set second quarter company records for both net sales and operating profit.

Fran Horowitz: We delivered strong second quarter net sales growth of 21% reaching $1.1 billion with an operating margin of 15.5%.

Fran Horowitz: We achieve these outstanding results while also funding long-term growth priorities across regions and brands.

Fran Horowitz: After a historic success in the first half, our teams are energized, and we've entered the second half ready to deliver for our global customers. I am thrilled with our start to August, and we are raising our full-year sales growth and profitability expectations.

Fran Horowitz: For more context, in 2024 we've set out to demonstrate sustainable, profitable growth on top of the defining fiscal year result in 2023. I am so proud of how we're showing up for our customer, and we are clearly seeing them respond. In addition to record second quarter sales, this was our seventh consecutive quarter of net sales growth in a dynamic, often uncertain consumer environment, which underlies the strength of our brands, our team, and our playbook. We work every day to satisfy new and returning customers' needs across product, voice, and experience. I believe our global brand portfolio is as strong as it's ever been.

Fran Horowitz: For more context, in 2024, we've set out to demonstrate sustainable, profitable growth on top of a defining fiscal year result in 2023.

Fran Horowitz: I'm so proud of how we're showing up for our customer and we are clearly seeing them respond.

Fran Horowitz: In addition to record second quarter sales, this is our seventh consecutive quarter of net sales growth in a dynamic, often uncertain consumer environment, which underlies the strength of our brands, our team, and our playbook.

Fran Horowitz: We work every day to satisfy new and returning customers needs across product, voice and experience.

Fran Horowitz: Combined with an agile modern supply chain and a culture of financial discipline, we believe we have all the pieces in place to deliver on our goals across a variety of macro environments. Sharing a bit more detail on Q2, I want to call out a consistent theme we've demonstrated over the last five quarters. We are delivering strong top-line results while also maintaining balance in how we're growing. Our second quarter sales growth was broad-based, fueled by expansion across regions, brands, and genders. We also saw growth in both units and AUR, consistent with the past five quarters. There's balance in our product too, with growth across key categories, as our teams are delivering lifestyle assortments with increasing relevance to our local customers.

Speaker Change: I believe our little Grandportfolio is as strong as it's ever been.

Speaker Change: Combined with an agile modern supply chain and a culture of financial discipline, we believe we have all the pieces in place to deliver on our goals across a variety of macro environments.

Speaker Change: Sharing a bit more detail on Q2, I want to call it a consistent theme we've demonstrated over the last five quarters.

Speaker Change: We're delivering strong, top line results while awesome maintaining balance in how we're growing.

Speaker Change: Our second quarter sales growth was broad-based, fueled by expansion across regions, brands, and genders.

Speaker Change: We also saw growth in both units and AUR, consistent with the past five quarters. There's down from our product too, with growth across key categories, as our teams are delivering lifestyle sort of ends with increasing relevance to our local customers.

Fran Horowitz: On the growth's profit line, we saw 240 basis points of rate expansion compared to last year. This was driven by higher AUR and improved product costs, partially offset by higher freight costs. We also delivered operating leverage in the quarter, while funding important marketing, digital, technology, and people investment to support our long-term aspirations. All this great work led to operating income of $176 million for the quarter, nearly double the second quarter result from the prior year. Continuing the theme of balance, we delivered growth across regions in the second quarter. The Americas continued to lead the way with 23% net sales growth, consistent with the first quarter.

Speaker Change: On the growth profit line, we set 240 basis points of rate expansion compared to last year. This was driven by higher AUR and improved product costs, partially offset by higher freight costs.

Speaker Change: We also delivered operating leverage in the quarter while funding important marketing, digital, technology and people investment to support our long-term aspirations.

Speaker Change: All this great work led to operating income of 1676 million dollars for the quarter, nearly doubled. The second quarter result is in the prior year.

Speaker Change: Continuing the theme of balance, we deliver growth across regions in the second quarter.

Speaker Change: The Americas continued to lead away with 20% net sales growth consistent with the first quarter.

Fran Horowitz: The Americas grew across markets with nice increases in traffic across direct selling channels. In Ameya, putting aside a pandemic-related sales rebound in early 2022, we demonstrated growth on growth for the first time in over 10 years, delivering 16% to the first quarter. The growth on top of 4% in the second quarter of 2023. Customers in both the UK and Germany continue to respond to localized assortments, and we're engaging with them to increase marketing and brand presence. Finally, APAC grew 3% in the quarter on comparable sales growth of 21%, where we continue to be led by our focus markets of China and Japan as we engage that customer in new and different ways.

Speaker Change: The Americas grew across markets with nice increases in traffic across direct selling channels.

Speaker Change: In a Maya, putting aside a pandemic-related sales rebound in early 2022, we demonstrated growth on growth for the first time in over 10 years, delivering 16 percent growth on top of 4 percent in the second quarter of 2023.

Speaker Change: Customers both the UK and Germany continue to respond to localized assortments and we're engaging with them to increase marketing and brand presence.

Speaker Change: Finally, APAC Group 3% in the quarter on comparable sales growth of 21% where we can continue to be led by our focus of more focus markets of China and Japan as we engage that customer in new and different ways.

Fran Horowitz: We are energized to see the progress we've made to localize our playbook across regions of quarter, but we know there's more runway ahead of us.

Speaker Change: We are energized to see the progress we've made to localize our playbook across regions just quarter but we know there's more runway ahead of us.

Fran Horowitz: On to the brands. Abercrombie brands had another outstanding quarter with net sales growth of 26% on top of 26% growth in the second quarter of 2023. Balance growth continued to mend in women's and across categories, with seasonal shorts, when skirts and dresses performing well. We also saw balanced growth in both AUR and units, as well as new and existing customers. As a follow-up to our highlights in the first quarter, the wedding shop continued to contribute nicely and has proven to be a great assortment extension. The reaction from customers has exceeded our expectations, and we've now entered the men's side with ensuing options to complement our dresses.

Speaker Change: On to the brands, Abagami Brandt has another outstanding quarter with net sales growth of 26% on top of 26% growth in the second quarter of 2023.

Speaker Change: Bounds growth continues in men's and women's and across categories, with seasonal shorts, swim skirts and dresses performing well.

Speaker Change: We also subdowns girls in both AUR and units as well as new and existing customers. As a follow up to our highlights in the first quarter, the wedding shop continued to contribute nicely and is proven to be a great assortment extension.

Speaker Change: The reaction from customers is exceeded our expectations, and we have now entered the men's side with ensuing options to complement our dresses.

Fran Horowitz: We continue to prioritize customer acquisition in Abercrombie, funding effective marketing campaigns across digital and social channels. We're excited to enter the back half with more customer activations planned. In the U.S., we released our latest NFL collection, further expanding on what has been a great partnership. Related to the collection, we've a number of exciting social and digital campaigns planned throughout the season to drive engagement. It's just one example of how Abercrombie Brands is working to win with both new and current customers in the second half of the year.

Speaker Change: We continue to prioritize customer acquisition never-crombie, funding effective marketing campaigns across digital and social channels. We're excited to enter the back half with more customer activations planned.

Speaker Change: In the U.S., we released our latest NFL collection further expanding and what has been a great partnership.

Speaker Change: Related to the collection, with a number of exciting social and digital campaigns planned throughout the season to drive engagement. It's just one example of how Avakrabi brand is working to win with both new and current customers in the second half of the year.

Fran Horowitz: Moving on to Hollister Brands, we continue to build momentum. Net sales growth of 17% exceeded our expectations and accelerates sequentially from 12% growth in Q1. Importantly, the balance continues from first quarter with both men's and women's growing, as well as expansion both unit sales and AUR, the latter driven by lower promotions. On the product side, women saw balance growth across categories, with particular strengths in skirts and dresses. In men's, we saw shorts and graphic teas contribute to the growth. With the additional week of back-school selling in the second quarter, we were pleased to see consistent growth trends, and I'm very happy with how back-school is going for us so far.

Speaker Change: Moving on to Haulster Brands, we continue to build momentum, and that sells growth of 17% exceeder expectations and accelerates, sequentially from 12% growth in Q1.

Speaker Change: Importantly, the balance continues from 1st quarter with both men's and women's growing, as well as expansion both unit sales and AUR. The latter driven by lower promotions.

Speaker Change: On the product side, women saw balance growth across categories with particular strengths and skirts and dresses. In men's, we saw shorts and graphic keys contribute to the growth.

Speaker Change: With the additional week of back school selling in the second quarter, we're pleased to see consistent growth trends, and I'm very happy with how back school is going for us so far.

Fran Horowitz: With great product, our goal now is to amplify the brand. On top of new store locations and refresh store experiences, we're investing in incremental marketing to increase engagement and reintroduce hostile brands to our target audience. This increased marketing investment spans across digital and social channels, as well as through authentic, real-life experiences and activations. One example is our Feel Good Fest, which is a concerting festival put on a partnership with high schools across the country. More recently, the back-to-school and fall school sports have kicked off; we launched the Hollister Collegiate Graphic Shop. The collection of quality basics, including crew neck sweatshirts, hoodies, and tees, touting vintage-inspired university logos and graphics, represents more than 30 universities across the United States.

Speaker Change: With great product our goal now is to amplify the brand. On top of new store locations and refresh store experiences, we're investing in incremental marketing to increase engagement and reintroduce house demands to our target audience.

Speaker Change: This increased marketing investments stands across digital and social channels, as well as to authentic real-life experiences and activations.

Speaker Change: One example is our field good fast, which is a concert in festival, put on in partnership with high schools across the country. More recently, at the back of school in fall school sports have kicked off, we launched the Hollister Collegiate graphic shop.

Speaker Change: The collection of quality basics, including crewneck sweatshirts, hoodies and keys, counting vintage inspired university logos and graphics represents more than 30 universities across the United States.

Fran Horowitz: Hollister Brands is building nice momentum, and we believe product collections like this can help bring new customers into the brand.

Speaker Change: Hollister Brandt is building nice momentum and we believe product collections like this can help bring new customers into the brand.

Fran Horowitz: As we reflect on our team success and strong second quarter results, I am confident as ever in our global growth potential and our ability to make continued progress on growth and profitability in 2024, as reflected in our increased expectation for sales and operating margin. As we enter the back half, our team remains an offense while looking forward to the holiday season, and I'm thrilled with what we've seen in the third quarter so far. Looking further out, with a strong family of brands, a proven playbook, and an evolving regional operating model, I believe our relationship with the customer continues to improve, and we all see tremendous opportunity ahead.

Speaker Change: As we reflect on our team's success in strong second quarter results, I'm confident as ever in our global growth potential and our ability to make continued progress on growth and profitability in 2024. As reflected in our increased expectation for sales and operating margin.

Speaker Change: As we enter the back half, our team remains an offense while looking forward to the holiday season, and I'm thrilled with what we've seen in the third quarter so far.

Speaker Change: Looking further out with a strong family of brands, a proven playbook and evolving regional operating model. I believe our relationship with the customer continues to improve, and we all see tremendous opportunity ahead.

Fran Horowitz: We continue to further strengthen all aspects of the customer journey, developing a consistent, enduring business that can grow and succeed even in these dynamic and often uncertain times.

Speaker Change: We continue to further strengthen all aspects of the customer journey, developing a consistent, enduring business that can grow and succeed even in these dynamic and often uncertain times. A huge thank you to our associate's around the world whose hard work, dedication and support of our customer have put us well on our way.

Fran Horowitz: A huge thank you to our associates around the world whose hard work, dedication, and support of our customer have put us well on our way to sustainable, profitable growth in 2024.

Scott Lipesky: And with that, I'll hand it over to Scott.

Scott Lipesky: Great, thank you. To echo Fran, we were very pleased with the first half of the year. Our teams continue to execute a high level across the business, managing the day-to-day while continuing to make progress in our long-term investment plan. Getting into the results of the second quarter, we delivered record net sales of 1.13 billion, up 21% compared to last year, with growth across regions and brands. Similar to the first quarter, this is the first time in the history of the company we delivered over $1 billion net sales in a fiscal second quarter. On a reported basis, we saw a 320 basis point benefit from the calendar shift from the 53rd week in 2023, consistent with our expectation.

Speaker Change: Sustainable Profile Growth in 2024, and with that, I'll hand it over to Scott.

Scott Lipesky: Great, thank you. To Echo Fran, we were very pleased with the first half of the year. Our teams continue to execute a high level across the business, managing the day-to-day, while continuing to make progress in our long-term investment plan.

Scott Lipesky: Getting into the results for the second quarter, we delivered record net sales of 1.13 billion, up 21% compared to last year with growth across regions and brands.

Scott Lipesky: Similar to the first quarter, this is the first time in the history of the company, we delivered over $1 billion in net sales in a fiscal second quarter.

Scott Lipesky: On a reported basis, we saw 320 basis point benefits from the calendarships from the 53rd week in 2023, consistent with our expectation.

Scott Lipesky: Comparable sales through 18%, representing the fifth consecutive quarter of double-digit comp sales growth in both the stores and digital direct selling channels. On a regional basis, we again delivered growth across regions, net sales through 23% in the Americas, 16% in the Mayas, and 3% in APAC. On a calm basis, sales grew 18% in the Americas, 17% in EMEA, and 21% in APAC. In the Americas, similar to last quarter, we saw balanced growth across markets. In EMEA, the UK and Germany continued to lead the way, and we've now delivered year-to-year growth for five consecutive quarters in the region.

