Q3 2024 Abercrombie & Fitch Co Earnings Call
Good day, and thank you for standing by.
Welcome to the Abercrombie and Fitch third quarter fiscal year 2024 earnings call.
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Speaker Change: I would now like to turn the conference over to Bo Cooped up Investor Relations. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Good morning, and welcome to our third quarter 2024 earnings call.
Speaker Change: Joining me today on the call are Fran Horowitz, Chief Executive Officer, Scott Lukowski, Chief operating officer, and Robert Ball, our recent reappointed Chief Financial Officer.
Speaker Change: Earlier. This morning, we issued our third quarter earnings release, which is available on our website at corporate Abercrombie Dot com under the investors section also available on our website is an investor presentation.
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 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 mentioned today.
Speaker Change: These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission.
In addition, we will be referring to certain non-GAAP financial measures during the call additional details and reconciliations of GAAP to adjusted non-GAAP financial measures are included in the release and the Investor presentation issued earlier this morning.
Speaker Change: Finally references to Abercrombie brands include our Abercrombie <unk> Fitch and Abercrombie kids brands and references the Hollister brands include our Hollister and Gilly Hicks brands.
With that I will turn the call over to Fran.
Fran Horowitz: Thanks, Matt and thank you all for joining us during a busy holiday week.
Fran Horowitz: I'm very proud to report that third quarter financial results exceeded the expectations. We provided in August on both the top and bottom lines.
We delivered record third quarter net sales of 1.2 billion growing 14% over 2023 and strong comparable sales at 16%.
Fran Horowitz: Third quarter operating income grew 30% year over year to 179 million with operating margin expanding 170 basis points to 14, 8%.
Fran Horowitz: We continue to see customers responding to our product voice and experience across regions and brands.
Fran Horowitz: Importantly, our playbook is delivering for both new and existing customers.
Fran Horowitz: We've had a strong start to November and we are ready to compete around the world. This holiday season.
Fran Horowitz: For these reasons, we are raising our sales expectations for the full year and expect to be at the high end of our previous operating margin target positioning us well for the achievement of sustainable profitable growth for 2024.
Fran Horowitz: As an important indicator of business health and our quality of our playbook in the third quarter. We continued to see broad based sales growth across regions brands and genders driven by strong traffic.
Fran Horowitz: We also saw a nice growth in unit selling in AUR in the quarter as they were able to reduce promotions compared to last year.
Fran Horowitz: We continue to see balanced growth across categories, giving our customers a steady flow of newness and choice.
Fran Horowitz: Healthy top line performance enabled by our closeness to the customer also drove a gross profit rate of 65, 1% the best third quarter gross profit rate since 2010.
Fran Horowitz: Importantly, our culture of financial discipline delivered growth in the bottomline to adding $41 million year over year, and operating income or growth of 30% for the quarter.
Fran Horowitz: Staying true to our long term ambitions, we produce these great financial results, while also funding necessary investments to improve the customer and associate experience all over the world.
Fran Horowitz: Strong brand health can be seen across regions with the Americas, EMEA and APAC, all growing double digits in the third quarter.
Fran Horowitz: The Americas grew 14% our sixth consecutive quarter of double digit sales growth in the region and EMEA and APAC, we grew 15% and 13 and 32% respectively. We are which are exciting results when the teams based in London and Shanghai.
Fran Horowitz: Our London team delivered their fifth consecutive quarter of double digit growth in EMEA. So I consistency in key markets with both new and returning customers.
Fran Horowitz: We have a number of new store openings planned in the greater London area over the coming quarter and we're excited for local customers to see how the team has tailored the holiday experience for them.
For APAC, while the region remains small we saw similar strength in Q3, particularly on digital platforms.
Fran Horowitz: We're excited about the momentum of our brands are seeing around the globe with each region executing their localized playbooks at a high level.
Fran Horowitz: Okay.
Looking at the business from the brand view the each delivered in the third quarter Abercrombie Grant brands grew 15% in the quarter on top of 30% growth in the third quarter of 2023, achieving a third quarter record for brand net sales.
Fran Horowitz: <unk> dresses jeans, and fleece were key categories for us and category balance continued across genders.
Fran Horowitz: Units and they are both contributed to growth in the quarter and we continue to see nice contribution from new and existing customers.
Fran Horowitz: For the upcoming holiday, our customer will see a lot of exciting newness and a variety of gift, giving and get yourself ideas across categories.
Fran Horowitz: Coupled with compelling marketing campaigns and digital and social our goal is to give the customer reasons to buy all season long.
