Q1 2025 Abercrombie & Fitch Co Earnings Call

May 28, 2025

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Unknown Executive: Good day and welcome to the Abercrombie & Fitch First Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.

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Mohit Gupta: At this time, I would like to turn the conference over to Mohit Gupta. Please go ahead. Thank you.

At this time I would like to turn the conference over to Mike Gupta. Please go ahead.

Mike Gupta: Thank you.

Mohit Gupta: Good morning and welcome to our first quarter 2025 earnings call. Joining me today on the call are Fran Horowitz, Chief Executive Officer, Scott Lipesky, Chief Operating Officer, and Robert Ball, Chief Financial Officer. Earlier this morning, we issued our first quarter earnings release, which is available on our website at corporate.abercrombie.com under the investor 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.

Speaker Change: Morning, and welcome to our first quarter 2025 earnings call.

Speaker Change: Joining me today on the call are Fran Horowitz, Chief Executive Officer, Scott Husky, Chief operating Officer, and Robert Bahl, Chief Financial Officer.

Speaker Change: Earlier. This morning, we issued our first quarter earnings release, which is available on our website at corporate Abercrombie Dot com under the investors section also available on our website is an investor presentation.

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 we mention today.

Mohit Gupta: 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.

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

Speaker Change: In addition, we will be referring to certain non-GAAP financial measures during the call additional details and reconciliation of GAAP to adjusted non-GAAP financial measures are included in the release and the Investor presentation issued earlier this morning.

Mohit Gupta: 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.

Fran Horowitz: With that, I will turn the call over to Fran. Thanks, Mo. And thanks, everyone, for joining. I'm pleased to report first-quarter results came in ahead of the expectations we provided in March on both the top and bottom lines. I am proud of how the team is applying our playbook to execute for our customer and our As we've mentioned before, our playbook and Read&React model are an important part of the strong foundation we've built over years of transformation. Foundation allows us to manage and adapt to the environment while maintaining focus on strengthening our brands and company for the long term.

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

Speaker Change: And thanks, everyone for joining I'm pleased to report first quarter results came in ahead of the expectations. We provided in March on both the top and bottom lines.

Speaker Change: I am proud of how the teams.

Speaker Change: The book to execute for our customer and our business.

Speaker Change: As we've mentioned before.

Speaker Change: Book and read and react model are important part of the strong foundation, we built over years of transformation.

Speaker Change: This foundation allows us to imagine adapt to the environment, while maintaining focus on strengthening our brands and company for the long term.

Fran Horowitz: We are one quarter into 2025 and our team is doing an excellent job balancing both of these priorities. For the first quarter, we delivered record net sales of $1.1 billion on growth of 8% to last year, above our expected range of 4% to 6%. Operating Expense Leverage partially offset lower growth margin and marketing investment resulting in an operating margin of 9.3% and earnings per share of $1.59 for the quarter, both above the ranges we provided in March. We also used our strong balance sheet to return $200 million to shareholders through share repurchases, totaling 5% of shares outstanding as of the beginning of the year.

Speaker Change: We are one quarter into 2025, and our team is doing an excellent job balancing both of these priorities.

Speaker Change: For the first quarter, we delivered record net sales of $1 1 billion a growth of 8% to last year above our expected range of 4% to 6%.

Speaker Change: Operating expense leverage partially offset lower gross margin and marketing investment, resulting in an operating margin of nine 3% and earnings per share of $1 59 for the quarter. Both about the ranges we provided in March.

Speaker Change: Also use our strong balance sheet to return $200 million to shareholders through share repurchases totaling 5% of shares outstanding as of the beginning of the year.

Fran Horowitz: We saw net sales growth across all regions in the first quarter. The Americas grew 7% on good traffic levels in both stores and digital, building on a terrific first quarter in 2024 where we grew 23%. In EMEA, we grew 12% on top of 19% growth last year. We saw continued strength in the UK and Germany, with digital demand complementing the positive reception we've seen to the six stores we opened in the region last year. In APEC, we grew 5% on top of 10% growth last year, with nice comparable sales performance in China. From a brand perspective, Hollister led the way, delivering record first quarter results with 22% net sales growth last year, on top of 12% growth in the first quarter of 2024.

Speaker Change: We saw net sales growth across all regions in the first quarter. The Americas grew 7% on good traffic levels in both stores and digital building out a terrific first quarter in 2024, where we grew 23%.

Speaker Change: In EMEA, we grew 12% on top of 19% growth last year.

Speaker Change: We saw continued strength in the U K and Germany with digital demand complementing the positive reception, we've seen to the six stores, we opened in the region last year and.

Speaker Change: In APAC, we grew 5% on top of a 10% growth last year with nice comparable sales performance in China.

Speaker Change: From a brand perspective, Hollister led the way delivering record first quarter results with 22% net sales growth last year on top of 12% growth in the first quarter of 2024, we had strong comparable sales as well up 23% I'm. So proud of the Hollister team as they delivered the brand's eighth consecutive.

Fran Horowitz: We had strong comparable sales as well, up 23%. I am so proud of the Hollister team as they delivered the brand's eighth consecutive quarter of growth. Both AUR and units were up in the quarter, and growth was balanced across genders and categories. with strength in fleece, jeans, and Cross-channel traffic was strong in the quarter, and we continue to ramp marketing investment year over year to support growth. We're excited about the balance we are seeing in the assortment and we look forward to the summer season officially kicking off.

Speaker Change: Quarter of growth.

Speaker Change: AUR and units were up in the quarter and growth was balanced across genders and categories.

Speaker Change: With strength in fleece jeans and skirts.