Scott Lipesky: Comparable sales through 18% representing the fifth consecutive quarter of double-digit comp sales growth in both the stores and digital direct selling channels.

Scott Lipesky: On a regional basis, we again delivered growth across regions.

Scott Lipesky: And that sales drew 23% in the Americas, 16% in the May of and 3% in APAC.

Scott Lipesky: On a confaces, sales grew 18% in the Americas, 17% in the Mayo, and 21% in APAC. In the Americas, similar to last quarter, we saw balanced growth across markets.

Scott Lipesky: In a maya, the UK and Germany continued to lead the way, and we've now delivered year-over-year growth for five consecutive quarters in the region.

Scott Lipesky: In APAC, we saw a large spread from Compton net sales growth, which was primarily driven by foreign currency and net store closures. From a brand perspective, Abercrombie brands delivered strong growth, with net sales up 26% last year, while Hollister Brands' growth accelerated to 17% as our customers responded favorably to our sortments and our marketing. On a calm basis, Abercrombie grew 21% and Hollister grew 15%. For gross profit, we delivered a rate of 64.9% for the quarter, up 240 basis points compared to the 62.5% rate in 2023. We saw year-of-year benefits from lower cotton costs, as well as a benefit from lower promotions across brands on well-controlled inventories and strong product acceptance.

Scott Lipesky: In APAC, we saw large spread from constant cell growth, which was primarily driven by foreign currency and that store closures.

Speaker Change: From a brand perspective, Abercrombie Brands delivered strong growth with net sales up 26% last year. While Holster Brands growth accelerated to 17% as our customers responded favorably to our sort ofments and our marketing.

Speaker Change: Out of Confaces, Abercrumbi Group 21% and Holester Group 15%.

Speaker Change: For Gross Profit, we delivered a rate of 64.9% for the quarter of 240 basis points compared to the 62.5% rate in 2023.

Speaker Change: We saw a year of a year of benefits from lower cotton costs, as well as a benefit from lower promotions across brands on well-controlled inventories and strong product acceptance.

Scott Lipesky: These benefits were partially offset by higher freight costs. We ended the quarter with the inventory up 9% to last year, with all brands in a clean position entering the fall season. Moving on to expenses, operating expense excluding other operating income was $561 million for the quarter compared to operating expense of $497 million last year. We continued to drive operating expense leverage, with operating expenses as a percent of sales of 49.4% and improvement of 380 basis points compared to last year. We saw similar themes to the first quarter in terms of year-of-year up-X growth with higher variable expenses on sales growth, as well as inflation and increase investments in marketing, digital and technology, and people.

Speaker Change: These benefits were partially offset by higher freight costs.

Speaker Change: We ended the quarter with inventory of 9% of last year with all brands in a clean position entering the fall season.

Speaker Change: Moving on to expenses, operating expense excluding other operating income was $561 million for the quarter, compared to operating expense of $497 million last year.

Speaker Change: We continue to drive operating expense leverage with operating expenses as a percent of sales of 49.4% and improvement of 380 basis points compared to last year.

Speaker Change: We saw similar themes to the first quarter in terms of the year of year opx growth, with higher variable expenses on sales growth, as well as inflation and increase investments in marketing, digital and technology, and people.

Scott Lipesky: For marketing, second quarter expense was in line with expectations, finishing it around 4.5% of sales. Operating income was a record $176 million, or 15.5% of sales, compared to operating income of $90 million, or 9.6% of sales last year. Net income-per-deluded share was $2.50, up from $1.10 last year. EBITDA totaled $215 million, or 19% of sales, compared to EBITDA of $126 million, or 14% of sales last year. On the balance sheet, we ended the quarter with cash and equivalence of $738 million and liquidity of approximately $1.2 billion. We delivered operating cash flow of roughly $165 million and had $43 million of capital expenditures.

Speaker Change: For Marketing, Second Quarter Expenses in line with expectations, finishing it around 4.5% of sales.

Speaker Change: Operating Income was a record, $176 million, or 15.5% of sales, compared to operating income of $90 million, or $9.6% of sales last year.

Speaker Change: Net Income Perluted Share was $2.50 up from $1.10 last year.

Speaker Change: EBITDA, total $215 million or 19% of sales compared to EBITDA of $126 million or 14% of sales last year.

Speaker Change: On the balance sheet, we ended the quarter with cash in equivalence of $738 million, and liquidity of approximately $1.2 billion.

Speaker Change: We delivered operating cash flow of roughly $155 million and had $43 million of capital expenditures.

Scott Lipesky: We repurchased $15 million worth of shares and ending the quarter with $202 million remaining on our current share repurchase authorization. During the quarter, we fully redeemed the senior's cured notes at par value with cash on hand, ending the quarter with no funded debt. We also amended and extended our asset-based credit facility. The maximum size of the credit facility was increased from $400 million to $500 million, inclusive of a new $100 million European sub-facility.

Speaker Change: We repurchased $15 million worth of shares, ending the quarter with $202 million remaining on our current share repurchased authorization.

Speaker Change: During the quarter, we fully redeem the senior's cured notes of par value with cash on hand, ending the quarter with no funded debt.

Speaker Change: We also amended an extended our asset-based credit facility. The maximum size of the credit facility was increased from $400 million to $500 million. Inclusive of a new $100 million European sub-acility.

Scott Lipesky: Moving forward, with the redemption of the seniors cured notes behind us, we expect to prioritize share repurchases to put excess cash to work in the back half, subject to business performance, share price, and market condition. At a minimum, we expect a buyback share, the offset net dilution from stock compensation. On the store fleets, we ended the quarter with 757 stores. For the first half of the year, we opened 18 new stores, remodeled or right-sized 30 stores, and closed 26 stores. New and remodeled store performance has exceeded our expectations, and we are excited to deliver many new store experiences in the weeks and months to come.

Speaker Change: Moving forward with a redemption of the senior security notes behind us, we expect a prioritize share repurchases to put excess cash to work in a back-house, subject to business performance, share price, and market conditions.

Speaker Change: At a minimum, we expect it by back shares offset net dilution from stock compensation.

Speaker Change: On the store fleets, we ended the quarter with 757 stores. For the first half of the year, we opened 18 new stores, remodeled or right size 30 stores and closed 26 stores.

Speaker Change: New and remodeled store performance has exceeded our expectations and we are excited to deliver many new story experiences in the weeks and months to come.

Scott Lipesky: For the full year, we expected to deliver approximately 60 new stores, 60 remodels and right sizes, and 40 closures.

Speaker Change: For the full year we expected to deliver approximately 60 new stores, 60 remodels and right sizes, and 40 closures.

Scott Lipesky: Shifting to our expectations for the rest of fiscal 2024, we've had a strong start to the year, delivering record net sales in the first half, and the momentum has continued in the first few weeks of the third quarter. For the third quarter, we expect net sales to be at low double digits compared to the third quarter 2023 level of 1.06 billion, including a year-to-year headwind of around $10 million or 90 basis points due to the calendar shift in the 53rd week in 2023. We expect growth across regions and brands, and minimal impact from foreign currency.

Speaker Change: Shifting to our expectations for the rest of the fiscal 2024. We've had a strong start to the year delivering record net sales in the first half, and the momentum has continued in the first few weeks of the third quarter.

Speaker Change: For the third quarter, we expect net sales to be up low double digits compared to the third quarter 2020-23 level of $1.06 billion. Including a year-over-year headwind of around $10 million or 90 basis points due to the calendar shift from the 53rd week in 2023.

Scott Lipesky: We expect operating margins to be in the range of 13% to 14%, compared to 13.1% in 2023. We expect the growth profit rate to be consistent with 2023. Now that we are through the majority of the cotton benefit, we expect to see year-to-year freight pressure in the quarter. We also plan to continue investing in our brands and infrastructure, which we expect will moderate potential off-ex leverage, keeping expected operating margins around 2023 levels. And we expect an effective tax rate in the mid-20s. For the full year, we now expect net sales growth in the range of 12% to 13%, up from the 2023 level of approximately 4.3 billion, and an increase in the previous outlook of up around 10%.

Speaker Change: We expect growth across regions and brands and minimal impact from foreign currency.

Speaker Change: We respect the operating margin to be in the range of 13% to 14%, compared to 13.1% and 2023.

Speaker Change: We expect a growth, growth, growth, profit rate to be consistent with 2023. Now that we are through the majority of the cotton benefit, and we expect to see year by year for a pressure in the quarter.

Speaker Change: We also plan to continue investing in our France and Infrastructure, which we expect will moderate potential off-X leverage, keeping expected operating margins around 2023 levels.

Speaker Change: and we expect an effective tax rate in the mid-20s.

Speaker Change: For the full year, we now expect net sales growth in the range of 12% to 13% up from the 2023 level of approximately 4.3 billion and increase in the previous outlook of up around 10%.

Scott Lipesky: This outlook continues to include an adverse impact of around $50 million in the loss of the 53rd week in 2023. We have included a table in the press release to provide more detail on expected sales and comparative growth impacts by quarter and full year. For operating margin, we expect to be in the range of 14% to 15%, increasing the high ends compared to our prior outlook. We continue to expect the year-to-year improvement to be driven by gross profit rate expansion from the combination of lower cotton costs and higher AURs on lower promotions and clearance selling, slightly offset by higher freight costs.

Speaker Change: This outlook continues to include an adverse impact of around $50 million from the loss of the 53rd week in 2023.

Speaker Change: We've included a table in the press release to provide more detail on expected sales and comparative growth impacts by quarter and full-year.

Speaker Change: For operating margin we expect to be in the range of 14% to 15% increasing the high ends compared to our prior outlook.

Speaker Change: We continue to expect the URV improvement to be driven by Gross Private Rate Expansion from the combination of lower cotton costs and higher AURs on lower promotions and clearance selling. Slightly offset by higher freight costs.

Scott Lipesky: We also continue to expect full year expense leverage while executing our agile funding process to find ways to accelerate investments in the business in the months to come. We expect an effective tax rate in the mid-20s and capital expenditures of approximately $170 million.

Speaker Change: We also continue to expect full-year expense leverage while executing our agile funding process to find ways to accelerate investments in the business in the moment to come.

Speaker Change: We expect an effective tax rate in the mid-20s and capital expenditures of approximately $170 million.

Scott Lipesky: To finish up, we are very happy with how our teams are executing across the business. We delivered record financial results in the first half and proved our balance sheet with the elimination of funded debt and continued to invest in our brands and infrastructure. We look forward to executing our plans in the back half to deliver sustainable, profitable growth this year.

Speaker Change: The finish-up, we are very happy with how our teams are executing across the business.

Speaker Change: We delivered record financial results in the first half, improved our balance sheet with the elimination of funded death, and continued to invest in our brands and infrastructure. We look forward to executing our plans in the back half to deliver sustainable, profitable growth this year. Operator, we are now ready for questions.

Operator: Operator, we are now ready for questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone.

Operator: If your question has been answered, do you wish to move yourself from the queue? Please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.

Speaker Change: Thank you, ladies and gentlemen, if you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, you are seeing with yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.

Speaker Change: Episode 2

Dana Telsey: Our first question comes from Dana Telsi with Telsi Advisory Group. Your line is up. Hi. Good morning, everyone. And congratulations on the very nice results.

Speaker Change: Episode 2

Speaker Change: Our first question comes from Dana Telsley with Telsley Advisory Group, your line is open.

Fran Horowitz: Fran, if you think about the back high, if you think about the back to school selling season and the AUR growth, what have you seen in each brand? How does it differ by category?

Dana Telsley: Hi, good morning everyone and congratulations on the very nice results.

Fran Horowitz: Fran, if you think about the back to school selling season and the AUR growth, what have you seen in each brand had it differed by category and then Scott unpacking the operating margin guide for the third quarter of the 13 to 14 percent.

Scott Lipesky: And then Scott unpacking the operating margin guide for the third quarter of the 13 to 14 percent. I think the consensus had been a little bit higher. How do you, is it the gross margin? And with the great expenses or the reduction of the lower cotton costs, you could just expand on that a little bit more. Thank you.

Speaker Change: I think the consensus has been a little bit higher. How do you, is it a gross margin with the freight expenses or the reduction of the lower cotton costs? You can just expand on that on and pass that a little bit more. Thank you.

Fran Horowitz: Hey, Dan, good morning. Yeah, super excited about our quarter and certainly for the first half of the year. I mean, outstanding to have a second quarter of a billion dollars in sales and a balanced performance across brands, regions, and genders. Thrilled with back to school both as we came out of the second quarter and how we started the third quarter. What we're seeing in back to school is a nice reaction. You know, the team got to work. It was actually two years ago this quarter when we took a step back a bit and had to really inspect what was going on with our back to school and our Hollister brand, which we spent a lot of time rebuilding and rebranding.

Speaker Change: Hey, being a good morning. Yes, super excited about our quarter and certainly for the first half of the year.

Speaker Change: I mean outstanding to have a second quarter of a billion dollars themselves.

Speaker Change: and a balanced performance across brands, regions, and genders.

Speaker Change: Thrilled with back to school, both as we came out of the second quarter and how we started the third quarter.

Speaker Change: What we're seeing in back to school is a nice reaction. You know, the team got to work. It was actually two years ago this quarter. When we took a step back, a bit and had to really inspect what was going on with our back to school.

Fran Horowitz: What we're seeing is continued AUR growth. You know, since 2019 we've had double digit growth, and actually both brands are excited to see what that's driven by, which, as you know, comes down to product acceptance and financial control of our inventories. So we're seeing a balanced growth across brands and categories.