Fran Horowitz: From a channel perspective, we continue to invest in the Abercrombie digital experience, where we generate a majority of the brands business.
Fran Horowitz: Importantly, the holiday season is a key moment for our stores and we are investing in both new and existing locations to support the great traffic and productivity trends we're seeing.
Fran Horowitz: We're planning to open around 40, new stores for Abercrombie brands. This year and we are so excited to engage customers. However, they choose to shop this holiday season.
Fran Horowitz: Hollister also delivered double digit growth to last year with 14% growth in the quarter on top of 11% growth in the third quarter last year across brands, we continue to build on strength and Hollister is comping the comp.
Fran Horowitz: The Hollister team has been focused on expanding our reach within the teen market I congratulate them for delivering outstanding results in a competitive back to school season and throughout the entire third quarter.
Fran Horowitz: Sweaters knit bottoms and fleece led the growth, including our new collegiate collection, and we are continuing to see more balance across categories as the brands build momentum.
Strong traffic across channels enabled growth in both genders, and Lisa both improved unit selling and AUR expansion from lower promotions.
Our teams continue to deliver engaging moments for our hollister customer through social in person events and other authentic marketing content, we are investing in digital as well as stores as.
Fran Horowitz: As a reminder, our house or customers tend to start their journey digitally but they still finished the majority of their transactions in stores.
Fran Horowitz: For the year, we plan to refresh our rightsize around 40 hospital locations evolving the store experience to match our updated brand aesthetic.
Fran Horowitz: Also plan to open around 22, Hollister stores this year, whether on digital or in store, we will have a great product across our core categories as well as other seasonal items spring holiday comfort and style to Hollister team customers.
Fran Horowitz: Coming off a strong third quarter results, we are ready and rolling right into peak holiday season starts. This week, we've had a strong start to the quarter seeing positive reads on our holiday Assortments.
Most of the fourth quarter sales are ahead of us and we can't wait to engage with so many of our customers in the days and weeks to come our marketing and digital teams are amazing content activations on the way and our stores and distribution centers are well staffed to support our customers.
<unk>, we have the right product in place to meet demand I'd like to thank our product and supply chain teams for navigating a continues to be dynamic shipping market getting our inventory here in time for peak selling we are prepared and ready to compete this holiday season, and I'm confident in our ability to deliver for our customers around the world.
Fran Horowitz: Our third quarter results again demonstrate our ability to deliver on our commitments.
Fran Horowitz: Incorporating our fourth quarter expectations, we are increasing our full year sales outlook outlet outlook and now expect growth in the range of 14% to 15% with an operating margin of around 15%.
Fran Horowitz: We believe achieving these goals will further underlines the strength and potential of our global operating model. Our brands are healthy and we are making key investments across people process technology and stores to support ongoing growth setting us up for sustainable profitable growth again in 2025.
Before I hand off to Scott I, just wanted to take a moment to recognize Robert Paul on his promotion to Chief Financial Officer.
Fran Horowitz: With more than two decades of experience that the company is spending retail finance robbers working very closely with me and Scott for years to help build and drive financial discipline mindset, we all live by here at <unk>.
Fran Horowitz: He is an integral to our recent success and we look forward to partnering with him even more closely as we continue our growth journey congratulations Robert.
Speaker Change: And thanks again to our global team for delivering such strong Q3 results I'm. So excited for everyone to see their hard work pay off over the next few weeks and with that I'll hand, it over to Scott.
Speaker Change: Thanks, Brian and good morning, everyone. I'd also like to add my congratulations to Robert on his appointment to CFO. We've done a lot of great work together over the years and that it is an exciting time for him to take on this new role I.
Speaker Change: I look forward to many of you getting to know Robert even better in the months to come.
Speaker Change: Getting into the third quarter I'm also very pleased that our performance will be again delivered strong balanced growth across regions and brands.
Speaker Change: Total net sales of $1 2 billion, which set a record for the third quarter were up 14% to last year with each region and brand delivering double digit growth.
On a reported basis, we saw a 90 basis point adverse impact on sales growth from the calendar shift from the 50 <unk> week in 2023, consistent with our expectation.
Speaker Change: Comparable sales grew 16% on top of comparable sales growth of 16% last year, reflecting the sixth consecutive quarter of double digit comparable sales growth in both the store channel and the digital direct selling channel.
Speaker Change: On a regional basis net sales grew 14% in the Americas, 15% in EMEA and 32% and APAC.
Speaker Change: Apparel sales grew 16% in the Americas, 13% in EMEA and 16% in APAC.
Speaker Change: In the Americas, we saw balanced growth across markets.