Speaker Change: Cross channel traffic was strong in the quarter and we continue to ramp marketing investments year over year to support growth.

Speaker Change: We're excited about the Dallas, we are seeing in the assortment and we look forward to the summer season officially kicking off.

Fran Horowitz: at Abercrombie Brands.

Fran Horowitz: Results fell short of expectations. We saw a 4% net sales decline against stellar 31% growth and record net sales achieved in Q1 2024. Comparable sales were down 10% versus 29% comp growth last year as we expected entering the quarter. Sales performance was primarily driven by AUR decline as we moved through winter carryover inventory. We also saw softer results in some of the spring calories that produced standout growth in Q1 last year. We built our business to rapidly respond to customer feedback, and the team acted quickly. Leveraging our agile operating model to shift inventory receipts based on summer product The brand continues to see good traffic trends, and on the store side we continue to see productivity and surrounding digital sales growth from new sales.

Speaker Change: At Abercrombie brand results fell short of expectations, we saw a 4% net sales decline against stellar 31% growth and record net sales achieved in Q1 2024.

Speaker Change: Comparable sales were down 10% versus 29% comp growth last year as we expected entering the quarter sales performance was primarily driven by AUR decline as he moved to winter carryover inventory.

Speaker Change: We also saw softer results in some of the spring calories that produced standout growth in Q1 last year.

Speaker Change: We built our business to rapidly respond to customer feedback and the team acted quickly leveraging our agile operating model to shift inventory receipts based on summer product test rates.

Speaker Change: The brand continues to see good traffic trends and on the store side, we continue to see productivity and surrounding digital sales growth from new stores.

Fran Horowitz: 13 openings planned for the second quarter in some great locations. building on April's successful opening in Williamsburg, Brooklyn.

Speaker Change: We have 13 openings planned for the second quarter in some great locations building on April successful opening in Williamsburg, Brooklyn.

Fran Horowitz: I have confidence in the team and the playbook, and our goal is to deliver sequential improvement on the top line in the second quarter, putting Abercrombie brands on a path to growth later this year. perspective, we expect to deliver year-over-year second quarter sales growth on top of a record As we navigate through the evolving trade environment, we remain open and agile with our inventory receipts and marketing spend to ensure we can best align our product investments with selling trends. Our playbook was built to effectively respond to circumstances like just as our team successfully managed a freight and cotton spike from a couple of years ago.

Speaker Change: I have confidence in the team and the playbook and our goal is to deliver sequential improvement on the top line in the second quarter, putting abercrombie brands on a path to growth later this year.

Speaker Change: From a total company perspective, we expect to deliver year over year second quarter sales growth on top of a record 2024 with balanced growth across regions.

Speaker Change: As we navigate through the evolving trade environment, we remain open and agile with our inventory receipts and marketing spend to ensure we can best align our product investments with selling trends.

Speaker Change: Our playbook was built to effectively respond to circumstances like these just as our team successfully managed the freight and cotton spikes in a couple of years ago.

Fran Horowitz: Our global supply chain and sourcing teams are working hard to drive efficiency across the supply chain. across the supply base through discussions with our sourcing partners and by making strategic geographic changes to our buys and supply footprint. Throughout our business, we are looking for expense efficiencies while remaining on offense in key investment areas. All of this work will have clear impact, and based on our current assumptions on tariffs, we are not planning broad-based ticket increases. As we've done season after season, our goal is to deliver high-quality product and align inventory and promotion with our customers' value perception.

Speaker Change: Our global supply chain and sourcing teams are working hard to drive efficiency across the supply chain.

Speaker Change: Excuse me across the supply base to discussions with our sourcing partners and by making strategic geographic changes to our buys and supply footprint.

Speaker Change: Two out of our business, we are looking for expense efficiencies, while remaining on offense in key investment areas.

Speaker Change: All of this work will have clear impact and based on our current assumptions on tariffs we're not.

Speaker Change: Not planning broad based ticket increases.

Speaker Change: We've done season after season, our goal is to deliver high quality product and a lot of inventory and promotions with our customers' value perception.

Fran Horowitz: This will give us the best opportunity to produce healthy sell-throughs, AURs, and growth margins that underpin our track record of net sales, earnings, and cash flow growth.

Speaker Change: This will give us the best opportunity to produce healthy sell throughs AUR and gross margins that underpin our track record of net sales earnings and cash flow growth.

Fran Horowitz: Our playbook and model both work, and we will continue to leverage them moving forward. Thinking further about what we've built over the years, we also have a history of capitalizing on moments like these to further strengthen the business, and we remain focused on the long-term opportunity ahead.

Speaker Change: Our playbook and model both work and we will continue to leverage them moving forward.

Speaker Change: Thinking further about what we've built over the years. We also have a history of capitalizing on moments like these to further strengthen the business and we remain focused on a long term opportunity ahead, we strongly believe in the global power of our brands and we're continuing to further their reach by investing in marketing technology, New channel partnership and company owned.

Fran Horowitz: We strongly believe in the global power of our brands, and we are continuing to further their reach by investing in marketing, technology, new channel partnerships, and company-owned On the store side, we expect to add around 100 new physical experiences this year in total with additional localized product and advertising to build lasting market presence and growth. The first quarter was another example of where we set a goal and delivered on that goal. As we move through the second quarter, we expect to add to our track record of controlling what we can control and doing what we say we're going to do.

Speaker Change: The stores.

Speaker Change: On the store side, we expect to add around 100, new physical experiences. This year in total with additional localized product and advertising to build lasting market presence and growth.

Speaker Change: First quarter was another example of where we set a goal and delivered on that goal.