Speaker Change: and our Hollister brand, which we spent a lot of time rebuilding and rebranding. What we're seeing is continued AUR growth. Since 2019, we've had double digit growth and actually both both brands.

Speaker Change: and excited to see what that's driven by, which, as you know, is come down to product acceptance and financial control of our inventories. So, we're seeing a balanced growth across brands and categories.

Scott Lipesky: Hey, Dan at Scott, I'll pick up the Q three. So yeah, coming off a great first half, you know, so so nice to see us set records for sales there in first quarter, second quarter also record operating margin, or I'm sorry, operating income there in Q2. As we think about Q three, you know, very excited to come again with an upload double digits. Outlook, you know, on the top line versus strong growth last year, like Fran said, you know, good start to the quarter here. Happy with back to school. And what we're seeing out of Hollister and Abercrombie, obviously, you know, breaking apart the rest of the PNL for Q three, you know, on the gross profit rate line, what we're thinking is, you know, we have a little bit of freight heard, you know, probably get a little bit of AUR here in the quarter for all those reasons, frangest mentions and keep it pretty stable.

Speaker Change: Hey, Dan, Scott, I'll pick up the Q3, so yeah, coming off a great first half, you know, so nice to see us at records for sales there in first quarter, second quarter, also record operating margin, I'm sorry, operating income there in Q2. As we think about Q3, you know...

Speaker Change: is very excited to come again with an up low double digits outlook on the top line versus strong growth.

Fran Horowitz: Last year, like Fran said, you know, good start to the quarter here, happy with back to school, and what we're seeing at a holster and avocado, obviously. You know, breaking apart the rest of the P&L for Q3, you know, on the gross profit rate line, what we're thinking is, you know, we have a little bit of freight herd, you know, we'll probably get a little bit of A, you are here in the quarter for all those reasons, Frances mentions.

Scott Lipesky: And then on the operating expense line, hey, we're going to continue to aggressively invest in the business. We're investing in the short term, you know, some of those marketing efforts, but we're also making big significant long-term investments in the business, just make this infrastructure stronger, make our brand stronger. So the way we see that is maybe Opera, you know, moderating that op-x leverage a little bit versus what we've seen in the last couple of quarters. So super excited about the guy for Q three excited about the full year, taking up those sales outlook as well as expanding that operating margin outlook to 14 to 15%.

Speaker Change: and keep it pretty stable and then on the operating expense line, hey we're going to continue to aggressively invest in the business.

Speaker Change: We're investing in the short term, you know, some of those marketing efforts, but we're also making big, significant long-term investments in the business. Just make this infrastructure stronger, make our brand stronger. So the way we see that is maybe moderating that OpX leverage a little bit versus what we've seen in the last couple quarters. So...

Speaker Change: Super excited about the guy for Q3, excited about the full year, taking up those sales outlook as well as expanding that operating margin outlook to 14 to 15 percent, you know, really exciting times for the company.

Scott Lipesky: You know, really exciting times for the company. Thank you.

Corey Tarlowe: One moment for our next question. Our next question comes from Corey Tarla with Jeffries; your line is open. Great. Thanks and good morning, everybody. On the growth at Abercrombie, one of the really impressive aspects of the momentum that you've seen is your permission to go into other categories. So you highlighted the wedding shop, you've expanded the NFL partnership, and I've seen the new merchandise and stores, and it looks awesome. And you even highlighted growth in swim, which is a category that I think has been pressured across many other retailers in the sector.

Speaker Change: Thank you. One moment for our next question.

Speaker Change: Our next question comes from Cory Tarlow with Jeffries your line is open.

Cory Tarlow: Great, thanks and good morning everybody.

Cory Tarlow: Morning Query.

Speaker Change: On the Groceret Abercrombie, one of them.

Speaker Change: Really impressive aspects of the momentum that you've seen is your permission to go into other categories.

Speaker Change: The Wedding Shop, you've expanded the NFL partnership, and I've seen the new merchandise and stores and it looks awesome.

Speaker Change: And you even highlighted growth in swim, which is a category that I think has been pressure to cross.

Fran Horowitz: So could you maybe just talk about how you think about the various growth vectors for the Abercrombie brand and which of those growth vectors you think could be most sizable over time. And the other reason I asked that is because, like the YPB brand, which you didn't mention in prepared remarks, but I see that it's. It seems to be doing fairly well in stores. So I'm curious how you think about ranking the various drivers of growth for Abercrombie as we look ahead.

Speaker Change: Many other retailers in the sector. So could you maybe just talk about how you think about the various growth vectors for the Abercrombie brand in which of.

Speaker Change: [inaudible] but I see that it's it's it's

Speaker Change: seems to be doing fairly well in stores, so I'm curious how you think about ranking the various drivers of growth for Abercrombies as we look ahead.

Fran Horowitz: Hey Corey, okay, so let's break that down a little bit. Incredibly excited about the performance for A&F. I mean to your point 26 on 26 growth on growth was super exciting to see. And that is being driven, as I say all the time, by staying close to the customer. I mean the team really spends a lot of time on customer insights and really understanding what matters to this consumer. Wedding shop, great example, theater expectations again. We'll continue back into the fall season. You know, as we've talked about weddings or now you know two, three, four day occasions, and they're all year round.

Operator: participants are in a listen only mode.

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Speaker Change: Okay, so let's break that down a little bit.

Speaker Change: Incredibly excited about the performance brain app, I mean to your point 26 on 26 growth on growth was super exciting to see. And that is being driven as I say all the time by staying close to the customer. I mean the team really spends a lot of time on customer insights and really understanding what matters to this consumer. Wedding shop, great example, theater expectations again, we'll continue back into the fall season. You know, as we've talked about weddings or now, you know, two, three forte occasions and they're all year round. The wedding season has really expanded well into the fall season.

Operator: Please be advised today's conference is being recorded.

Unknown Executive: I would like to end the conversation over your speaker today.

Mohit Gupta: Mohit Gupta, please go ahead. Thank you.

Mohit Gupta: Good morning and welcome to our second quarter, 2024 Ernie's call.

Fran Horowitz: Joining me today on the call are Fran Horowitz, Chief Executive Officer and Scott Lapesky.

Scott Lipesky: I'm Steve, Chief Financial Officer and Chief Operating Officer. Earlier this morning we issued our second quarter Ernie's release which is available on our website at corporate.abacrombie.com under the investor's section. Also available on our website is an investor presentation.

Fran Horowitz: The wedding season has really expanded well into the fall season. I'm glad you had a chance to go see that NFL collection. That's another great example. You know we started with the NFL; that partnership about two or three years ago started small, started to build. Now proud to carry all 32 teams and have added categories. So last year you know mostly focused on fleece and t-shirts, and now you'll see sweaters and outerwear and hats, et cetera. So again, that's how we do what we test; we learn, we continue to add categories and build on momentum.

Speaker Change: I'm glad you had a chance to go see that NFL collection. That's another great example, you know, we started with the NFL that partnership about two or three years ago, started small, started to build now proud to carry all 32 teams.

Scott Lipesky: Please 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 Security's 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.

Speaker Change: And had added category. So last year, you know, mostly focused on fleece and t-shirts and now you'll see sweaters and outerwear and hats, et cetera. So again, that's how we do it. We test, we learn, we continue to add categories and build on momentum.

Fran Horowitz: So, as far as prioritizing, you know, there's just lots of exciting things happening out there. I guess you actually mentioned YPB as well. You know we're into our third year of growth, and that category again that was specifically asked for by our consumer, knowing that we could give them the right quality, the right product, and the right fashion for them, and they responded. So lots of exciting things happening and continuing into the back half.

Scott Lipesky: In addition, we'll 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 the investor presentation issued earlier this morning. Finally references to Abercrombie brands include our Abercrombie and Fitch and Abercrombie Kids brands and references to Hollister brands include our Hollister and Gilly Hicks brands.

Speaker Change: So, as far as prioritizing, you know, there's just lots of exciting things happening out there. I guess you actually mentioned YPD as well. You know, we're into our third year of growth in that category. Again, that was specifically asked for by our consumer, knowing that we could give them the right quality, the right product, and the right fashion for them, and they've responded. So lots of exciting things happening and continuing into the back half.

Fran Horowitz: With that I will turn the call over to Fran. Thanks Moe and thank you all for joining us this morning. I am incredibly proud to report our financial results exceed the expectations we provided in May and set second quarter company records for both net sales and operating profit. We delivered strong second quarter net sales growth of 21% reaching $1.1 billion with an operating margin of 15.5%. We achieved these outstanding results while also funding long-term growth priorities across regions and brands.

Corey Tarlowe: Great. And then could you just highlight what you're seeing from a digital perspective. I do believe that channel is also margin of creative.

Speaker Change: Great, and then could you just highlight what you're seeing from a digital perspective?

Scott Lipesky: So we'll just be curious to hear about the momentum that you're seeing there because it seems like that channel is doing quite well based on what we're seeing in our alternative data.

Speaker Change: I do believe that channel is also margin-accredive, so it would just be curious to hear about the momentum that you're seeing there. It seems like that channel is doing quite well based on what we're seeing in our alternative data.

Scott Lipesky: Hi Corey, yeah, Scott, I'll grab this one. So digital has been doing well in double-digit comps. We're seeing across channels, and really I kind of take it back a couple years ago. You know, between the strength of the brands, the strength of the assortment, and really the teams we put in place on the digital side to improve that experience. You know, day in, day out, we're making investments in that experience, you know, cross apps across mobile web, and we're seeing that come through. You know, so with great product, you know, we're managing the inventory and we have a great experience.

Speaker Change: Hi Cory, Scott, I'll grab this one, so digital has been doing well and double digit comps we're seeing across channels.

Fran Horowitz: After a historic success in the first half, our teams are energized and we've entered the second half ready to deliver for our global customers. I am thrilled with our start to August and we are raising our full-year sales growth and profitability expectations. For more context, in 2024 we've set out to demonstrate sustainable profitable growth on top of the defining fiscal year result in 2023. I am so proud of how we're showing up for our customer and we are clearly seeing them respond.

Speaker Change: and really I kind of take it back a couple years ago, you know, between the strength of the brands, the strength of the assortment, and really the teams we put in place on the digital side to improve that experience.

Speaker Change: You know, day in, day out, we're making investments in that experience, you know, cross apps across mobile web, and we're seeing that come through, you know, so with great products, you know, we're managing the inventory, and we have a great experience, you know, it's really setting up our digital business to grow. So we're excited about the growth we've seen, we expect more growth in the future, and we're investing there and just excited, it's not about what we're seeing.

Scott Lipesky: You know, it's really setting up our digital business to grow. So we're excited about the growth we've seen. We expect more growth in the future. And we're investing there and just excited about what we're seeing.

Corey Tarlowe: Great. Thank you very much.

Matthew Boss: One moment for our next question. Our next question comes from Matthew Boston. Matthew Boston, JP Morgan. Your line is open. Thanks and congrats on another nice quarter. Thanks, Matt. So, so Fran, could you elaborate on the clear excitement across brands? I think you said three times on the call helped thrilled you were about August and just category trends that you're seeing into early fall and back to school. I think then, Scott, it would be helpful just relative to the 14 to 15% operating margins this year. Just help best to think about incremental margin expansion opportunities.

Fran Horowitz: In addition to record second quarter sales, this was our seventh consecutive quarter of net sales growth in a dynamic often uncertain consumer environment which underlies the strength of our brands, our team and our playbook. We work every day to satisfy new and returning customers needs across product, voice and experience. I believe our global brand portfolio is as strong as it's ever been. Combined with an agile modern supply chain and a culture of financial discipline, we believe we have all the pieces in place to deliver on our goals across a variety of macro environments.

Speaker Change: Great, thank you very much. One more four next question.

Speaker Change: Our next question comes from Matthew Bauffaj, Matthew Bauffaj, JP Morgan, your line is open.

Matthew Bauffaj: Thanks, and congrats on another nice quarter.

Matthew Bauffaj: Thanks, Matt. So, so, Fran.

Matthew Bauffaj: Could you elaborate on the clear excitement across brand? I think you said three times on the call, how thrilled you were about August.

Speaker Change: and just category trends that you're seeing in your early fall and back to school. I think then Scott would be helpful. Just relative to the 14 to 15 percent operating margins this year. Just how best to think about incremental margin expansion opportunities multi year.

Fran Horowitz: Sharing a bit more detail on Q2, I want to call out a consistent theme we've demonstrated over the last five quarters. We are delivering strong top-line results while also maintaining balance in how we're growing. Our second quarter sales growth was broad-based, fueled by expansion across regions, brands, and genders. We also saw growth in both units and AUR, consistent with the past five quarters. There's balance in our product too, with growth across key categories, as our teams are delivering lifestyle assortments with increasing relevance to our local customers.

Matthew Boss: to Year.

Fran Horowitz: I'll kick off, so yes, to reiterate an outstanding second and first quarter, great first half to the year. What we are most excited about is the fact that our growth is coming very balanced. So it's coming across brands, it's coming across regions, it's coming across genders. That's obviously what's enabled us to raise our full year outlook on sales, growth, and margin for the year. We're seeing a lot of consistency in categories. Tops are working; bottoms are working. We continue to have this incredibly growing dress business that's happening both in Abercrombie as well as in Hollister Girls.

Speaker Change: And that chalk up, I'll kick off. So yes, to reiterate an outstanding second and first quarter, great first half to the year. What we're, we are most excited about, is the fact that our growth is coming.