The UK and Germany continued to lead the way and we've now delivered year over year growth for six consecutive quarters in the region and.
Speaker Change: In APAC growth was led by China.
Speaker Change: For the brands each brand delivered record net sales for the third quarter.
Speaker Change: Crombie brands continued to deliver strong results growing net sales by 15% over last year, while Hollister brands grew 14% as customers continued to respond to our product and marketing.
Speaker Change: Comparable sales grew 11% at Abercrombie and 21% at Hollister.
Speaker Change: The growth in both brands was driven by strong traffic in both stores and digital channels.
Speaker Change: Yes.
Speaker Change: We delivered $787 million and gross profit up approximately $100 million or 15% from Q3 of 2023.
Speaker Change: The gross profit rate was 65, 1% this year compared to 64, 9% last year with higher AUR from lower promotions, mostly offset by higher freight costs due to higher freight rates and air usage.
We ended the quarter with inventory up 16% to last year around half. The increase is due to the combination of mix and inventory unit growth to support expected Q4 sales growth.
Speaker Change: The other half is primarily due to higher freight costs and inventory as we proactively increased use of air shipments in Q3 to mitigate potential shipping delays from longer and more inconsistent Ocean transit times and the east Coast Port strike.
Speaker Change: Each brand continues to operate with clean inventory and is ready for peak selling.
Speaker Change: Moving onto expenses operating expense, excluding other operating income was $609 million for the quarter compared to operating expense of $546 million last year.
We continue to drive operating expense leverage with operating expenses as a percentage of sales or 54% compared to 51, 7% last year.
Year over year expense growth drivers were consistent with the first half with higher variable expenses on sales growth and increased investments in marketing digital and technology and people.
Speaker Change: For marketing third quarter expenses were around five 5% of sales up 100 basis points compared to Q2 and up 50 basis points from last year as we ramp spending from back to school into the peak holiday season.
Operating income was $179 million or 14, 8% of sales compared to operating income of $138 million or 13, 1% of sales last year net.
Speaker Change: Net income per diluted share was $2 50.
Speaker Change: Up 37% from $1 83 in Q3 last year.
Speaker Change: EBITDA totaled $219 million or 18% of sales compared to EBITDA of $171 million or 16% of sales last year.
Speaker Change: On the balance sheet, we ended the quarter with cash and cash equivalents of $683 million and current investments of $56 million.
Speaker Change: We delivered operating cash flow of roughly $143 million and had $50 million of capital expenditures.
Speaker Change: We repurchased approximately $100 million worth of shares and acceleration from the first half of the year. After we executed the full redemption of our senior secured notes in Q2.
Speaker Change: We ended the quarter with $102 million remaining on our current share repurchase authorization.
Speaker Change: Year to date, we have repurchased 924000 shares or around one 8% of shares outstanding at the beginning of the fiscal year.
Speaker Change: In the fourth quarter, we again expect to prioritize share repurchases as the primary way to use excess cash subject to business performance share price and market conditions.
Speaker Change: For the store fleet, we ended the quarter with 773 stores through the end of the third quarter. We have opened 39, new stores remodeled or right sized 38 stores and closed 31 stores for the full year. We continue to expect to deliver approximately 60, new stores 60, Remodels right sizes and 40 closures.
Speaker Change: Shifting to the fourth quarter outlook, we've seen a strong early response to our holiday Assortments and we are ready and excited for the peak selling period to kick into high gear. This week.
For the fourth quarter, we expect net sales to be up in the range of 5% to 7% compared to the fourth quarter of 2023 level of 145 billion inclusive of a year over year headwind of $80 million or 550 basis points from the calendar shift and loss of the extra week in 2023.
Speaker Change: We also expect a 100 basis point adverse impact from foreign currency.
Speaker Change: Adjusting for the last week in foreign currency, we see growth in the range of 11% to 13% to last year we.
Speaker Change: We expect continued growth across regions and brands.
Speaker Change: We expect operating margin to be around 16% compared to 15, 3% in 2023.
Speaker Change: We expect expense leverage will be the primary driver of operating margin expansion. While the gross profit rate is expected to be consistent with Q4, 2023, as higher freight costs and foreign currency offset lower promotions.
Speaker Change: For tax we expect an effective rate in the high Twenty's.
Speaker Change: For the full year, we now expect net sales growth in the range of 14% to 15% from the 2023 level of approximately $4 3 billion.
Speaker Change: An increase in the previous outlook of growth in the range of 12% to 13%.
This outlook assumes a slight adverse impact from foreign currency and continues to include an adverse impact of around $50 million or 120 basis points from a loss of the 50 <unk> week in 2023.