Speaker Change: As we move through the second quarter, we expect to add to our track record of controlling what we can control and doing what we say we're going to do.

Fran Horowitz: Global growth remains our highest priority for 2025, so we look to our first quarter progress. while investing for the long term.

Speaker Change: Global growth remains our highest priority for 2025. So we look so we look at to our first quarter progress.

Speaker Change: While investing for the long term.

Robert Ball: And with that, I'll hand it over to Robert to expand more on our results and key outlook drivers. Thanks, Fran, and good morning, everyone. Recapping the quarter, we delivered record Q1 net sales of $1.1 billion, up 8% to last year on a reported basis above the range we provided in early March. Comparable sales for the quarter were up 4% and we did not see meaningful impact from foreign currency. By region, net sales increased 7% in the Americas, 12% in EMEA, and 5% in APAC. On a comparable sales basis, Americas was up 4%, EMEA was up 6%, and APAC was up 2%.

Speaker Change: With that I'll hand, it over to Robert to expand more on our results and key outlook drivers.

Robert: Thanks, Brian and good morning, everyone.

Speaker Change: Recapping the quarter, we delivered record Q1 net sales of $1 1 billion up 8% to last year on a reported basis above the range. We provided in early March.

Speaker Change: Comparable sales for the quarter were up 4% and we did not see meaningful impact from foreign currency.

Speaker Change: By region net sales increased 7% in the Americas, 12% in EMEA and 5% in APAC.

Speaker Change: On a comparable sales basis Americas was up 4% EMEA was up 6% and APAC was up 2%.

Robert Ball: For AMEA and APAC, the spread between reported and comp sales is due to net store openings, third-party channels, with AMEA also benefiting from foreign currency. On the brands, Abercrombie Brands net sales declined 4% with comparable sales down 10%. Consistent with our first quarter outlook, the sales decline was primarily due to lower AUR as we worked to clear seasonal carryover inventory. Hollister Brands net sales grew 22% on comparable sales of 23% with both both unit increases and AUR growth on lower promotion. Operating margin of 9.3% of sales was above the outlook range we provided in early March, delivering operating income of $102 million compared to $130 million, or 12.7% of sales last year.

Speaker Change: For me in APAC, the spread between reported and comp sales was due to net store openings third party channels with EMEA also benefiting from foreign currency.

Speaker Change: On the brands Abercrombie brands net sales declined 4% with comparable sales down 10%.

Speaker Change: Consistent with our first quarter outlook. The sales decline was primarily due to lower AUR as we worked through work to clear seasonal carryover inventory.

Speaker Change: Hollister brands net sales grew 22% on comparable sales of 23% with both unit increases and AUR growth on lower promotions.

Speaker Change: Operating margin of nine 3% of sales was above the outlook range. We provided in early March delivering operating income of $102 million compared to $130 million or 12, 7% of sales last year.

Robert Ball: Lower gross margin was partially offset by around 140 basis points of operating expense leverage, led by general and administrative expenses on lower payroll and incentive compensation. Consistent with expectations, marketing, which as a reminder is fully included in selling expense, was 5.3% of sales for the quarter and was the primary driver of the 110 basis points of D leverage in selling expense. We ended the first quarter with inventory at cost up 21%. Within that, inventory units are up 6%, so we're positioned to support future growth, along with four percentage points from freight and inventory actions related to tariffs, with year-over-year changes in product category mix driving the remaining cost increase.

Speaker Change: Lower gross margin was partially offset by around 140 basis points of operating expense leverage led by general and administrative expenses on lower payroll and incentive compensation.

Speaker Change: Consistent with expectations marketing, which as a reminder is fully included in selling expense was five 3% of sales for the quarter and was the primary driver of the 110 basis points of deleverage in selling expense.

Speaker Change: We ended the first quarter with inventory at cost up 21% within that inventory units are up 6%. So we're positioned to support future growth.

Speaker Change: Along with four percentage points from freight and inventory actions related to tariffs with year over year changes in product category mix driving the remaining cost increase.

Robert Ball: The tax rate for the quarter was in line with our outlook at 25% and net income per diluted share was above our outlook at $1.59 compared to $2.14 last year. Moving to the balance sheet, we exited the quarter with cash and cash equivalents of $511 million and liquidity of approximately $940 million. We also ended the quarter with marketable securities of $97 million. For the quarter, we repurchased $200 million worth of shares, consistent with our commentary from early March, ending the quarter with $1.1 billion remaining on our current share repurchase authorization.

Speaker Change: The tax rate for the quarter was in line with our outlook at 25% and net income per diluted share was above our outlook at $1 59 compared to $2 14 last year.

Speaker Change: Moving to the balance sheet, we exited the quarter with cash and cash equivalents of $511 million and liquidity of approximately $940 million.

Speaker Change: We ended the quarter with marketable securities of $97 million.

Speaker Change: For the quarter, we repurchased $200 million worth of shares consistent with our commentary from early March ending the quarter with $1 1 billion remaining on our current share repurchase authorization.

Robert Ball: Shifting to the outlook, global growth remains our highest priority. On the cost side, our 2025 outlook assumes a 10% tariff on all global imports into the U.S., as well as a 30% tariff on imports from China. For China specifically, we've worked for some time now to relocate resources of supply, and this year's sourcing volume from China will be in the low single digits. Globally, we remain nicely diversified across 16 countries. We've been leveraging our Agile playbook to build a list of mitigation strategies with our primary focus on the combination of supply chain footprint changes, vendor negotiations, and operating expense efficiency.