Speaker Change: Very balanced, so it's coming across brands, it's coming across regions, it's coming across genders.

Speaker Change: That's obviously what's enabled us to raise or feel you're out look on sales, growth, and up margin for the year. We're seeing a lot of consistency in categories. Topps are working, bottoms are working. We continue to have this incredibly growing dress business that's happening both in the country as well as in House or Girls.

Fran Horowitz: On the growth's profit line, we saw 240 basis points of rate expansion compared to last year. This was driven by high higher AUR and improved product costs partially offset by higher freight costs. We also delivered operating leverage in the quarter, while funding important marketing, digital, technology, and people investment to support our long-term aspirations. All this great work led to operating income of $176 million for the quarter nearly double the second quarter result from the prior year.

Fran Horowitz: We're also seeing new categories working. We just added some shooting to compliment the wedding shop for him. So when he goes with her on all these elongated wedding weekends, he can also dress in Abercrombie, best dress guest outfitting. So lots happening. Back to school time, we're seeing a nice excitement about denim, this low rise baggy that we all called out here at Abercrombie a couple of months ago and got after is working. So again, very balanced what we're seeing across brands, genders, regions, as well as categories.

Speaker Change: We're also seeing new categories working. We just added some soothing to complement the wedding shop for him so when he goes with her on all these long-gated wedding weekends, he can also dress an avocado bed, best dress guest outfitting.

Speaker Change: So, a lot's happening, you know, back to school time, we're seeing you know, nice excitement about denim, this low-rise baggy that we all called out here at Abercrombie, you know, a couple months ago and got after is working, so again, very balanced, what we're seeing across friends, genders, regions as well as categories.

Fran Horowitz: Continuing the theme of balance, we delivered growth across regions in the second quarter. The Americas continued to lead the way with 23% net sales growth, consistent with the first quarter. The Americas grew across markets with nice increases in traffic across direct selling channels. In Ameya, putting aside a pandemic-related sales rebound in early 2022, we demonstrated growth on growth for the first time in over 10 years, delivering 16% to the first quarter.

Scott Lipesky: Matt, I'll grab the other part. Yeah, so thinking about 14 to 15% operating margins this year. You know, first off, very excited to be talking about those for the company. We've done a lot of work, you know, on every line on the P&L and excited to see that coming through in the numbers. As we look out into the future, not a lot to talk about today, but you know, we believe we have opportunities across the P&L. You know, number one on the top line, we feel like we have a lot of growth left across our brands and regions.

Speaker Change: Hey Matt, I'll grab the other cards. Yeah, so thank you about 14 to 15 percent operating margins this year. You know, first off, very excited to be talking about those for the company we've.

Speaker Change: We've done a lot of work, you know, on every line on the P&L and excited to see that coming crew in the numbers. As we look out into the future, not a lot to talk about today, but we believe we have opportunities across the P&L. Number one on the top line, we feel like we have a lot of growth left across our brands and regions.

Fran Horowitz: The growth on top of 4% in the second quarter of 2023. Customers in both the UK and Germany continue to respond to localized assortments and we're engaging with them to increase marketing and brand presence. Finally, APAC grew 3% in the quarter on comparable sales growth of 21% where we continue to be led by our focus markets of China and Japan as we engage that customer in new in different ways. We are energized to see the progress we've made to localize our playbook across regions of quarter, but we know there's more runway ahead of us.

Scott Lipesky: You know, we talk a lot about the Americas, by far our biggest region, growing its strong double digits, and that's with, you know, a whole lot of real estate opportunity left across brands and just a lot more customer growth available here in the US. And, you know, you put that on multiples as we think about the international business. We are under penetrated in both Europe and APAC. So we are very focused on growing our customer base across those regions, building brand awareness, and growing the top line. And we believe we can do that. As we think about the gross margin line, we talk a little bit earlier. We've made good strides on a, you are, you know, we're continuing to execute good product acceptance, good inventory management.

Speaker Change: You know, we talk a lot about the Americas, it's by far a big, our biggest region, growing it's strong double digits.

Speaker Change: and that's with a whole lot of real estate opportunity left across brands and just a lot more customer growth available here in the US and you know put that on multiples as we think about the international business. We are under penetrated in both Europe and APAC. So we are very focused on growing our customer base across those regions building brand awareness.

Fran Horowitz: On to the brands. Abercrime brands had another outstanding quarter with net sales growth of 26% on top of 26% growth in the second quarter of 2023. Balance growth continued to mend in women's and across categories with seasonal shorts when skirts and dresses performing well. We also saw balanced growth in both AUR and units, as well as new and existing customers. As a follow-up to our highlights in the first quarter, the wedding shop continued to contribute nicely and has proven to be a great assortment extension.

Speaker Change: and growing the top line and we believe we can do that. As we think about the gross margin line, we talk a little bit earlier, we've made good strides on AUR, we're continuing to execute good product acceptance, good inventory management, is there more on gross profit rate? Yeah, we can get more, it's continued to sell less clearance.

Scott Lipesky: And is there more on gross profit rate? Yeah, we can get more. It's continued to sell less clearance. You know, we, you know, us, you know, we go into every quarter. We want to keep that a you are flat; if we can get more, we can get more. And then on the off X line, you know, it's about investing in a business for the long term. And if we can do that in the right way with good returns, we should see that operating leverage into the future. So that's really how we've gotten here, you know, over the past.

Speaker Change: You know, we, you know, us, you know, we go into every quarter. We want to keep that air. You are flat. If we can get more, we can get more. And then on the FX line, you know, it's about investing in the business for the long term. And if we can do that in the right way with good returns, we should see that operating leverage into the future. So that's really how we've gotten here, you know, over the past and it's how we're thinking about the future.

Scott Lipesky: And that's how we're thinking about the future.

Unknown Executive: It's great how, like, best of luck. One moment for our next question.

Fran Horowitz: The reaction from customers has exceeded our expectations and we've now entered the men's side with ensuing options to complement our dresses. We continue to prioritize customer acquisition in Abercrombie, funding effective marketing campaigns across digital and social channels.

Speaker Change: is a great color best of luck.

Paul Lejuez: Our next question comes from Paul, the juice. The city or line is open. Hey, thanks, guys. Here's the committee talk about the progression and sales throughout the quarter. And also what you saw from a promotional perspective relative to what you thought you were going to see, what you're seeing for back to school on promotion, and what you have built in for the fourth quarter as well.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Paula Juice, the City of your line is open.

Fran Horowitz: We're excited to enter the back half with more customer activations planned. In the U.S., we released our latest NFL collection further expanding on what has been a great partnership. Related to the collection, we've a number of exciting social and digital campaigns planned throughout the season to drive engagement. It's just one example of how Abercrombie brands is working to win with both new and current customers in the second half of the year.

Paula Juice: Hey, thanks guys. Here's what you can maybe talk about the progression and sales throughout the quarter. And also, what you saw from a promotional perspective, relative.

Speaker Change: See what you thought, you were going to see what you've seen for back to school on promotions and what you have built in.

Scott Lipesky: And then just Scott any scent of the year-end cash balance and what you want to keep on the balance sheet in terms of minimum cash. Yeah, let me kick off Paul and Fran; you can add any color, obviously. Progression of sales without a quarter, you know, a nice Q2 double digit growth in each month of the quarter, which is exciting. And again, talking about double digit growth as we get here into Q3, you know, we mentioned it, Fran. You know, we're excited about the start of Q3. You know, our business actually improved pretty dramatically, you know, nicely in the past. We really ramped up last year in 2023, back to school as Hollister started to get back into a group, so we're excited to be talking about growth on growth again here in the third quarter.

Speaker Change: for the fourth quarter as well. And then, Scott, any sense of the year-end cash balance and just what you want to keep on balance sheet in terms of minimum cash. Thanks.

Fran Horowitz: Moving on to Hollister brands, we continue to build momentum. Net sales growth of 17% exceeded our expectations and accelerates sequentially from 12% growth in Q1. Importantly, the balance continues from first quarter with both men's and women's growing, as well as expansion both unit sales and AUR, the latter driven by lower promotions. On the product side, women saw balance growth across categories with particular strengths and skirts and dresses. In men's, we saw shorts and graphic teas contribute to the growth.

Speaker Change: Well, let me kick off Paul and Fran, you can add any color, obviously. The progression of sales throughout the quarter, you know, a nice Q2, double digit growth in each month of the quarter, which is exciting. And again, talking about double digit growth as we get here, into Q3, you know, to mention it, Fran, you know, we're excited about the start of Q3, you know, our business actually improved pretty dramatically, you know, nicely in the past, we really ramped up last year, in 2023, back to school, as Hollister started to get back into a group, so we're excited to be talking about growth on growth, again here in the third quarter.

Fran Horowitz: With the additional week of back-school selling in the second quarter, we were pleased to see consistent growth trends, and I'm very happy with how back-school is going for us so far. With great product, our goal now is to amplify the brand. On top of new store locations and refresh store experiences, we're investing in incremental marketing to increase engagement and reintroduce hostile brands to our target audience. This increased marketing investment spans across digital and social channels, as well as through authentic, real-life experiences and activations.

Fran Horowitz: Promotional, you know, nothing is jumping off the page to us. I think you're seeing the brands that are performing well, you know, being promotional, but promotional in their own way. That's the same way, you know, we're executing against our plans and happy with that. You know, we always talk about being a promotional business and we continue to do that, and we like the promos we're delivering. The customers are responding well. Yeah, within that too, I would say Scott, I mean, we, as we've said Paul many times, you know, our promotions are based on our business. We work with the team, literally every Monday, to see, you know, what's working, what's not working in our business, and we drive our promotions based off of that. They've come down, as you will know, considerably, you know, over the years. So yes, we'll always have some promotions in our business; we're not seeing anything extraordinary at this point.

Speaker Change: Promotional, you know, nothing is jumping off the page to us, I think you're seeing the brands that are performing well, you know, being promotional but promotional in their own way, that's the same way, you know, we're executing against our plans and happy with that, you know, we always talk about being a promotional business and we continue to do that and we like the promos we're delivering to customers responding well.

Fran Horowitz: One example is our Feel Good Fest, which is a concerting festival put on a partnership with high schools across the country. More recently, the back-to-school and fall school sports have kicked off, we launched the Hollister Collegiate Graphic Shop. The collection of quality basics, including crew neck sweatshirts, hoodies and teas, touting vintage inspired university logos and graphics, represents more than 30 universities across the United States. Hollister Brands is building nice momentum, and we believe product collections like this can help bring new customers into the brand.

Scott Lipesky: Yeah, within that two, I would say Scott, you mean we, as we've said Paul many times, you know, our promotions are based on our business, we work with the team literally every Monday to see, you know, what's working, what's not working in our business and we drive our promotions based off of that, they've come down as you will know considerably, you know, over the years. So yes, we'll always have some promotions in our business. We're not seeing anything extraordinary at this point.

Scott Lipesky: And then the last piece, you're in cash balance, you don't know targets sitting here today. We are really excited to get the senior secured notes, those 8.75% notes behind us, pay those in full in Q2 and came out of the quarter with a nice cash balance, $700 million and nice liquidity at $1.2 billion. You know, looking out in the back half, I talked about, you know, we'll focus more on share purchases with excess cash and just really like the fact that we have a strong balance sheet, it's continuing to enable us to invest in any environment.

Speaker Change: And then the last piece you're in cash balance, you don't know targets sitting here today. We are really excited to get the senior's cured notes, those 8.75% notes behind us, paid those in full on Q2.

Fran Horowitz: As we reflect on our team success and strong second quarter results, I am confident as ever in our global growth potential and our ability to make continued progress on growth and profitability in 2024, as reflected in our increased expectation for sales and operating margin. As we enter the back half, our team remains an offense while looking forward to the holiday season, and I'm thrilled with what we've seen in the third quarter so far.

Speaker Change: and came out of the quarter with a nice cash balance, $700 million, a nice liquidity at $1.2 billion.

Speaker Change: You know, looking out in the back-app, it's talked about, you know, we'll focus more on shared purchases with excess cash.

Scott Lipesky: We're opening, you know, 120 new store experiences this year. I talked a minute ago about investing in digital; we're investing in our teams outside of the US and inside the US and really setting up the company for long-term sustainable growth, so we're going to use that strong balance sheet in that way.

Speaker Change: And just really like the fact that we have a strong balance sheet. It's continuing to enable us to invest in any environment where opening, you know, 120 new store experiences this year. I talked a minute ago about investing in digital, we're investing in our teams outside of the U.S. and inside the U.S. and really setting up the company for long-term sustainable growth. So we're going to use that strong balance sheet in that way.

Fran Horowitz: Looking further out, with a strong family of brands, a proven playbook and an evolving regional operating model, I believe our relationship with the customer continues to improve and we all see tremendous opportunity ahead. We continue to further strengthen all aspects of the customer journey, developing a consistent, enduring business that can grow and succeed even in these dynamic and often uncertain times.

Paul Lejuez: Thanks guys, good luck.

Operator: One more for our next question.

Speaker Change: Thanks, guys. Good luck. Thank you all for your next question.

Marty Shapiro: Our next question comes from Marty Shapiro with the retail tracker; your line is open. Hey guys, congratulations on an amazing quarter and first half, and best of luck to back to school in case I forget.

Fran Horowitz: A huge thank you to our associates around the world whose hard work, dedication and support of our customer have put us well on our way to sustainable, profitable growth in 2024.

Speaker Change: Our next question comes from Marty Shapiro with the retail tracker your line is open.