Speaker Change: We've included a table in the press release summarizing the expected sales and comparative growth impacts by quarter and for the full year.
Speaker Change: For operating margin, we now expect to be around 15%. The high end of our previous range of 14% to 15%. This compares to 11, 3% last year.
Speaker Change: We continue to expect the year over year improvement to be driven by the combination of gross profit rate expansion and expense leverage.
Speaker Change: We expect an effective tax rate in the mid twenties and capital expenditures of around $170 million.
Speaker Change: To finish up I'd like to thank our global teams for executing at a high level across the business. We have delivered record year to date results for both sales and operating income showing the strength of our brands and operating model. We look forward to delivering for our customers. This holiday season and to finish out another great year of growth for our company with that operator, we are ready for questions.
Speaker Change: Yes.
Speaker Change: A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question and one follow up please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: And our first question comes from Dana Telsey with Telsey Advisory Group. Your line is open.
Speaker Change: Good morning, everyone and congratulations on another successful quarter and congratulations Robert.
Speaker Change: And if you look at the Hollister business, which saw such a nice acceleration in comps not only from last year, but from the second quarter, where are you in the arc of that business as it continues to move forward and is there any difference in the men's and women's performance and then Scott Robert incremental investments were a topic of conversation last quarter with.
Speaker Change: Marketing, how you are thinking of the components of investment going forward, what should we should look for thank you.
Speaker Change: Hey, Dana good morning, yes could not be more proud of that Hollister team. The incredible progress that they've made and we are clearly a leader in the team in the teen space getting closer to that customer seeing growth to your point of 14% on top of 11, and then comping that comp at 21% on top of last year's 7% just really.
Speaker Change: Really terrific.
<unk> balanced growth across genders and categories excited to see growth across regions as well.
Speaker Change: We saw that in some of our key categories like sweaters knit bottoms fleets, our new collegiate collection is really doing very very nicely again saw strong traffic across channel, so really balanced performance across.
Speaker Change: Genders categories.
<unk> et cetera, so excited to see where we are and expect to continue to see growth, yes, I'll grab the second part on the incremental investments we are very happy with the execution from our marketing teams. We did invest more year over year, we talked about 50 basis points more year over year. So we are putting money to work and we're really excited about that other investments.
We've been talking about our stores and we're investing in new stores, we're investing in refreshes and Remodels and right sizes and when you put that stores and marketing together, we just love what we're seeing the traffic has been strong to both channels across brands. So we believe that is working as we think about Q4 for marketing we will continue to invest probably more year over year, because we just loved.
Where each brand sits and then kind of zooming out other investments in the business digital and technology is something we've been talking about and just love, making this model faster and leaner and so much quicker and then everything on the front end for digital for that customer experience. This journey spanned stores and digital and we've been investing across that journey it really excel.
Speaker Change: To keep doing that in the future.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from Cory <unk> with Jefferies. Your line is open.
Speaker Change: Great. Thanks, and good morning, everyone and congrats to Robert on the CFO appointment I wanted to ask about the drivers of the Abercrombie growth could you maybe unpack for US what you felt were some of the largest drivers of the.
Speaker Change: Of the growth in the quarter.
Where are you seeing any momentum and then was curious if you could just also touch on anything you saw.
Speaker Change: On <unk> in the quarter and then for Scott as we think about the margin profile as we look ahead what in your view.
Speaker Change: Is likely to be sustainable.
Speaker Change: Sustainable versus transient as we think about.
Speaker Change: The future for Abercrombie margin structure. Thank you so much.
Speaker Change: Okay, great. Good morning, So let's start with Abercrombie I mean, just to step back for a minute what an amazing journey and that brand has been on 15 consecutive quarters of growth and to drive 15% on top of 30 last year and a comp on 11 on top of 26 is really terrific performance to your question yes.
Where do we see it we saw balanced growth across genders, we saw cost categories and it really comes down as you will know to product and marketing both of which are really aligned for us in working really really well we continue to address that customer for all different wearing occasions, we talk a lot about the long weekend, we saw nice nice perform.
<unk> and sweaters and dresses in jeans and fleece.
Speaker Change: We are welcoming and lots of new customers also continuing to I'm pleased our existing customers why pv's specifically continues to grow.
Speaker Change: That is a category that is growing.
Speaker Change: Very nicely.
Speaker Change: Just finishing up year, two and continuing to see nice size acceptance across YTD.
Speaker Change: Yes, Hey, Cory on the margin profile.