Speaker Change: Shifting to the outlook global growth remains our highest priority on the cost side, our 2025 outlook assumes a 10% tariff on all global imports into the U S as well as a 30% tariff on imports from China.

Speaker Change: For China, specifically, we worked we have worked for some time now to relocate resources of supply.

Speaker Change: And this year's this year sourcing volume from China will be in the low single digits globally, we remain nicely diversified across 16 countries.

Speaker Change: We've been leveraging our agile playbook to build a list of mitigation strategies with our primary focus on the combination of supply chain footprint changes vendor negotiations and operating expense efficiencies.

Robert Ball: For AUR specifically, we are currently assuming no AUR mitigation in our outlook as we do not anticipate broad-based ticket price increases. As always, we will pursue higher AURs through the combination of lean inventory and strong product acceptance. Net of expected mitigation efforts, the assumed tariffs carry a cost impact of around $50 million for 2025, impacting our full year operating margin outlook by 100 basis points. For the full year, we now expect net sales growth in the range of 3 to 6% from $4.95 billion in 2024, with full year growth expected across regions. We increased the high end of our prior outlook by flowing through our first quarter outperformance, with the second half of the year largely unchanged on net sales.

Speaker Change: For AUR, specifically, we are currently assuming no AUR mitigation in our outlook as we do not anticipate broad base ticket price increases.

Speaker Change: As always we will pursue higher AUR is through the combination of lean inventory and strong product acceptance.

Speaker Change: Net of expected mitigation efforts the assumed tariffs carry a cost impact of around $50 million for 2025 impacting our full year operating margin outlook by 100 basis points.

Speaker Change: For the full year, we now expect net sales growth in the range of 3% to 6% from $4 $95 billion in 2024 with full year growth expected across regions.

Speaker Change: We increased the high end of our prior outlook by flowing through our first quarter outperformance with the second half of the year largely unchanged on net sales.

Robert Ball: We now expect full year operating margin in the range of 12.5% to 13.5%. The reduction from our prior outlook range is primarily due to the estimated 100 basis point impact from tariffs net of mitigation efforts, with the remainder driven by the flow-through of the Q2 operating margin outlook. We are forecasting a tax rate around 27%. For earnings per share, we expect diluted weighted average shares of around 49 million, which incorporates the anticipated impact of 2025 share repurchase. Combined with the tax rate, we expect net income per diluted share in the range of $9.50 to $10.50.

Speaker Change: We now expect full year operating margin in the range of 12, 5% to 13, 5%.

Speaker Change: The reduction from our prior outlook range is primarily due to the estimated 100 basis point impact from tariffs net of mitigation efforts with the remainder driven by the flow through of the Q2 operating margin outlook.

Speaker Change: We are forecasting a tax rate around 27%.

Speaker Change: For earnings per share, we expect diluted weighted average shares of around $49 million, which incorporates the anticipated impact of 2025 share repurchases.

Speaker Change: Combined with the tax rate, we expect net income per diluted share in the range of $9 50 to $10 50.

Robert Ball: For capital allocation, we expect capital expenditures of approximately $200 million. On stores, we expect to deliver around 100 new experiences, including 60 new stores and 40 right sizes or remodels. We also expect to be net store openers, with our 60 new stores outpacing around 20 anticipated closures. At the current sales and operating margin outlook, we continue to target around $400 million in share repurchases for the year, subject to business performance, share price, and market FEMA.gov For the second quarter of 2025, we expect net sales to be up 3 to 5% to the Q2 2024 level of $1.13 billion.

Speaker Change: Yeah.

Speaker Change: For capital allocation, we expect capital expenditures of approximately $200 million on.

Speaker Change: On stores, we expect to deliver around 100, new experiences, including 60, new stores and 40 right sizes or remodels.

Speaker Change: We also expect to be net store openings with our 60, new stores outpacing around 20 anticipated closures.

Speaker Change: At the current sales and operating margin outlook, we continue to target around $400 million in share repurchases for the year subject to business performance share price and market conditions.

Speaker Change: For the second quarter of 2025, we expect net sales to be up 3% to 5% to the Q2 2024 level of $1 3 billion.

Robert Ball: We expect operating margin to be in the range of 12% to 13%. We continue to expect slightly higher costs from freight, as well as around $5 million of tariff impact, net of mitigation. We expect no leverage or de-leverage on expense at the midpoint of our outlook. We expect a Q2 tax rate around 28%. We expect net income per diluted share in the range of $2.10 to $2.30, with diluted weighted average shares expected to be around $49 million, including the anticipated impact of around $50 million in share repurchases for the quarter.

Speaker Change: We expect operating margin to be in the range of 12% to 13%.

Speaker Change: We continue to expect slightly higher costs for freight as well as around $5 million of tariff impact net of mitigation efforts, we expect no leverage or deleverage on expense at the midpoint of our outlook.

Speaker Change: We expect a Q2 tax rate around 28%.

Speaker Change: We expect net income per diluted share in the range of $2 10 to $2 30 with.

Speaker Change: With diluted weighted average shares expected to be around $49 million, including the anticipated impact of around $50 million in share repurchases for the quarter.

Robert Ball: To close things out, our Agile operating model has supported transformative growth and continues to be a catalyst for growth for driving consistent gains across sales, earnings, and cash. One quarter into 2025, we're executing with discipline to deliver against our near-term goals while keeping our sights firmly set on the significant long-term opportunities ahead.

Speaker Change: To close things out our agile operating model has supported transformative growth and continues to be a catalyst for growth.

Speaker Change: For driving consistent gains across sales earnings and cash flow.