Marty Shapiro: Hey guys, congratulations on an amazing coronavirus test and best of luck with the back of school in case I forget.

Fran Horowitz: Can you talk to us about two things: one, your loyalty efforts in each of the brands? I'm just curious, you know, are you, is your consumer engaged, are you using loyalty programs, are they meaningful, are they growing? And then, if you could also brand, just talk about your decision to partner with an external company to grow Abercrombie Kids and what that could mean for some of your other brands or sub-brands. Hey, good morning. Good morning, are you still there? Morning. I'm here, I'm here.

Scott Lipesky: And with that, I'll hand it over to Scott. Great, thank you. To echo Fran, we were very pleased with the first half of the year. Our teams continue to execute a high level across the business, managing the day-to-day while continuing to make progress in our long-term investment plan. Getting into the results of the second quarter, we delivered record net sales of 1.13 billion, up 21% compared to last year with growth across regions and brands.

Marty Shapiro: Can you talk to us about two things? One, your loyalty efforts in each of the brands. I'm just curious, you know, are you...

Fran Horowitz: Are you using loyalty programs? Are they meaningful? Are they growing? And then if you could also, Fran, just talk about your decision to partner with an external.

Fran Horowitz: Company to grow Abercrombic kids and what that could mean for some of your other brands or subbrands.

Scott Lipesky: Similar to the first quarter, this is the first time in the history of the company we delivered over $1 billion net sales in a fiscal second quarter. On a reported basis, we saw 320 basis point benefit from the calendar shift from the 53rd week in 2023, consistent with our expectation. Comparable sales through 18%, representing the fifth consecutive quarter of double-digit comp sales growth in both the stores and digital direct selling channels.

Fran Horowitz: Good morning. Good morning. Good morning. Good morning. Are you still there? I'm here.

Fran Horowitz: Yeah, so exciting, the partnership that we just signed with Hadad. So we've talked for a while about, you know, the majority of our business being owned and operated and that we're continuing to look for opportunities to grow our business around the world. Our business, our brands are stronger than ever, as you know, and an opportunity to partnership to grow kids, particularly outside of North America, where the majority of our businesses today just speak to long-term opportunities ahead for us. Yeah, the loyalty efforts, Marty, happy with the programs. They continue to grow. It's a great way for us to engage with consumers, but it's just like every other piece of the consumer engagement; we're always looking at them.

Fran Horowitz: Okay, yeah, so exciting, the partnership that we just signed with Haddad.

Speaker Change: So we've talked for a while about, you know, majority of our business being owned and operated and that we're continuing to look for opportunities to grow our business around the world.

Scott Lipesky: On a regional basis, we again delivered growth across regions, net sales through 23% in the Americas, 16% in the Mayas, and 3% in APAC. On a calm basis, sales grew 18% in the Americas, 17% in Emea, and 21% in APAC. In the Americas, similar to last quarter, we saw balanced growth across markets. In Emea, the UK and Germany continued to lead the way, and we've now delivered year-to-year growth for five consecutive quarters in the region.

Speaker Change: Our brands are stronger than ever, as you know, and an opportunity to partner ship to grow Kids particularly outside of North America where the majority of our businesses today Just speak to long-term opportunities ahead for us.

Speaker Change: You know, the loyalty effort, it's morning, you know, happy with the programs they continue to grow. It's a great way for us to engage with consumers. But it's just like every other piece of the consumer engagement. We're always looking at them. How do we evolve? What is the next level for loyalty? So that's something that we continue to think about just like every other piece of that customer engagement. So we're thinking about that today. And we'll continue to think about it in the future. But today, loyalty programs have been a great asset for us.

Fran Horowitz: How do we evolve? What is the next level for loyalty? So that's something that we continue to think about, just like every other piece of that customer engagement. So we're thinking about that today, and we'll continue to think about it in the future, but to date, loyalty programs have been a great asset for us. And does a percentage, is there a percentage of your customer base that comes to the loyalty programs? Is it, you know, 50% or signed up? Is it higher than that? Just curious. Yeah, it's higher than that. We haven't given an exact number.

Scott Lipesky: In APAC, we saw a large spread from Compton Net Sales Growth, which was primarily driven by foreign currency and net store closures. From a brand perspective, Abercrombie brands delivered strong growth with net sales up 26% last year, while Hollister Brands growth accelerated to 17% as our customers responded favorably to our sortments and our marketing. On a calm basis, Abercrombie grew 21% and Hollister grew 15%. For Gross Profit, we delivered a rate of 64.9% for the quarter, up 240 basis points compared to the 62.5% rate in 2023.

Speaker Change: And does percentage of your customer base that comes to the loyalty programs is it, you know, 50% are signed up, is it higher than that, just curious. Yeah, it's higher than that. We haven't given an exact number, but it's a good piece of our sales come through that loyalty base.

Marty Shapiro: But it's a good piece of our sales come through that loyalty base. Excellent. Thanks. I'll let somebody else take the next.

Unknown Executive: Thanks, guys.

Operator: One moment for our next question. Our next question comes from Alex Stratton with Morgan Stanley. Your line is open. Perfect. Thanks for taking the question. Congrats on a great quarter. I just have two through here. One is just on the growth margin, free being higher. I feel like a lot of peers are actually speaking to it, still being a tailwind. So I'm just curious, you know, what's happening there? And then your outlook for the rest of the year. And then for inventory, I saw up 9%. I think it's first time we've seen an inventory build like that in a bit.

Speaker Change: Excellent, thanks so much for letting us take next. Thanks, guys.

Speaker Change: Right, one more before our next question.

Scott Lipesky: We saw year-of-year benefits from lower cotton costs, as well as a benefit from lower promotions across brands on well-controlled inventories and strong product acceptance. These benefits were partially offset by higher freight costs. We ended the quarter with the inventory up 9% to last year, with all brands in a clean position entering the fall season. Moving on to expenses, operating expense excluding other operating income was $561 million for the quarter compared to operating expense of $497 million last year.

Speaker Change: Our next question comes from Alex Stratton with Morgan Stanley, your line is open.

Alex Stratton: Perfect, thanks for taking the question, congrats on a great quarter. I just have two through here. One is just on the growth margin for being higher. I feel like a lot of peers are actually speaking to it still being a tail end, some just curious, you know, what's happening there and then you're out for the rest of the year.

Alex Stratton: And then for inventory that saw up 9% I think it's the first time we've seen an inventory build like that in a bit. So I'm just curious how you feel about levels composition and how should we think about where that goes to the rest of the year. Thanks a lot.

Alex Stratton: So I'm just curious, you know, how you feel about levels, composition, and how should we think about where that goes for the rest of the year? Thanks a lot.

Scott Lipesky: We continued to drive operating expense leverage with operating expenses as a percent of sales of 49.4% and improvement of 380 basis points compared to last year. We saw similar themes to the first quarter in terms of year-of-year up-X growth with higher variable expenses on sales growth, as well as inflation and increase investments in marketing, digital and technology, and people. For marketing, second quarter expense was in line with expectations, finishing it around 4.5% of sales.

Scott Lipesky: Alex, yeah, for us, I'd say on the growth margin side, freight has turned to a bit of a headwind as we've got here in the back half. I think you've seen the ocean rates spiking up. That's been well documented out in the market. And then we're also seeing the air rates, you know, spiking up a bit too. As others, some freight coming in here to the US, it's been a little busier than normal here in the summer season. So for us, it's a little bit of a friction that's baked into our outlook. So, you know, nothing much more to say there.

Speaker Change: Hey, let's see, after us. I'd say on the gross Marquis side, Frate has turned to a bit of a headwind as we've got here in the back half. Thank you.

Speaker Change: Seeing the ocean rates, spiking up, that's been well documented out in the market and then we're also seeing the air rates, you know, spiking up a bit too As there's some freight coming in here to the US, it's been a little bit easier than normal here in the summer season. So for us, it's a little bit of a friction that's baked into our outlook. So, you know, nothing much more to say there or we're managing through.

Scott Lipesky: We're managing through, you know, whatever's happening, you know, continues to happen in the Red Sea, as well as other lanes coming from Asia.

Scott Lipesky: Operating income was a record $176 million or 15.5% of sales compared to operating income of $90 million or 9.6% of sales last year. Net income-per-deluded share was $2.50 up from $1.10 last year. EBITDA totaled $215 million or 19% of sales compared to EBITDA of $126 million or 14% of sales last year. On the balance sheet, we ended the quarter with cash and equivalence of $738 million and liquidity of approximately $1.2 billion.

Scott Lipesky: On the inventory side, yeah, up 9%, you know, really feel great about inventory at this point. Units are up, you know, units are less than that. We have a little, you know, extra freight in there because of those higher costs, as well as tilting more into Abercrombie, and that brings a higher cost versus a product versus Hollister. So you're every year, you get a little bit of a mix hit on that up 9%, but units have been tightly controlled. Each brand continues to be in that read and react chase mode. And we're excited how that sets us up for the holiday season.

Speaker Change: You know, whatever's happening, you know, continues to happen in the Red Sea as well as other lanes coming from Asia.

Speaker Change: On the inventory side, yeah, up 9% you know, really feel great about inventory at this point. Unicer up, you know, unicer less than that. We have a little...

Speaker Change: You know, extra freight in there because of those higher costs as well as tilting more into Abercrombie and that brings a higher cost versus a product versus Hollister. So, you're every year you get a little bit of a mix hit on that up 9% but units have been tightly controlled. Each brand continues to be in that red and react chase mode and we're excited how that sets us up for the holiday season.

Alex Stratton: Great, good luck.

Scott Lipesky: We delivered operating cash flow of roughly $165 million and had $43 million of capital expenditures. We repurchased $15 million worth of shares and ending the quarter with $202 million remaining on our current share repurchase authorization. During the quarter, we fully redeemed the seniors cured notes at par value with cash on hand, ending the quarter with no funded debt. We also amended and extended our asset-based credit facility. The maximum size of the credit facility was increased from $400 million to $500 million, inclusive of a new $100 million European sub-facility.

Unknown Executive: One number for our next question.

Speaker Change: Great Good Luck!

Speaker Change: One moment for our next question.

Mauricio Cernor: Our next question comes from Maurizio Cernor. With you, BS, your line is open.

Speaker Change: Our next question comes from a retail designer, with you BS, your line is open.

Scott Lipesky: Moving forward, with the redemption of the seniors cured notes behind us, we expect to prioritize share repurchases to put excess cash to work in the back half, subject to business performance, share share price, and market condition. At a minimum, we expect a buyback share, the offset net dilution from stock compensation. On the store fleets, we ended the quarter with 757 stores. For the first half of the year, we opened 18 new stores, remodeled or right size 30 stores and closed 26 stores.

Speaker Change: Episode 2

Unknown Executive: Looks like they disconnected from the queue.

Janet Kloppenburg: I'll move on to our next question. Next question comes from Janet Clappenberg, with the JJK researcher line is open. Janet, your line is open.

Speaker Change: Episode 2

Speaker Change: Looks like they disconnected from the queue. I'll move on to our next question.

Speaker Change: And next question comes from Janet Claphamburg with the JJK Researcher Linus Open.

Janet Kloppenburg: Hi, I'm sorry; I was on mute. I apologize.

Speaker Change: Episode 2

Janet Kloppenburg: Congratulations to you all on one heck of a quarter. I wondered about, you know, you've had many, many quarters now of positive comps on top of really healthy positive comps. I'm wondering about clearance inventory levels plan and, you know, are they starting to normalize or do you continue to be lower year over year? And how do you think about your promotional cadence in the back half versus, you know, lean promotions last year? And then just for Scott on the flight, do you extract the freight in your guidance? Do you extract the freight continues to be elevated?

Speaker Change: Jen, your line is opening up? Yes, hi. I'm sorry. I was on mute. I apologize. Congratulations to you all.

Speaker Change: One heck of a quarter, um, thanks.

Speaker Change: I wonder about...

Speaker Change: You know, you've had many, many quarters now of positive cops on top of...

Scott Lipesky: New and remodeled store performance has exceeded our expectations, and we are excited to deliver many new store experiences in the weeks and months to come. For the full year, we expected to deliver approximately 60 new stores, 60 remodels and right sizes, and 40 closures. Shifting to our expectations for the rest of fiscal 2024, we've had a strong start to the year, delivering record net sales in the first half and the momentum has continued in the first few weeks of the third quarter.

Speaker Change: Really healthy positive homes.

Speaker Change: I'm wondering about climate inventory levels, Fran, and are they starting to normalize or do you continue to be lower year over year? And how do you think about your promotional...

Scott Lipesky: For the third quarter, we expect net sales to be at low double digits compared to the third quarter 2023 level of 1.06 billion, including a year-to-year headwind of around $10 million or 90 basis points due to the calendar shift in the 53rd week in 2023. We expect growth across regions and brands and minimal impact from foreign currency. We expect operating margins to be in the range of 13% to 14%, compared to 13.1% in 2023.

Scott Lipesky: Tatings in the back half versus, you know, lean promotion last year and then just for Scott on the plate.

Speaker Change: You would start the fight in your guidance, you'd start the fight, can change, can you, to be elevated, or do you see a retreating sometime in the fourth quarter, just just wondering about the pace there. Thank you.

Scott Lipesky: Or do you see it retreating sometime in the fourth quarter? Just, just wondering about the pace there.