Speaker Change: Look up and down the P&L, we believe the entire P&L is sustainable starting at the top line. We have built a great platform for growth you've seen global growth now for multiple quarters, We love how our teams are localizing, our playbook outside of the U S and we continue on our biggest part of the business here in the Americas to drive double digit growth, which.
Speaker Change: It's really exciting so top line, we want to sustain that gross margin we've come a long way since pre pandemic, we're running a very agile inventory model, we talk a little bit about freights here as we proactively brought our receipts in early to hit holiday I'll call that part of our transient nature of something hitting the P&L, but we love where the.
Speaker Change: Gross margin sits today and the flow through on this business with those two things in a clean store base and a strong digital business is very strong you saw that we outperformed our sales here in Q3, a bit and we really had a nice flow through to the bottom line. So that's our model going forward, we want to continue to build on strength from this year and into the future and we love the platform.
Speaker Change: Phil.
Speaker Change: Great. Thank you so much and best of luck. Thanks.
Speaker Change: Thank you. Our next question comes from Matthew Boss with Jpmorgan. Your line is open.
Matthew Boss: Great Thanks, and congrats on a nice quarter, especially despite all the weather.
Speaker Change: <unk>.
Fran Horowitz: So fran can.
Speaker Change: Could you speak to global brand awareness and new customer acquisition that Youre seeing overseas and if you could elaborate on the strong early holiday response in current business momentum that youre seeing in November across brands I think that would be great and then maybe Scott if you could just breakdown <unk> gross margin expectations, maybe relative to.
The 20 basis points of expansion in the third quarter and just your comfort with inventory.
Speaker Change: Hey, Matt Good morning, Yes, so to start the first part of your question to global brand awareness, we could not be I could not be more excited about the performance that you put out for the third quarter, where we're just seeing very balanced performance across brands and as well as regions you've been on this journey with us and we've been building talent locally we have an office in London and Shanghai in those.
Speaker Change: Teams really are localizing, our assortments are localizing their marketing and we're seeing a nice response to that so excited to see that continue to grow.
Speaker Change: As far as holiday goes we are off to a strong start.
Speaker Change: Last week, we always get ready lease walk the team through the stores. We our product is here. It looks great. We had a lot of product thats already tested that we know about we are well staffed at our stores were well staffed in our DC.
Speaker Change: We are we're ready to go excited for the holiday season.
Right, Matt on the gross margin expectations really approaching Q4, just like we did Q3 coming into the quarter believed we could pull off some promotions in your light light in some of those percentage offs, maybe shorten the time period that we're running a promotion and we believe we can do the same here in Q4, we will have an offset with freight we'll have a little bit of hurt here for.
Speaker Change: Foreign currency in Q4, so again very similar setup to what we saw in Q3 of thinking will be around flat to last year. We ended up about 20 basis points higher than last year in Q3, and again a lot of water is coming under the bridge here in Q4, So we'll see where we end up but we're thinking about it relatively consistent to last year moving on to inventory we feel great.
Speaker Change: <unk> about where the inventory sits mentioned a minute ago, we were proactive in bringing our receipts in the shipping environment has been pretty time academic dynamic dynamic here in the back half.
Speaker Change: Seen some variability in Ocean transit so we're taking the chance out of our inventory deliveries and we brought that in early <unk>.
Speaker Change: Little extra freight there without air usage here in Q3, we saw that and we expect that again here in Q4, but when you break apart that inventory, we're up 16% about half of that is just mixing into little higher ticket product there in abercrombie and some unit growth to drive the growth and the other half is due to freight so we feel really good about the inventory clean across brands.
Speaker Change: And really set up well for holiday.
Speaker Change: Great color best of luck.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Paul <unk>.
Speaker Change: <unk> with Citi. Your line is open.
Speaker Change: Okay. Thanks, guys.
Speaker Change: After the multiyear turnaround in Abercrombie <unk> Fitch and continued momentum I'm curious what you see as the next act an opportunity right now and how you might think about that differently in the U S versus Europe versus Asia.
His answer that and then Scott.
Speaker Change: He hit numbers in <unk>.
Speaker Change: Is your expected level of cash that you expect to have at year end and that's how we're thinking about the pace of repo.
Sure.
Speaker Change: Not just fourth quarter, but as you look out to two.
25 and beyond.
Matthew Boss: Hey, Paul Good morning, I'll start with the first part of your question, So Abercrombie and Fitch again, I just have to take a moment to say.
Matthew Boss: What is amazing journey.
Matthew Boss: <unk> 15 consecutive quarters of growth just incredible.
Speaker Change: What's happened here at Abercrombie with that said a lot of what's driven that to answer. Your question is that we've really changed our addressable market and we are no longer at jeans and T shirt company, we're really truly a lifestyle brand the consumer comes to US now in their early twenties. They felt they stay well into into their forty's, our marketing is working.