Speaker Change: One quarter into 2025, we're executing with discipline to deliver against our near term goals, while keeping our sights firmly set on the significant long term opportunities ahead.

Unknown Executive: And with that operator, we are ready for questions. Thank you. As a reminder, to ask a question, please press star 1 1. To remove yourself from the queue, please press star 1 1 again. One moment for questions.

Speaker Change: And with that operator, we are ready for questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one to move yourself from the queue. Please press star one again, one moment for questions.

Dana Telsey: Our first question comes from Dana Telsey with Telsey Advisory Group, your line is open. Dana, if your telephone is muted, please unmute. Hi, good morning, everyone. Sorry about that.

Speaker Change: Our first question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Speaker Change: Okay.

Speaker Change: Dana you Telephone's mute please UN mute.

Speaker Change: Hi, good morning, everyone I'm, sorry about that great to see the updated guidance and we'd love to get some more color both on Hollister brand and on Abercrombie how do you see the outlook go forward on the men's and women's for Abercrombie.

Fran Horowitz: Great to see the updated guidance, and would love to get some more color, both on Hollister, Fran, and on Abercrombie. How do you see the outlook go forward on men's and women's for Abercrombie, cycling the compares and the newness that you're looking for? And also, what other initiatives do you see at Hollister that continue to drive this growth? And then just on the real estate side, I noticed that the closures are being reduced this year in the guide to 20 from 40. What's changing? What's new there? And on the remodel to 40 from 60. Any takeaways there and thoughts?

Speaker Change: The compares and the newness that Youre looking for and also what other initiatives do you see at Hollister that continue to drive this growth and then just on the real estate side I noticed that the closures are being reduced this year and the guide to 20 from 40, what's changing what's new there.

Speaker Change: And on the remodel to 46 states any takeaways there and.

Fran Horowitz: Thank you. Thanks, Dana. Good morning. Yeah, so super excited about the record results that we just put up total company. Let's break down your question. We'll start with Abercrombie. So Abercrombie, you know, we talked about this during the last call, we came into the quarter with a bit of carryover from last year up against obviously a spectacular Q1 of last year where we were essentially clean of carryover. That put the on the AUR as we had expected it to do so. But, you know, our model gives the team an opportunity to really stay flexible and chase goods.

Scott: Scott Thank you.

Scott: Thanks, Dan and good morning.

Scott: Yes, so super excited about the record results that we just put up total company.

Scott: Let's break down your question, we'll start with Abercrombie.

Scott: Abercrombie we talked about this during the last call we came into the quarter with a bit of.

Scott: Carryover from last year up against obviously, a spectacular Q1 of last year, where we were essentially clean of carryover that put the pressure on the AUR as we had expected it to do so but our model gives the team the opportunity to really stay flexible and chase goods, that's what our what our playbook is built.

Fran Horowitz: That's what our playbook is built on. A great example of that was as we got into the first quarter, we had a terrific response to our swim. We had a vacation shop set for second quarter. We were able to get back into that swim, really ramp it up, ramp up our assets and our marketing even stronger than we were planning to. And we've seen a nice reaction to that.

Speaker Change: On a great example of that was as we got into the first quarter, we had a terrific response to our swim.

Speaker Change: We had a vacation shop set for second quarter, we were able to get back into that swim really ramp it up ramp up our assets and our marketing even stronger than we were planning to.

Fran Horowitz: So exciting to see progress, and we do expect to see an inflection in Abercrombie in the back half.

Speaker Change: And a nice reaction to that so exciting to see progress and we do expect to see an inflection in abercrombie in the back half Hollister again, what a quarter, 22% incredibly proud that team lots of exciting things going on in that brand.

Fran Horowitz: Hollister, again, what a quarter. 22%, incredibly proud of that team. Lots of exciting things going on in that brand.

Fran Horowitz: I guess most recently to discuss would be the grad shop. So again, staying very culturally relevant to these teams, what's important to them. The grad shop just launched, we've seen nice success to that. The first quarter was driven by fleece, by jeans, by skirts, lots of exciting categories. So our expectation is obviously to continue to see that, to continue to see Hollister grow throughout the year.

Speaker Change: I guess, most recently to discuss with you the Grad shop, So again, saying very culturally relevant to these teams what's important to them. The great job just launched we've seen nice success to that.

Speaker Change: First quarter was driven by fleece by Jean Vice skirts lots of exciting category. So our expectation is obviously to continue to see that continue to see hollister grow throughout the year.

Operator: Good day. Welcome to the Abercrombie & Fitch Q1 fiscal year 2025 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question at that time, please press star 11 on your telephone. To remove yourself from the queue, please press star 11 again. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mo Gupta. Please go ahead.

Robert Ball: With that, I will turn it over to Robert on your real estate questions. Yeah. Hey, Dana. I'll hit this real estate one. So again, we're really thrilled here to be talking about being net store openers again here for another year. Adjustments here are pretty consistent, excited to see 100 new store experiences, 60 new stores, 40 refreshes in the model. We're always opportunistic here as we move throughout the year. From a store closure standpoint, we did close 40 stores last year, planning to close 20 stores this year. Teams have been working through landlord negotiations and packages, and we just see opportunities to keep these stores rolling.

Speaker Change: With that I will turn it over to Robert on your real estate question, Yes, Hey, Dana I'll hit this real estate one so again, we're really thrilled here to be <unk>.

Robert: Talking about being net store openings again here for another year.

Robert: Adjustments here are pretty consistent and excited to see 100, new store experiences 60, new stores 40, refreshes and model, where we're always opportunistic here as we move throughout the year.