Fran Horowitz: Thank you. Thanks, Dan. Let me make sure I have the question right here. I mean, regarding our clearance levels, they are certainly lower than they have been in the past. At some point, they certainly will normalize. But the way that we are running the business, as you well know, you know, keeping this lean inventory, keeping it very fresh, as Scott mentioned a few minutes ago, very pleased with where the levels are. And making sure that the team stays in this read and react mode and delivering our inventory just in time and knowing a bit about our inventory before we really go after aggressively.

Speaker Change: Thanks. Yeah, let me make sure I have the question right here. I mean, regarding our clearance levels, they are certainly lower than they have been in the past. You know, at some point they certainly will normalize. But the way that we are running the business, as you well know, you know, keeping this lean inventory, keeping it very fresh, has just got mentioned a few minutes ago. Very pleased with where the levels are, and making sure that the team stays in this reading react mode and delivering our inventory just in time and knowing a bit about our inventory before we really go after aggressively, is what's been driving this reduction in clearance and our expectations continue to run the business as we are.

Scott Lipesky: We expect the growth profit rate to be consistent with 2023, now that we are through the majority of the cotton benefit, we expect to see year-to-year freight pressure in the quarter. We also plan to continue investing in our brands and infrastructure, which we expect will moderate potential off-ex leverage keeping expected operating margins around 2023 levels. And we expect an effective tax rate in the mid-20s. For the full year, we now expect net sales growth in the range of 12% to 13%, up from the 2023 level of approximately 4.3 billion, and increase in the previous outlook of up around 10%.

Scott Lipesky: Is what's been driving this reduction in clearance, and our expectations continue to run the business as we are. Yeah, the freight, I'd say, not sure at this point. No one really can predict where the freight rates are going to go. They've been bouncing around a lot this summer. So for us, what we're doing is we're baking in the elevated freight; we assume that continues into the, you know, into and through the fourth quarter. We'll talk about 2025. We'll obviously learn a lot more as we get through kind of the holiday peak of deliveries here in that September, October timeframe.

Speaker Change: You know the phrase, I'd say, not sure at this point no one really can predict where the freight rates are going to go. They've been bouncing around a lot this summer.

Speaker Change: So for us, what we're doing is we're baking in elevated freight with assume that continues into the, you know, into and through the fourth quarter. We'll talk about 2025, we'll obviously learn a lot more as we get through kind of the holiday peak of deliveries here in that September October timeframe and see what 2025 looks like. But at this point we're baking in higher rates for Q3 and Q4.

Scott Lipesky: This outlook continues to include an adverse impact of around $50 million in the loss of the 53rd week in 2023. We have included a table in the press release to provide more detail on expected sales and comparative growth impacts by quarter and full year. For operating margin, we expect to be in the range of 14% to 15%, increasing the high ends compared to our prior outlook. We continue to expect the year-to-year improvement to be driven by gross profit rate expansion from the combination of lower cotton costs and higher AURs on lower promotions and clearance selling, slightly offset by higher freight costs.

Scott Lipesky: And see what 2020, 25 looks like, but at this point, we're baking in higher rates for Q3 and Q4. But that would offset the, the, the AUC opportunity of the AUC tailwind, you know, diminished AUC tailwinds. Like, does the freight increase totally compensate for that?

Speaker Change: But that was offset the AUC, the AUC tailwinds.

Speaker Change: You know, diminished AUC tailwinds, it's a freight increase.

Scott Lipesky: Scott, and just for plan, if you could talk about your, about what? You think about promotional levels for a second half of the year, year over year. I think that would help. Thank you. Yeah, let me grab the, the AUCP. So when you break apart AUC and a lot of things we've been talking about over the years, here's freight and cotton. You know, and cotton looking at that, the commodity, we've gotten through the biggest part of that tailwind here in Q2. You know, really nice to see the cotton market has been pretty stable. It's been kind of settling in around this 70 cent range.

Scott Lipesky: Totally compensate for that, Scott, and just for Fran, if you could talk about your, about what you think about promotional levels for a second after the year, year or a year, I think that would help. Thank you.

Scott Lipesky: We also continue to expect full year expense leverage while executing our agile funding process to find ways to accelerate investments in the business in the month to come. We expect an effective tax rate in the mid-20s and capital expenditures of approximately $170 million.

Fran Horowitz: Yeah, let me grab the AECP. So when we break apart AEC and a lot of things we've been talking about over the years here is freight and cotton. You know, and cotton looking at that, the commodity, we've gotten through the biggest part of that tailwind here in Q2. You know, really nice to see the cotton market has been pretty stable. It's been kind of settling in around this 70 cent range, so like to see that.

Scott Lipesky: To finish up, we are very happy with how our teams are executing across the business. We delivered record financial results in the first half and proved our balance sheet with the elimination of funded debt and continued to invest in our brands and infrastructure. We look forward to executing our plans in the back half to deliver sustainable, profitable growth this year.

Scott Lipesky: So like to see that. You know, it kind of around pre-pandemic levels. So that could be a nice little tailwind as we go in the future, not material like we've seen over the past couple of quarters coming up as really high rates over the past couple of years. But when you think about that, you know, freight versus cotton, you know, maybe they net out; maybe one wins one quarter, one loses the other quarter. So we'll see, but, you know, as we're thinking about it, they kind of nets. And then we're going to focus on, you know, delivering that lean inventory, seeing what we can do on promotions and seeing if we can get a little bit more AUR.

Fran Horowitz: You know, it kind of around pre-pandemic level. So that could be a nice little tailwind as we go on the future, not material like we've seen over the past couple quarters coming up those really high rates over the past couple years. But when you think about that...

Operator: Operator, we are now ready for questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered, do you wish to move yourself from the queue? Please press star 1-1 again.

Operator: We'll pause for a moment while we compile our Q&A roster.

Fran Horowitz: Frates versus Cotton, you know, maybe they met out, maybe one wins, one quarter, one loses the other quarter, so we'll see, but, you know, as we're thinking about it, they kind of nets and then we're going to focus on, you know, delivering that lean inventory, seeing what we can do on promotions and seeing if we can get a little bit more A you are and just continue these strong gross profit rates.

Scott Lipesky: And just continue these strong gross profit rates.

Fran Horowitz: Yeah, I mean, it's an emotional level to the back half. Yeah, it certainly is the fourth quarter. It is always the most emotional quarter of the year. But as we think about heading into the back half and with the success that we're having right now, you know, it's with back to school and the momentum we have in August. Our expectation, as it always is, is going to each quarter with the expectation that our promotions will be the same or lower than they were the season. Sorry, the quarter prior. But we do it weekly, you know, we do it weekly with the team to see what's working, what's not working.

Dana Telsey: Our first question comes from Dana Telsi with Telsi Advisory Group. Your line is up. Hi.

Fran Horowitz: Yeah, I mean, it's a emotional level to the back half, yeah, it certainly is the fourth quarter, though, it's the most emotional quarter of the year. But as we think about heading into the back half and with the success that we're having right now, we know it's with back to school and momentum we have in August.

Fran Horowitz: Good morning, everyone. And congratulations on the very nice results. Fran, if you think about the back high, if you think about the back to school selling season and the AUR growth, what have you seen in each brand? How does it differ by category? And then Scott unpacking the operating margin guide for the third quarter of the 13 to 14 percent. I think the consensus had been a little bit higher. How do you, is it the gross margin? And with the great expenses or the reduction of the lower cotton costs, you could just expand on that on impact that a little bit more.

Fran Horowitz: Our expectation as it always is is going each quarter with the expectation that our promotions will be the same or lower than they were with the seasons.

Fran Horowitz: Sorry, the quarter prior, but we do it weekly, you know, we do it weekly with the team to see what's working, what's not working, heads down on our business, not worrying about what's happening in the rest of them all but focused really on our business. Thanks so much. Lots of lots of good, check them out.

Fran Horowitz: Head down on our business, not worrying about what's happening in the rest of the mall, but focused really on our business.

Unknown Executive: Thanks so much. Lots of luck for a good second half. Thank you.

Operator: One moment for our next question.

Scott Lipesky: Thank you. Hey, Dan, good morning. Yeah, super excited about our quarter and certainly for the first half of the year. I mean, outstanding to have a second quarter of a billion dollars in sales and a balanced performance across brands, regions and genders, thrilled with back to school both as we came out of the second quarter and how we started the third quarter. What we're seeing in back to school is a nice reaction.

Speaker Change: Thank you. One moment before our next question.

Mauricio Cernor: Our next question comes from Mauricio Serner with UBS. Great, good morning. Thanks for taking my question. Sorry about dropping off a few minutes before. Congratulations on the results, first of all. I guess first on a couple of questions on sales. Could you talk about what kind of growth you saw in the UK and Germany? I know you've done a lot of work to, you know, improve the brand's positioning on those markets. So we would be interested to hear more about that. And then on the guidance of dated guidance for the year, I think like if you're backing to Q4, the sales outlook implies like roughly six and a half to seven and a half growth, you know, when, when you excluding the impact from the, from the, from the calendar makes it show.

Speaker Change: i

Speaker Change: And next question comes from Marisa Yosarna with UBS Relatives Open.

Marisa Yosarna: Great, good morning, thanks for taking my question, sorry about dropping off a few minutes before. Congrats on other results, first of all, I guess, first on a couple of questions on sales. Could you talk about what kind of growth you saw in UK and Germany, and know you've done a lot of work to improve the brand's positioning on those markets?

Scott Lipesky: You know, the team got to work. It was actually two years ago this quarter when we took a step back a bit and had to really inspect what was going on with our back to school and our and our Hollister brand, which we spent a lot of time rebuilding and rebranding. What we're seeing is continued AUR growth, you know, since 2019 we've had double digit growth and actually both both brands and excited to see what that's driven by, which as you know, is comes down to product acceptance and financial control of our of our inventories.

Speaker Change: would be interested to hear more about that. And then on the guidance, updated guidance for the year, I think like if you're backing to Q4, the sales outlook implies like roughly six and a half to seven and a half growth, you know, when you're, when you're excluding the impact from the,

Fran Horowitz: So why are you saying that you make you a little bit more conservative about Q4 relative to Q3. Thank you.

Speaker Change: from the calendar makes it show, so why are you seeing that you make you a little bit more conservative of Q4 relative to Q3, thank you.

Scott Lipesky: So we're seeing a balanced growth across brands and categories. Hey, Dan at Scott, I'll pick up the Q three. So yeah, coming off a great first half, you know, so so nice to see us set records for sales there in first quarter, second quarter also record operating margin or I'm sorry, operating income there in Q two. As we think about Q three, you know, very excited to come again with an upload double digits.

Fran Horowitz: Hey, Mauricio. Alright, so let's start with the UK and Germany. Yeah, the great thing is those are our two largest countries in Europe, and they were two of our fastest growing countries in Europe. And as we talk about this localization effort that we've been making over the past, call it year or so, you know, we're really focused on the UK and Germany coming out of the gates, so we've increased our marketing spend. We've increased our product distortions in these countries and really focus there. Obviously, you start at the top on your biggest countries, and then we'll continue from there.

Ray Phil: Hey, my name is Ray Phil, all right, so let's start with UK and Germany, yeah, the great thing is those of our two largest countries in Europe and they were two of our fastest growing countries in Europe and as we talk about this localization effort that we've been making over the past, call it year or so You know, we're really focused on the UK and Germany coming out of the gates so we've increased our marketing spend We've increased our product distortions in these countries and really focused there, obviously you started the top on your biggest countries and then we'll continue from there So great to see those efforts working, you know, the strength in these two countries are really carrying the day and a may of because again, they are the largest two countries So really happy with what our teams are doing in those regions

Scott Lipesky: Outlook, you know, on the top line versus strong growth last year, like Fran said, you know, good start to the quarter here. Happy with back to school. And what we're seeing out of Hollister and Abercrombie, obviously, you know, breaking apart the rest of the PNL for Q three, you know, on the gross profit rate line, what we're thinking is, you know, we have a little bit of freight heard, you know, probably get a little bit of AUR here in the quarter for all those reasons, frangest mentions and keep it pretty stable.

Fran Horowitz: So great to see those efforts working, you know, the strength in these two countries is really carrying the day in a Maya because again they are the largest two countries. So really happy with what our teams are doing in those regions.

Fran Horowitz: As we think about guidance for Q4, yeah, I mean, Q4 is way out in the distance. You know, we're focused here on Q3. Excited to be talking about low double-digit growth in Q3 on top of a plus 20 last year. You know, really exciting to talk about the strength of the brand and the continued growth. Q4, obviously, we'll talk a lot more as we get there. You know, at this point, yeah, when you take away that five and a half, you know, basis points or percentage points from the 50th or week. It's still again growth on top of growth of a very strong Q4 last year.

Ray Phil: As we think about guidance for Q4, yeah, I mean Q4 is way out in the distance, you know, we're focused here on Q3, excited to be talking about low double digit growth in Q3 on top of a plus 20 last year, you know, really exciting to talk about the strength of the brands and the continued growth. Q4 obviously we'll talk a lot more as we get there, you know, at this point, yeah, when you take away that five and a half, you know, basis points or percentage points from the 50th or week, it's still again growth on top of growth of a very strong Q4 last year. So really happy where the brands are positioned, where the company is positioned and where the inventory is positioned as we get into the back half.

Scott Lipesky: And then on the operating expense line, hey, we're going to continue to aggressively invest invest in the business. We're investing in the short term, you know, some of those marketing efforts, but we're also making big significant long term investments in the business, just make this infrastructure stronger, make our brand stronger. So the way we see that is maybe opera, you know, moderating that op-x leverage a little bit versus what we've seen in the last couple quarters. So super excited about the guy for Q three excited about the full year, taking up those sales outlook as well as expanding that operating margin outlook to 14 to 15%.