Speaker Change: Very very well the team is just so close to the customer and really just staying aligned with what's important to those life moments for the customer.
Speaker Change: We've gotten into some new categories like our licensing.
<unk>, our best dressed guest lots of those are continuing certainly into the fourth quarter into the future. So we are delivering what we said we would do this year stable profitable growth and expecting that to going into the future.
Speaker Change: One out there on the <unk> brand as we think about the European business, we've seen great growth. There now six consecutive quarters of growth, bringing that new Abercrombie <unk> Fitch brand to that local market has been really exciting we've started our efforts in UK specifically in London.
Speaker Change: <unk>, our marketing there and really reintroducing that brand to the consumer and next up is Germany, our second biggest country in Western Europe. So really excited about the early days of driving that brand awareness and growth outside of the U S jumping to the second half so cash we haven't given a and.
Speaker Change: The outlook there for cash for Q4, but what I would say if all goes to plan it will be more than today and thats exciting the balance sheet remains super strong we bought back $100 million of shares in Q3.
Speaker Change: You know really put a lot of good cash to work this year paying down the debt couple of hundred million dollars. There and then year to date of $130 million of share repurchases, we do have $102 million left on that authorization.
Speaker Change: We think about going forward, we've set up a really clean model here, where hit hit our targets have nice flow through generate cash we generated $400 million of operating cash flow year to date, and we can put cash to work, whether it's investing in the business or buying back shares. So really excited the position. We're in we have nice flexibility to make the business stronger every day.
Speaker Change: Thank you good luck.
Thank you. Our next question comes from Marni Shapiro.
Speaker Change: The retail tracker your line is open.
Hey, guys. Congratulations the stores are just stunning absolutely stunning.
I just have one quick housekeeping question. If you could just remind us at the end of this quarter I was looking through the.
Speaker Change: All of the releases what was the actual store count of Hollister, and Abercrombie and do you break out in international store Count and then just Fred I'm curious Abercrombie has had an exceptional playbook with social media and Influencers and the Holocaust customers definitely a younger customer so I'm curious if you're able.
Speaker Change: To use a similar playbook, even though it's a younger customer.
Maybe their parents are thrilled with them being on and they still have a little bit of control I'm just kind of curious what that looks like for you guys.
Speaker Change: Hey, Marni I'll kick us off the store count is 773 at the end of the third quarter for Abercrombie plus kids, we had 247 stores globally and then for Hollister, We had 518 stores globally. When you think about the U S.
Fran Horowitz: Call It Americas versus international so call. It about $5 50, 225 round numbers Fran I'll kick it to you for the second one perfect.
Fran Horowitz: Thanks, Mario has been pretty exceptional what's happened today enough and there is certainly lots to learn we talk a lot about our playbook aligning product voice and experience and all of that is certainly applicable to Hollister. It's also applicable globally as we've exported our playbook specifically for Hollister, we do augment it with things like in real life events were.
Fran Horowitz: <unk> festivals at high schools that had been very successful.
Fran Horowitz: So it's a combination of both being on digital platforms as well as doing things in real life and striking a good balance for the consumer and for their parents.
Speaker Change: Great. Thanks, guys best of luck for the holidays. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Alex <unk> with Morgan Stanley. Your line is open.
Speaker Change: Hi, This is Katie delahunt on for Alex.
Your full year guidance raise implies that youre more optimistic on four key sales and profitability than you were three months ago. We have your assumptions changed most positively either by geography banner or on gross margin SG&A. Thank you.
Speaker Change: Hi, Katy I'll grab this one yes, we are more bullish today than three months ago. Obviously three months have gone by we've seen a strong performance in <unk>.
Speaker Change: The back to school period, specifically for Hollister in kids and then throughout the quarter for Abercrombie <unk> Fitch as we got into that kind of fall selling season, and the weather started to cool a bit and really when you think about where we are today. We've had a strong start to the fourth quarter, we feel great about our assortments much of which has been tested earlier in this year, we're seeing the customer can.
Speaker Change: To respond to marketing and product across brands across regions and that gives us the confidence to talk about taking up that Q4 number versus what was implied previously breaking apart Q4, a little bit we talk about our reported number of around 5% to 7% growth last year. We had the 50 <unk> week last year. So when you take that out.
Speaker Change: The play in and some foreign currency, we're talking about growth in the low double digits still this 11% to 13% so continuing to see growth across regions and brands Thats, our expectation here for Q4, and we think we're set up for success sitting here today.