Mo Gupta: Thank you. Good morning, welcome to our Q1 2025 Earnings Call. Joining me today on the call are Fran Horowitz, Chief Executive Officer, Scott Lipesky, Chief Operating Officer, and Robert Ball, Chief Financial Officer. Earlier this morning, we issued our Q1 earnings release, which is available on our website at corporate.abercrombie.com under the Investors 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 mention today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission.

Robert: From a store closure standpoint, we did closed 40 stores last year planning to close 20 stores. This year. The teams have been working through landlord negotiations and packages and we just see opportunities to keep these stores rolling so.

Robert Ball: So again, excited to be out there for the consumer and build this fleet, which as we talked about last year or last quarter, is nicely contributory. So as long as we continue to see these productivities up on these stores, we're going to keep these things rolling. Thank you.

Robert: Again excited to be out there for the consumer and and build this fleet, which as we talked about last year as our last quarter is nicely contributory. So as long as we continue to see these productivity is up on these stores, we're going to we're going to keep these things rolling.

Mo Gupta: 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 mention today. These factors and uncertainties are discussed in our reports and filings with the Securities and Exchange Commission.

Robert: Thank you.

Corey Tarlowe: Our next question comes from Corey Tarlowe with Jeffries. Your line is open. Great, thanks for taking my question. I guess, Robert and Scott, on the outlook for the full year, you obviously took down profit, mainly as a result of tariffs, but on the sales outlook, the high end of the guide was actually revised up. So I'm just curious how you think about that and what's your confidence in sort of that, the higher end of that range as we as we look to the remainder of the year and what informs that.

Speaker Change: Thank you. Our next question comes from Cory <unk> with Jefferies. Your line is open.

Speaker Change: Great. Thanks.

Cory: Thanks for taking my question.

Speaker Change: I guess, Robert and Scott on the outlook for the full year.

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

Robert: You, obviously took down.

Robert: Profit, mainly as a result of tariffs, but on the sales outlook. The high end of the guide was actually revised up so I'm just curious how you think about that.

Fran Horowitz: Thanks, Mo. Thanks everyone for joining. I'm pleased to report Q1 results came in ahead of the expectations we provided in March on both the top and bottom lines. I am proud of how the team is applying our playbook to execute for our customer and our business. As we've mentioned before, our playbook and read and react model are an important part of the strong foundation we've built over years of transformation. This foundation allows us to manage and adapt to the environment while maintaining focus on strengthening our brands and company for the long term. We are Q1 into 2025, and our team is doing an excellent job balancing both of these priorities. For Q1, we delivered record net sales of $1.1 billion on growth of 8% to last year, above our expected range of 4% to 6%.

Robert: And what's your confidence in.

Robert: The higher end of that range as we as we look to the remainder of the year and what informs that.

Robert Ball: Yeah, so I'll take this one, Corey. So for the full year, you know, we are expecting growth across the regions in that 3 to 6% top line guide. We're rolling through that Q1 beat on the top end of our guide, and we're holding the bottom, which again, you know, when we think about the environment that we're working in here, we feel is reasonable and appropriate with just one quarter in the books for the year. On the margin front, you're exactly right. We're rolling through that $50 million of tariff impact net of the mitigation efforts to date, and that expected margin pressure from from Q2 to walk us from that 14 to 15 from March to that 12 and a half to 13 and a half guide today.

Cory: Yes, so I'll take this one cory so for the full year, we expect.

Cory: We're expecting growth across the regions in that 3% to 6% Top line guide we're rolling through that Q1 beat on the top end of our guide and we're holding the bottom, which again when we think about the environment that we're working in here, we feel is reasonable and appropriate with just one quarter in the books for the year on.

Fran Horowitz: This foundation allows us to manage and adapt to the environment while maintaining focus on strengthening our brands and company for the long term. We are Q1 into 2025, and our team is doing an excellent job balancing both of these priorities. For Q1, we delivered record net sales of $1.1 billion on growth of 8% to last year, above our expected range of 4% to 6%.

Cory: On the margin front youre exactly right, we're rolling through that $50 million of tariff impact net of the mitigation efforts to date.

Cory: And that expected margin pressure from from Q2 to walk us from that 14% to 15 from March to that 12, five to 13 and ask guide today.

Scott Lipesky: Yeah, just to add on there at the end, Corey, I guess the confidence, you know, comes from being on offense, you know, we have a strong balance sheet, Robert just mentioned 100 new experiences this year, let's add in marketing, let's add in digital and technology investments. That's what gives us the confidence. Fran mentioned, you know, the brands are open, the brands are chasing. So we have the inventory, we have the investments.

Speaker Change: Yes, just to add on there at the enquiry I guess the confidence comes from being on offense, we have a strong balance sheets. Robert just mentioned a 100 new experiences this year less AD and marketing of lets add in digital and technology investments. That's what gives us the confidence Fran mentioned the brands are open the brands are chasing so we have the inventory.

Fran Horowitz: Operating expense leverage partially offset lower gross margin and marketing investment, resulting in operating margin of 9.3% and earnings per share of $1.59 for the quarter, both above the ranges we provided in March. We also used our strong balance sheet to return $200 million to shareholders through share repurchases, totaling 5% of shares outstanding as of the beginning of the year. We saw net sales growth across all regions in the Q1. The Americas grew 7% on good traffic levels in both stores and digital, building on a terrific Q1 in 2024, where we grew 23%. In EMEA, we grew 12% on top of 19% growth last year.