Fran Horowitz: So really happy where the brands are positioned, where the company is positioned, and where the inventory is positioned as we get into the back half.

Scott Lipesky: And then just a quick follow-up on growth margin. I think if I understand the message from, you know, when you were talking about Q3 guidance, it kind of says that you expect growth margin to be relatively flat. Is that the same expectation for Q4? And, you know, like I remember like you used to provide a little bit of more details on contribution from, you know, cotton and a you are to Q2 grows margin gain. Could you could you could you provide any more details behind that? Thank you. Yeah, we provided some detail in the past.

Scott Lipesky: You know, really exciting times for the company.

Unknown Executive: Thank you.

Speaker Change: Garden, and then just a quick follow-up on Gross Morgan. I think if I understand the message from

Operator: One moment for our next question.

Speaker Change: When you're talking about Q3 guidance, it kind of says that you expect Gross Martin to be relatively flat, is that the same expectation for Q4 and, you know, like I remember like you used to provide a little bit of more details on contribution from, you know.

Corey Tarlowe: Our next question comes from Corey Tarla with Jeffries, your line is open. Great. Thanks and good morning, everybody.

Fran Horowitz: On the growth at Abercrombie, one of the really impressive aspects of the momentum that you've seen is your permission to go into other categories. So you highlighted the wedding shop, you've expanded the NFL partnership and I've seen the new merchandise and stores and it looks awesome. And you even highlighted growth in swim, which is a category that I think has been pressured across many other retailers in the sector. So could you maybe just talk about how you think about the various growth vectors for the Abercrombie brand and which of those growth vectors you think could be most sizable over time.

Speaker Change: Cotton and AUR to cute two girls margin game. Could you provide any more details behind that? Thank you.

Scott Lipesky: Obviously, there were some big, big moving parts. Those things have stabilized. So there's left detail in there. You know, as we talked about Q2, you know, nice a you are growth saw some, you know, that cup last bit of that cotton come through and an offset with some higher freight. So that's kind of, you know, what we're seeing, you know, across the company as we go into Q3. Yeah, we're a little more stable as we've gotten through some of these big changes. And you're getting back to those levers that we talked about on the last question.

Speaker Change: Yeah, we provided some detail in the past. Obviously there were some big, big moving parts. Those things have stabilized, so there's less detail in there.

Speaker Change: You know, as we talk about Q2, you know, nice that you are growth, saw some, you know, that cut the last bit of that cotton comes through and then offset with some higher freight. So that's kind of, you know, what we're seeing, you know, across the company as we go into Q3, yeah, where it's a little more stable, as we've gotten through some of these big changes and you know, getting back to those levers, we'll talk about on the last question, you know, we'll look to drive a little bit of a you are growth, we'll see a little bit of heard from freight and then, you know, we'll see where the cotton costs come in for the thinking about growth's margin for Q3, nothing to talk about for Q4, yeah, we'll grab that on the next call.

Scott Lipesky: You know, we'll look to drive a little bit of a you are growth. We'll see a little bit heard from freight, and then, you know, we'll see where the cotton costs come in for the quarter. So that's how we're thinking about some growth margin for Q3.

Fran Horowitz: And the other reason I asked that is because like the YPB brand, which you didn't mention even prepared remarks, but I see that it's. It seems to be doing fairly well in stores. So I'm curious how you think about ranking the various drivers of growth for Abercrombie as we look ahead.

Scott Lipesky: Nothing to talk about for Q4 yet. We'll grab that on the next call. Got it. Thank you. Congratulations on the results. Thanks.

Dylan Carden: One moment for our next question. Our next question comes from Dylan Carden with William Blair. Your line is open. Thanks a lot. Curious sort of in the interest of scaling the opportunity presented by aging up the Abercrombie brand. Is there any detail, even anecdotally, about kind of customer mix shift that you're seeing if you look at kind of who is buying? The brand versus particularly sort of pre-pandemic and to repeat purchases on top of that would be sort of helpful.

Speaker Change: Thank you, I'm going to let you know your thoughts. Thank you. One moment for our next question.

Fran Horowitz: Hey Corey, okay so let's let's break that down a little bit. Incredibly excited about the performance for A&F. I mean to your point 26 on 26 growth on growth was super exciting to see. And that is being driven as I say all the time by staying close to the customer. I mean the team really spends a lot of time on customer insights and really understanding what matters to this consumer. Wedding shop, great example, theater expectations again.

Speaker Change: Next question comes from Dylan Carden with William Blair, your line of open.

Dylan Carden: Thanks a lot.

Speaker Change: Curious, sort of in the interest of scaling the opportunity presented by aging up the Abercrombie brand. Is there any detail even anecdotally about kind of customer mixed shift that you're seeing?

Speaker Change: If you look at kind of who's buying the brand versus particularly sort of pre-pandemic and to repeat purchases on top of that would be sort of helpful.

Fran Horowitz: We'll continue back into the fall season. You know as we've talked about weddings or now you know two, three, four day occasions and they're all year round. The wedding season has really expanded well into the fall season. I'm glad you had a chance to go see that NFL collection. That's another great example. You know we started with the NFL, that partnership about two or three years ago started small, started to build, now proud to carry all 32 teams and have added categories.

Fran Horowitz: Yeah, Dylan, let me kick that one off. So, yeah, we have definitely seen in our data the customer and aging up versus pre-pandemic. We talked a lot about your goal was to separate that Hollister and Abercrombie brands. They were fighting in that team space and aging up that Abercrombie consumer because we felt there was light space and kind of that post collegiate. You know early mid 20s customer, and we've seen you know great results there, and we're seeing that age get up to that kind of mid 20s, which is awesome. And you know, back to the you know to the next point of the question is you know retention versus new customers.

Scott Lipesky: Scott Lipesky,

Speaker Change: Yeah, let me take that one off. So yeah, we have definitely seen in our data, the customer at Anna, aging out versus pretent, pandemic. We talked a lot about it.

Speaker Change: Your goal was to separate that Hollister and Abercrombie brands that were fighting in that teen space and aging up.

Speaker Change: that Abercrombie consumer, because we felt there was a late space in kind of that post-collegiate, you know, early mid-twenties customer. And we've seen, you know, great results there, and we're seeing that age get up to that kind of mid-twenties, which is awesome. And, you know, back to the, you know, the next point of the question is, you know, retention versus new customers.

Fran Horowitz: So last year you know mostly focused on fleece and t-shirts and now you'll see sweaters and outerwear and hats, et cetera. So again that's how we do what we test, we learn, we continue to add categories and build on momentum.

Fran Horowitz: We are out there grabbing new customers. Our marketing efforts have been very well done. They've been effective, so we're driving new customers, and we're also driving retention. You know getting back to that first question around a and f when Fran talked about these different categories, so bringing in things like best dress guests, something small making it big. Bringing in NFL bringing in Y PB these are always to retain our customers and give them something new each time they come back to us, so that's what we're working on as a company and as a brand. We're really focused on new customer growth and retaining those customers for Abercrombie because we have this new opportunity to keep them for a very long time in this part of life.

Fran Horowitz: So as far as prioritizing you know there's just lots of exciting things happening out there. I guess you actually mentioned YPB as well. You know we're into our third year of growth and that category again that was specifically asked for by our consumer knowing that we could give them the right quality, the right product and the right fashion for them and they responded. So lots of exciting things happening and continuing into the back half. Great.

Speaker Change: We are out there grabbing new customers, our marketing efforts have been very well done, they've been effective, so we're driving new customers and we're also driving retention. Getting back to that first question around A&F when Fran talks about these different categories, so bringing in things like best dress guests, something small, making it big, bringing in NFL, bringing in YPB. These are always to retain our customers and give them something new each time they come back to us. That's what we're working on as a company and as a brand, we're really focused on new customer growth.

Scott Lipesky: And then could you just highlight what you're seeing from a digital perspective. I do believe that channel is also margin of creative. So we'll just be curious to hear about the momentum that you're seeing there because it seems like that that channel is doing quite well based on what we're seeing in our alternative data.

Fran Horowitz: and retaining those customers for Abercrombie because we have this new opportunity to keep them for a very long time in this part of life and we're really excited about that and we're seeing it come through in the numbers.

Dylan Carden: And we're really excited about that, and we're seeing it come through in the numbers. Okay, thank you.

Fran Horowitz: And I'm not showing any further questions this time. I like to turn the call back over to Fran for any closing remarks. Thanks everyone for joining the call today, and we look forward to providing more updates to you all soon.

Speaker Change: Okay, thank you.

Scott Lipesky: Hi Corey, yeah, Scott, I'll grab this one. So digital has been doing well in double digit comps. We're seeing across channels and really I kind of take it back a couple years ago. You know between the strength of the brands, the strength of the assortment and really the teams we put in place on the digital side to improve that experience. You know day in, day out we're making investments in that experience, you know cross apps across mobile web and we're seeing that come through.

Speaker Change: and I'm not showing any further questions at the time, but I'll turn the call back over to Fran for any closing remarks.

Operator: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.

Fran Horowitz: Thanks everyone for joining the call today and we look forward to inviting more updates to you all soon.

Speaker Change: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.

Scott Lipesky: You know, so with great product, you know, we're managing the inventory and we have a great experience. You know, it's really setting up our digital business to grow. So we're excited about the growth we've seen. We expect more growth in the future. And we're investing there and just excited about what we're seeing.

Speaker Change: Episode 2

Unknown Executive: Great. Thank you very much.

Operator: One moment for our next question.

Matthew Boss: Our next question comes from Matthew Boston. Matthew Boston, JP Morgan. Your line is open. Thanks and congrats on another nice quarter. Thanks, Matt. So, so Fran, could you elaborate on the clear excitement across brands? I think you said three times on the call helped thrilled you were about August and just category trends that you're seeing into early fall and back to school. I think then Scott, it would be helpful just relative to the 14 to 15% operating margins this year. Just help best to think about incremental margin expansion opportunities, to Year.

Fran Horowitz: I'll kick off, so yes, to reiterate an outstanding second and first quarter, great first half to the year. What we are most excited about is the fact that our growth is coming very balanced. So it's coming across brands, it's coming across regions, it's coming across genders. That's obviously what's enabled us to raise our full year outlook on sales, growth, and margin for the year. We're seeing a lot of consistency in categories.

Fran Horowitz: Tops are working, bottoms are working. We continue to have this incredibly growing dress business that's happening both in Abacrombie as well as in Hollister Girls. We're also seeing new categories working. We just added some shooting to compliment the wedding shop for him. So when he goes with her on all these elongated wedding weekends, he can also dress in Abacrombie, best dress guest outfitting. So lots happening. Back to school time, we're seeing a nice excitement about denim, this low rise baggy that we all called out here at Abacrombie a couple of months ago and got after is working. So again, very balanced what we're seeing across brands, genders, regions as well as categories.

Scott Lipesky: Matt, I'll grab the other part.

Scott Lipesky: Yeah, so thinking about 14 to 15% operating margins this year, you know, first off, very excited to be talking about those for the company. We've done a lot of work, you know, on every line on the PNL and excited to see that coming through in the numbers. As we look out into the future, not a lot to talk about today, but you know, we believe we have opportunities across the PNL, you know, number one on the top line, we feel like we have a lot of growth left across our brands and regions.

Scott Lipesky: You know, we talk a lot about the Americas by far our biggest region, growing its strong double digits, and that's with, you know, a whole lot of real estate opportunity left across brands and just a lot more customer growth available here in the US. And, you know, you put that on multiples as we think about the international business. We are under penetrated in both Europe and APAC. So we are very focused on growing our customer base across those regions, building brand awareness and growing the top line.

Scott Lipesky: And we believe we can do that. As we think about the gross margin line, we talk a little bit earlier, we've made good strides on a you are, you know, we're continuing to execute good product acceptance, good inventory management. And is there more on gross profit rate? Yeah, we can get more. It's continued to sell less clearance. You know, we, you know, us, you know, we go into every quarter, we want to keep that a you are flat, if we can get more, we can get more.

Scott Lipesky: And then on the off X line, you know, it's about investing in a business for the long term. And if we can do that in the right way with good returns, we should see that operating leverage into the future. So that's really how we've gotten here, you know, over the past. And that's how we're thinking about the future.

Unknown Executive: It's great how like best of luck.

Paul Lejuez: One moment for our next question. Our next question comes from Paul, the juice, the city or line is open. Hey, thanks guys. Here's the committee talk about the progression and sales throughout the quarter. And also what you saw from a promotional perspective relative to what you thought you were going to see what you're seeing for back to school on promotion and what you have built in for the fourth quarter as well. And then just Scott any scent of the year end cash balance and what you want to keep on the balance sheet in terms of minimum cash.

Scott Lipesky: Yeah, let me kick off Paul and Fran, you can add any color obviously. Progression of sales without a quarter, you know, a nice Q2 double digit growth in each month of the quarter, which is exciting and again talking about double digit growth as we get here into Q3, you know, we mentioned it Fran, you know, we're excited about the start of Q3, you know, our business actually improved pretty dramatically, you know, nicely in the past, we really ramped up last year in 2023, back to school as Hollister started to get back into a group, so we're excited to be talking about growth on growth again here in the third quarter.