Speaker Change: Great. Thank you.
Thank you.
Speaker Change: Our next question comes from Mauricio Serna with UBS. Your line is open.
Speaker Change: Great. Good morning, Thanks for taking my question I just wanted to ask about the new stores that you're opening this year, where are the like where are these store openings concentrated by.
Speaker Change: By region.
Speaker Change: Across each brand and then just thinking about the.
Speaker Change: Hollister comp sales drove acceleration could you talk about like what what drove that acceleration Q over Q.
Speaker Change: Either on a regional basis.
Speaker Change: Units.
Speaker Change: And lastly inventory as I understand the accretion on <unk>.
Look high.
Speaker Change: At the end of this quarter, maybe could you share your thoughts on where do you think inventories.
Speaker Change: Would be ending at.
Speaker Change: Should be at the end of the year and that kind of growth that you should see relative to sales going forward. Thank you.
Speaker Change: Hey, Marci I'll have Scott I'll kick this one off so let's start with new store. So this year, our new store growth is a little bit tilted towards Abercrombie and Fitch and then a little bit tilted towards the U S. We mentioned about 40 Remodels right sizes refreshes for Hollister, so really getting into that fleet, we've rolled out that new prototype round.
Speaker Change: Last year at this time, and we started to really press.
Speaker Change: Some of those Remodels in Hollister, So really excited about what we're seeing in all of our new stores the performance across brands, whether it's a new store or remodel refresh rate size have really been strong and beating our expectations, which is exciting and putting us in place again to be a net store opener this year.
Speaker Change: I'll kick it to you for so I will take this one so hollister comp sales acceleration.
Speaker Change: And just Super excited about the back to school that we delivered it was a result of really staying close to the customer.
Speaker Change: It's driving that acceleration is a balance amongst the genders as well as the categories and we're seeing just broad based growth.
Speaker Change: Couple of the key categories like sweaters, and knit and fleece are driving it we launched our collegiate collection for back to school this year, which had a really terrific acceptance by the customer so again strong traffic cross challenges very balanced.
Speaker Change: Yes.
Speaker Change: Very very balanced across.
Speaker Change: Alright, So let me finish up on the inventory side. So we spoke about year end no number to provide at this point it will be up to last year. We continue to expect to grow our brands as we move from 24 into Q1 of 2025, the swing and there will be how much freight is leftover from the air usage that we had here in Q3.
Speaker Change: To get to our holiday receipt plan. So we'll see what the sell through looks likes we'll talk a lot more at year end, but we again, we would expect it to be up to support growth as we go into Q1.
Understood. Thanks, so much and congratulations.
Speaker Change: Thank you. Our next question comes from Rick Patel with Raymond James Your line is open.
Rick Patel: Thank you and good morning, and congrats to Robert on the new role.
Speaker Change: Can you talk about your outlook for AUR going forward, how do you view the opportunity to reduce promotions further given the strong demand you're seeing and then how do we also think about any impact on AUR from changes in the sales mix across regions and brands.
Speaker Change: Hey, Rick I'll grab this one so as we think about AUR as we came into Q3, we felt like we had the opportunity to continue to pull off some promotions, we were able to do that we feel the same as we walk into Q4 here nothing to talk about in Q five or for 2025 at this point, but feel good where the gross margin sits.
Speaker Change: Across brands in terms of reducing promotion it comes down to two things, it's inventory levels and product acceptance, we're happy with both of those things right now in the business like I said before we have seen nice product acceptance here early in the quarter. Those holiday floor sets a lot of that product has been tested and proven so that gives us confidence here in Q4.
Speaker Change: We can take off some of those promotions when you think about AUR impact from sales mix across brands and regions. It's not that much it's not something that's material enough that we will even call out bits and pieces here and there, but really zooming out talking about gross margin here in Q3 of 65% just super strong enabling great flow through.
Beat that topline.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Speaker Change: Thank you our next question comes from.
Speaker Change: Janet Kloppenburg J J K research Associates. Your line is open.
Janet Kloppenburg: Hi, everybody congratulations on the good performance.
Fran Horowitz: Fran I wondered if you could talk about the Hollister margins contribution margin given.
Fran Horowitz: The real acceleration that youre seeing in top line nine and maybe.
Fran Horowitz: The brand has more room to go in terms of improving margins.
Fran Horowitz: And Scott just one question when we think on inventory when we think about the inventory.
Fran Horowitz: And I understand what's going on with freight et cetera.
Speaker Change: Should we think that goes down to single digit level next year or is there a possibility youll remain.
Speaker Change: At the double digit level as we look forward.