Fran Horowitz: We also used our strong balance sheet to return $200 million to shareholders through share repurchases, totaling 5% of shares outstanding as of the beginning of the year. We saw net sales growth across all regions in the Q1. The Americas grew 7% on good traffic levels in both stores and digital, building on a terrific Q1 in 2024, where we grew 23%. In EMEA, we grew 12% on top of 19% growth last year.

Scott Lipesky: And that's what Great.

Cory: We have the investments and that's what gives us confidence.

Corey Tarlowe: And then just on Abercrombie, the expectation that we return to growth later in the year, that's presumably both sales and and comp. Is there any expectation as to when or what the drivers might be for that as well, as we think about the really strong compares that we're going to be cycling? I think Scott just said it. The team is hard at work, Corey. That's what our model lets them do, which is really drive that open to buy and stay flexible and agile with their receipts going forward, reacting to the things that are happening in the business.

Speaker Change: That's great and then just on Abercrombie.

Speaker Change: Expectations that we return to growth later in the year that's presume.

Speaker Change: Presumably both sales and comp.

Speaker Change: Is there any.

Speaker Change: Expectation as to when or what the drivers might be.

Speaker Change: As well as we think about the really strong compares that we're going to be cycling.

Fran Horowitz: We saw continued strength in the UK and Germany, with digital demand complementing the positive reception we've seen to the 6 stores we opened in the region last year. In APAC, we grew 5% on top of 10% growth last year, with nice comparable sales performance in China. From a brand perspective, Hollister led the way, delivering record Q1 results with 22% net sales growth to last year on top of 12% growth in the Q1 2024. We had strong comparable sales as well, up 23%. I am so proud of the Hollister team as they delivered the brand's eighth consecutive quarter of growth. Both AUR and units were up in the quarter and growth was balanced across genders and categories, with strength in fleece, jeans, and skirts.

Speaker Change: Yes, I think I think Scott said it the team is hard at work Corey that's what our model at some data, which is really drive that open to buy and stay flexible and agile with their with their receipts going forward reacting to the things that are happening in the business.

Fran Horowitz: We do expect to see an inflection in the back half. We're not going to give an exact date and time, but we do expect to see it in the back half. And the drivers are the categories that we're starting to see some nice reaction to that the team's getting back in.

Speaker Change: Yes, we do expect to see an inflection in the back half, we're not going to give an exact date and time, but.

Speaker Change: Would you expect to see it in the back half and the drivers are the categories that we're starting to see some nice reaction to that the team is getting back into.

Corey Tarlowe: Great, thank you very much and best of luck. Thank you.

Speaker Change: Great. Thank you very much and best of luck.

Speaker Change: Thanks.

Matthew Boss: Our next question comes from Matthew Boss with J.P. Morgan. Your line is open. Great, thanks.

Speaker Change: Thank you. Our next question comes from Matthew Boss with Jpmorgan. Your line is open.

Fran Horowitz: So Fran, could you speak to the progression of traffic during the first quarter and into May at Abercrombie relative to Hollister, just where Abercrombie stands also with end of season carryover inventory today? Yeah, so we saw nice traffic actually throughout the quarter for Abercrombie. That's why I had discussed a little while ago, Matt, that the opportunity was really in the carryover and the compression of the AUR based on that product, which our expectation is that we are selling through that and seeing ourselves in a better position on all of that. And traffic was strong as well for Hollister on both digital as well as stores.

Speaker Change: Great. Thanks.

Speaker Change: Could you speak to the progression of traffic during the first quarter and into May at Abercrombie relative to Hollister just wear abercrombie stance also with end of season carryover inventory today.

Fran Horowitz: Cross-channel traffic was strong in the quarter. We continue to ramp marketing investment year-over-year to support growth. We're excited about the balance we are seeing in the assortment. We look forward to the summer season officially kicking off. At Abercrombie Brands, results fell short of expectations. We saw a 4% net sales decline against stellar 31% growth and record net sales achieved in Q1 2024. Comparable sales were down 10% versus 29% comp growth last year, as we expected entering the quarter. Sales performance was primarily driven by AUR decline as we moved through winter carryover inventory. We also saw softer results in some of the spring categories that produced standout growth in Q1 last year.

Speaker Change: Yes, so we saw.

Speaker Change: Nice traffic actually throughout the throughout the quarter or Abercrombie, that's why I had discussed a little while ago, Matt that the opportunity was really in this and the carryover and the compression of the AUR based on on that product, which our expectation is that we are we are selling through that and seeing ourselves in a better position on all of that and traffic was strong as well for Hollister.

Fran Horowitz: We saw a 4% net sales decline against stellar 31% growth and record net sales achieved in Q1 2024. Comparable sales were down 10% versus 29% comp growth last year, as we expected entering the quarter. Sales performance was primarily driven by AUR decline as we moved through winter carryover inventory. We also saw softer results in some of the spring categories that produced standout growth in Q1 last year.

Speaker Change: <unk> as well as stores.

Robert Ball: Yeah, Matt, I'll just add one thing on the on the A&F inventory side of the house. So we did work through a ton of that carryover inventory in Q1. We've still got some sitting on the books here, but we're not concerned with where those levels are. So if you remember last year, we had abnormally levels, low levels of carryover inventory throughout the spring season. And we're just up against that year over year. Just for some perspective, we are below our carryover levels from this time in 2023. So it really is just a more of a normalized level of carryover.

Speaker Change: Yes, Matt I'll, just add one thing on the on the ASF inventory side of the house. So we didnt worked through a ton of that carryover inventory.

Speaker Change: Q1, we still got some sitting on the books here, but we're not concerned with where those levels are so if you remember last year, we had abnormally levels low levels of carryover inventory throughout the spring season, and we're just up against that year over year just for some perspective, we are below our carryover levels from this time in 2023, so it really is.