Scott Lipesky: Promotional, you know, nothing is jumping off the page to us, I think you're seeing the brands that are performing well, you know, being promotional, but promotional in their own way, that's the same way, you know, we're executing against our plans and happy with that, you know, we always talk about being a promotional business and we continue to do that and we like the promos we're delivering the customers responding well. Yeah, within that too, I would say Scott, I mean, we, as we've said Paul many times, you know, our promotions are based on our business, we work with the team, literally every Monday to see, you know, what's working, what's not working in our business and we drive our promotions based off of that, they've come down as you will know considerably, you know, over the years, so yes, we'll always have some promotions in our business, we're not seeing anything extraordinary at this point.

Scott Lipesky: And then the last piece, you're in cash balance, you don't know targets sitting here today, we are really excited to get the senior secured notes, those 8.75% notes behind us, pay those in full and Q2 and came out of the quarter with a nice cash balance, $700 million and nice liquidity at $1.2 billion, you know, looking out in the back half, I talked about, you know, we'll focus more on sharey purchases with excess cash and just really like the fact that we have a strong balance sheet, it's continuing to enable us to invest in any environment. We're opening, you know, 120 new store experiences this year, I talked a minute ago about investing in digital, we're investing in our teams outside of the US and inside the US and really setting up the company for long term sustainable growth, so we're going to use that strong balance sheet in that way.

Unknown Executive: Thanks guys, good luck.

Marnie Shapiro: One more for our next question. Our next question comes from Marty Shapiro with the retail tracker, your line is open. Hey guys, congratulations on an amazing quarter and first half, and best of luck to back to school in case I forget.

Fran Horowitz: Can you talk to us about two things, one, your loyalty efforts in each of the brands, I'm just curious, you know, are you, is your consumer engaged, are you using loyalty programs, are they meaningful, are they growing, and then if you could also brand, just talk about your decision to partner with an external company to grow Abercrombie kids and what that could mean for some of your other brands or sub brands. Hey, good morning, good morning, are you still there?

Fran Horowitz: Morning. I'm here, I'm here. Yeah, so exciting, the partnership that we just signed with Hadad, so we've talked for a while about, you know, the majority of our business being owned and operated and that we're continuing to look for opportunities to grow our business around the world. Our business, our brands are stronger than ever, as you know, and an opportunity to partnership to grow kids, particularly outside of North America, where the majority of our businesses today just speak to long term opportunities ahead for us.

Fran Horowitz: Yeah, the loyalty efforts, Marty, happy with the programs, they continue to grow. It's a great way for us to engage with consumers, but it's just like every other piece of the consumer engagement, we're always looking at them. How do we evolve? What is the next level for loyalty? So that's something that we continue to think about, just like every other piece of that customer engagement. So we're thinking about that today and we'll continue to think about it in the future, but to date loyalty programs have been a great asset for us.

Fran Horowitz: And does a percentage, is there a percentage of your customer base that comes to the loyalty programs? Is it, you know, 50% or signed up? Is it higher than that? Just curious. Yeah, it's higher than that. We haven't given an exact number. But it's a good piece of our sales come through that loyalty base. Excellent. Thanks. I'll let somebody else take the next. Thanks guys.

Operator: One moment for our next question.

Alex Stratton: Our next question comes from Alex Stratton with Morgan Stanley. Your line is open. Perfect. Thanks for taking the question. Congrats on a great quarter. I just have two through here. One is just on the growth margin, free being higher. I feel like a lot of peers are actually speaking to it, still being a tailwind. So I'm just curious, you know, what's happening there? And then you're outlook for the rest of the year.

Alex Stratton: And then for inventory, I saw up 9% I think it's first time we've seen an inventory build like that in a bit. So I'm just curious, you know, how you feel about levels, composition, and how should we think about where that goes for the rest of the year? Thanks a lot.

Scott Lipesky: Alex, yeah, for us, I'd say on the growth margin side, freight has turned to a bit of a headwind as we've got here in the back half. I think you've seen the ocean rates spiking up. That's been well documented out in the market. And then we're also seeing the air rates, you know, spiking up a bit too. As others are some freight coming in here to the US, it's been a little busier than normal here in the summer season.

Scott Lipesky: So for us, it's a little bit of a friction that's baked into our outlook. So, you know, nothing much more to say there. We're managing through, you know, whatever's happening, you know, continues to happen in the red sea, as well as other lanes coming from Asia. On the inventory side, yeah, up 9%, you know, really feel great about inventory at this point, units are up, you know, units are less than that.

Scott Lipesky: We have a little, you know, extra freight in there because of those higher costs, as well as tilting more into Abercrombie, and that brings a higher cost versus a product versus Hollister. So you're every year, you get a little bit of a mix hit on that up 9%, but units have been tightly controlled. Each brand continues to be in that read and react chase mode. And we're excited how that sets us up for the holiday season.

Unknown Executive: Great, good luck.

Operator: One number for our next question.

Mauricio Cernor: Our next question comes from Maurizio Cernor with you BS your line is open. Looks like they disconnected from the queue.

Janet Kloppenburg: I'll move on to our next question. Next question comes from Janet Clappenberg with the JJK researcher line is open. Janet, your line is open. Hi, I'm sorry, I was on mute. I apologize.

Janet Kloppenburg: Congratulations to you all on one heck of a quarter. I wondered about, you know, you've had many, many quarters now of positive comps on top of really healthy positive comps. I'm wondering about clearance inventory levels plan and, you know, are they starting to normalize or do you continue to be lower year over year? And how do you think about your promotional cadence in the back half versus, you know, lean promotions last year?

Janet Kloppenburg: And then just for Scott on the flight, do you extract the freight in your guidance? Do you extract the freight continues to be elevated? Or do you see it retreating sometime in the fourth quarter? Just, just wondering about the pace there. Thank you. Thanks, Dan. Let me make sure I have the question right here. I mean, regarding our clearance levels, they are certainly lower than they have been in the past. At some point they certainly will normalize.

Janet Kloppenburg: But the way that we are running the business as you well know, you know, keeping this lean inventory, keeping it very fresh as Scott mentioned a few minutes ago, very pleased with where the levels are. And making sure that the team stays in this read and react mode and delivering our inventory just in time and knowing a bit about our inventory before we really go after aggressively. Is what's been driving this reduction in clearance and our expectations continue to run the business as we are.

Janet Kloppenburg: Yeah, the freight, I'd say, not sure at this point, no one really can predict where the freight rates are going to go. They've been bouncing around a lot this summer. So for us, what we're doing is we're baking in the elevated freight, we assume that continues into the, you know, into and through the fourth quarter.

Scott Lipesky: We'll talk about 2025. We'll obviously learn a lot more as we get through kind of the holiday peak of deliveries here in that September, October timeframe. And see what 2020, 25 looks like, but at this point, we're baking in higher rates for Q3 and Q4. But that would offset the, the, the AUC opportunity of the AUC tailwind, you know, diminished AUC tailwinds. Like, does the freight increase totally compensate for that?

Fran Horowitz: Scott, and just for plan, if you could talk about your, about what? You think about promotional levels for a second half of the year, year over year, I think that would help. Thank you. Yeah, let me grab the, the AUCP. So when you break apart AUC and a lot of things we've been talking about over the years, here's freight and cotton, you know, and cotton looking at that, the commodity, we've gotten through the biggest part of that tailwind here in Q2.

Fran Horowitz: You know, really nice to see the cotton market has been pretty stable. It's been kind of settling in around this 70 cent range. So like to see that. You know, it kind of around pre pandemic levels. So that could be a nice little tailwind as we go in the future, not material like we've seen over the past couple of quarters coming up as really high rates over the past couple of years.

Fran Horowitz: But when you think about that, you know, freight versus cotton, you know, maybe they net out, maybe one wins one quarter, one, one loses the other quarter. So we'll see, but, you know, as we're thinking about it, they kind of nets. And then we're going to focus on, you know, delivering that lean inventory, seeing what we can do on promotions and seeing if we can get a little bit more AUR. And just continue these strong gross profit rates.

Fran Horowitz: Yeah, I mean, it's a emotional level to the back half. Yeah, it certainly is the fourth quarter is always the most emotional quarter of the year. But as we think about heading into the back half and with the success that we're having right now, you know, it's with back to school and momentum we have in August. Our expectation, as it always is, is going to each quarter with the expectation that our promotions will be the same or lower than they were the season.

Fran Horowitz: Sorry, the quarter prior. But we do it weekly, you know, we do it weekly with the team to see what's working, what's not working. Head down on our business, not worrying about what's happening in the rest of the mall, but focused really on our business.

Unknown Executive: Thanks so much. Lots of luck for a good second half. Thank you.

Operator: One moment for our next question.

Mauricio Cernor: Our next question comes from Mauricio Serner with UBS. Great, good morning. Thanks for taking my question. Sorry about dropping off a few minutes before.

Mauricio Cernor: Congratulations on the results first of all. I guess first on a couple of questions on sales. Could you talk about what kind of growth you saw in UK and Germany? I know you've done a lot of work to, you know, improve the brand's positioning on those markets. So we would be interested to hear more about that. And then on the guidance of dated guidance for the year, I think like if you're backing to Q4, the sales outlook implies like roughly six and a half to seven and a half growth, you know, when, when you excluding the impact from the, from the, from the calendar makes it show. So why are you saying that you make you a little bit more conservative about Q4 relative to Q3.

Fran Horowitz: Thank you. Hey, Mauricio. Alright, so let's start with UK and Germany. Yeah, the great thing is those are our two largest countries in Europe, and they were two of our fastest growing countries in Europe. And as we talk about this localization effort that we've been making over the past, call it year or so, you know, we're really focused on the UK and Germany coming out of the gates, so we've increased our marketing spend.

Fran Horowitz: We've increased our product distortions in these countries and really focus there. Obviously you start at the top on your biggest countries and then we'll continue from there. So great to see those efforts working, you know, the, the strength in these two countries are really carrying the day in a maya because again they are the largest two countries. So really happy with what our teams are doing in those regions.

Fran Horowitz: As we think about guidance for Q4, yeah, I mean, Q4 is way out in the distance. You know, we're focused here on Q3 excited to be talking about low double digit growth in Q3 on top of a plus 20 last year. You know, really exciting to talk about the strength of the brand and the continued growth. Q4, obviously, we'll talk a lot more as we get there, you know, at this point, yeah, when you take away that five and a half, you know, basis points are percentage points from the 50th or week.

Fran Horowitz: It's still again growth on top of growth of a very strong Q4 last year. So really happy where the brands are positioned where the company is positioned and where the inventory is positioned as we get into the back half.

Scott Lipesky: And then just a quick follow up on growth margin. I think if I understand the message from, you know, when you were talking about Q3 guidance, it kind of says that you expect growth margin to be relatively flat. Is that the same expectation for Q4? And, you know, like I remember like you used to provide a little bit of more details on contribution from, you know, cotton and a you are to Q2 grows margin gain. Could you could you could you provide any more details behind that?

Scott Lipesky: Thank you. Yeah, we provided some detail in the past. Obviously, there were some big, big moving parts. Those things have stabilized. So there's left detail in there. You know, as we talked about Q2, you know, nice a you are growth saw some, you know, that cup last bit of that cotton come through and an offset with some higher freight. So that's kind of, you know, what we're seeing, you know, across the company as we go into Q3.

Scott Lipesky: Yeah, we're a little more stable as we've gotten through some of these big changes. And you're getting back to those levers that we talked about on the last question. You know, we'll look to drive a little bit of a you are growth. We'll see a little bit heard from freight and then, you know, we'll see where the cotton costs come in for the quarter. So that's how we're thinking about some growth margin for Q3. Nothing to talk about for Q4 yet.

Unknown Executive: We'll grab that on the next call. Got it. Thank you.

Unknown Executive: Congratulations on the results. Thanks.

Operator: One moment for our next question.

Dylan Carden: Our next question comes from Dylan Carden with William Blair. Your line is open. Thanks a lot. Curious sort of in the interest of scaling the opportunity presented by aging up the Abercrombie brand. Is there any detail even anecdotally about kind of customer mix shift that you're seeing if you look at kind of who is buying? The brand versus particularly sort of pre-pandemic and to repeat purchases on top of that would be sort of helpful.

Fran Horowitz: Yeah, Dylan, let me kick that one off. So yeah, we have definitely seen in our data the customer and aging up versus pre-pandemic. We talked a lot about your goal was to separate that Hollister and Abercrombie brands. They were fighting in that team space and aging up that Abercrombie consumer because we felt there was light space and kind of that post collegiate. You know early mid 20s customer and we've seen you know great results there and we're seeing that age get up to that kind of mid 20s which is awesome and you know back to the you know to the next point of the question is you know retention versus new customers.

Fran Horowitz: We are out there grabbing new customers are marketing efforts have been very well done. They've been effective so we're driving new customers and we're also driving retention. You know getting back to that first question around a and f when Fran talked about these different categories so bringing in things like best dress guests something small making it big. Bringing in NFL bringing in Y PB these are always to retain our customers and give them something new each time they come back to us so that's what we're working on as a company and as a brand.

Fran Horowitz: We're really focused on new customer growth and retaining those customers for Abercrombie because we have this new opportunity to keep them for a very long time in this part of life. And we're really excited about that and we're seeing it come through in the numbers. Okay thank you.

Fran Horowitz: And I'm not showing any further questions this time I like to turn the call back over to Fran for any closing remarks. Thanks everyone for joining the call today and we look forward to providing more updates to you all soon.

Operator: Ladies and gentlemen that's conclude today's presentation you may now disconnect and have a wonderful day.