Speaker Change: Hey, Janet.
So it's.
Speaker Change: Good morning, let's start with How's. Your question, we are very pleased actually with our Hollister margins. They are theyre very strong. We're also seeing really terrific increase productivity I mean, our storage business has been very strong that consumer as you know starts their journey digitally and really does most of it in store.
Speaker Change: So we're seeing lots of strong traffic being driven to both both those channels. So.
Yes, John on the second part inventories. So our goal we want inventory to be up next year that will that will signal more growth in the business. So too early to tell again you mentioned the freight that's in inventory today, we'll see how much we sell through as we get to year end, but assuming we see more growth next year, we're going to have the inventory to habits, and we will talk a lot more about that at.
Year end.
Okay, and congratulations to Robert and also choose Scott, Thank you and happy Thanksgiving.
Speaker Change: You too.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone again that is star one wants to ask a question.
Speaker Change: Our next question comes from Dylan Carden with William Blair. Your line is open.
Speaker Change: Thanks.
Speaker Change: Someone mentioned it there wasn't not insignificant amount of weather disruption.
Speaker Change: Out there is it that you didn't see as much or is it more instructive as to some of the flexibility.
Speaker Change: It kind of embedded into the business at this point.
Speaker Change: I was curious.
Speaker Change: The commentary around sort of structural margin seems to be entirely predicated on maintaining low double digit growth.
Speaker Change: And thats fine, but a year level of square footage growth.
Curious looking past these current quarters or even sort of the more medium term quarters.
Speaker Change: That would imply a certain amount of sort of incremental business that you are capturing relative to sort of your core.
Speaker Change: What does sustain maybe several year low double digit growth rate on the businesses.
Speaker Change: Good morning, John will take other questions. So we generally do not look to whether to being a reason for our for our business. We are a global business. We've got stores around the world We're very very.
Speaker Change: Very diversified whether at any given time the most important thing that I tell the team is to make sure that the assortments are balanced balance will continue to drive your business.
Speaker Change: Dependent upon things that we can't control like weather.
Speaker Change: Yes, looking at the the margin discussion yet thinking about that long term algorithm you mentioned, it's a little early but our brands are healthy our operating model is more agile and flexible you think about that store base that you mentioned back in 2020, we took out over 1 million square feet in the business over $1 billion and we've stayed there.
At around 5 million square feet across our store base for a few years now and we've been able to add stores by taking out some bigger ones, adding some smaller ones. So we have a much more broad store base in the right places in the right malls than we've had in a long long time, so I'm really excited about that and the performance of these new stores is very strong.
Speaker Change: We continue to talk about quick paybacks, four wall operating margins or EBIT margins for the stores above 20%. These are strong returning stores. So if we're opening stores trust us that they are adding to the total and then you think about the rest of it global growth opportunity. We have stores that we have digital growth outside of the U S. You have seen that more.
Speaker Change: Recently, we continue to localize those playbooks, so that gets us excited and behind that you have a strong balance sheet. So we can continue to invest across regions across channels that drive the growth into the future and that's why we're so excited sitting here today.
Speaker Change: Got it.
Speaker Change: That's a fair question.
Speaker Change: I mean, you guys did a really good job in 2018 19, taking that down to like 12% China production. Then you ramped it up in recent years can you kind of move pretty quickly still.
Speaker Change: And sort of any comments as to what the plan might be shouldn't be thanks.
Thanks.
Speaker Change: Yes, great question and yes, our China, we talk about taking it down to 12, we actually never ramped it back up so I know there were some reports out there that had it ramping it hasnt ramped so right now today into the U S. We import about 5% to 6% of our receipts from China into the United States. So a very small piece of our business half of that 12%.
Speaker Change: I know there were some.
Speaker Change: Since last night about tariffs also around Mexico, and Canada, just for US we don't have anything coming in from Canada, and Mexico was immaterial in the Grand scheme for us coming into the U S. So right now we'll see what happens we're following the news just like everybody else, we have an awesome sourcing team we have great partners.
Speaker Change: And we will have a playbook, if and when new tariffs come in play at some point in the future.
Speaker Change: Source out of 17 countries diversified agile supply chain and we're excited to continue to flex that muscle in the future.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Thank you I'm showing no further questions at this time.
Speaker Change: I would now like to turn it back to Fran Horowitz for closing remarks.
Fran Horowitz: Thank you everyone for joining the call today I just want to wish you all happy holiday season, and we look forward to providing more updates to all of you soon.
Speaker Change: Thank you.
Speaker Change: This.
Today's conference call.
Speaker Change: Thank you for participating you may now disconnect.
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