Fran Horowitz: We built our business to rapidly respond to customer feedback. The team acted quickly, leveraging our agile operating model to shift inventory receipts based on summer product test reads. The brand continues to see good traffic trends. On the store side, we continue to see productivity and surrounding digital sales growth from new stores. We have 13 openings planned for Q2 in some great locations, building on April's successful opening in Williamsburg, Brooklyn. I have confidence in the team and the playbook. Our goal is to deliver sequential improvement on the top line in Q2, putting Abercrombie Brands on a path to growth later this year. From a total company perspective, we expect to deliver year-over-year Q2 sales growth on top of a record 2024, with balanced growth across regions.

Fran Horowitz: We have 13 openings planned for Q2 in some great locations, building on April's successful opening in Williamsburg, Brooklyn. I have confidence in the team and the playbook. Our goal is to deliver sequential improvement on the top line in Q2, putting Abercrombie Brands on a path to growth later this year. From a total company perspective, we expect to deliver year-over-year Q2 sales growth on top of a record 2024, with balanced growth across regions.

Speaker Change: Just a more of a.

Robert Ball: And we're up against the low levels from 2024.

Speaker Change: Normalized level of carryover and were up against the low levels from 2024.

Speaker Change: And then maybe Robert just as a as a follow up is there a way to break apart second quarter gross margin, we're thinking about promotions relative to tariffs and freight.

Speaker Change: How best to think about gross margin progression in the back half of the year and maybe just higher level.

Speaker Change: We're thinking about operating margins multi year is there any give back in the model or how best to think about operating margins on a multiyear basis.

Fran Horowitz: As we navigate through the evolving trade environment, we remain open and agile with our inventory receipts and marketing spend to ensure we can best align our product investments with selling trends. Our playbook was built to effectively respond to circumstances like these, just as our team successfully managed the freight and cotton spikes from a couple of years ago. Our global supply chain and sourcing teams are working hard to drive efficiency, excuse me, across the supply base through discussions with our sourcing partners and by making strategic geographic changes to our buys and supply footprint. Throughout our business, we are looking for expense efficiencies while remaining on offense in key investment areas. All of this work will have clear impact, and based on our current assumptions on tariffs, we are not planning broad-based ticket increases.

Robert Ball: Yeah, so on the gross margin guide in terms of what's baked into our Q2, you know, we're, we talked about in March, working through a lot of the freight and the carryover pressures. Again, that was what drove the gross margin declines in Q1. So we got through a ton of that, we'll still see some pressure here in Q2. As we as we work through the balance of that freight, we've got about $10 million of excess freight sitting on the balance sheet that we'll work through here and in Q2 before that normalizes for the back half.

Speaker Change: Yes, so on the gross margin guide in terms of what's baked into our Q2.

Speaker Change: We've talked about in March working through a lot of the freight and the carryover pressures again that was what drove the gross margin declines in Q1. So we got through a ton of that we will still see some pressure here in Q2 as we as we work through the balance of that freight we've got about $10 million of excess freight sitting on the balance sheet that will work through here in Q2 before that normally.

Fran Horowitz: Our global supply chain and sourcing teams are working hard to drive efficiency, excuse me, across the supply base through discussions with our sourcing partners and by making strategic geographic changes to our buys and supply footprint. Throughout our business, we are looking for expense efficiencies while remaining on offense in key investment areas. All of this work will have clear impact, and based on our current assumptions on tariffs, we are not planning broad-based ticket increases.

Robert Ball: And that's been consistent with what we expected coming into the year. The carryover inventory, you know, we'll still see some AUR pressure here on the A&F side as we as we work through the balance of that carryover and right side of the inventory. And that's that's a bit of a factor for Q2 as well. And AUR, you know, AUR was flat in Q1, obviously had some pressure on the A&F side that was offset by a nice gains on the Hollister side. And so we're the way that we're thinking about this year is the balance of this year, Q2 and beyond, you know, we're going to come in with flat AURs.

Speaker Change: <unk> for the back half and Thats been consistent with what we expected coming into the year the.

Speaker Change: The carryover inventory, we'll still see some AUR pressure here on the <unk> side as we as we work through the balance of that carryover and rightsize, the inventory and Thats a bit of a factor for Q2, as well and AUR AUR was flat in Q1, obviously had some pressure on the <unk> side that was offset by a nice gains on the Hollister side and so the way that we are.

Fran Horowitz: As we've done season after season, our goal is to deliver high-quality product and align inventory and promotions with our customers' value perception. This will give us the best opportunity to produce healthy sell-throughs, AURs, and growth margins that underpin our track record of net sales, earnings, and cash flow growth. Our playbook and model both work, and we will continue to leverage them moving forward. Thinking further about what we've built over the years, we also have a history of capitalizing on moments like these to further strengthen the business, and we remain focused on the long-term opportunity ahead. We strongly believe in the global power of our brands, and we are continuing to further their reach by investing in marketing, technology, new channel partnerships, and company-owned stores.

Speaker Change: Thinking about this year is the balance of this year Q2, and beyond we're going to come in with <unk> and we're going to work through.

Robert Ball: And we're going to work through and expect sequential improvement here as we as we move through the the Q2 and moving forward.

Speaker Change: And expect sequential improvement here as we as we move through the Q2 and moving forward.

Robert Ball: On the on the operating margin side of the house, you know, no change here, our focus is squarely on driving long term sales, operating profit dollars, EPS growth go forward. You know, as Fran mentioned, we've got two incredible brands, we've got a proven operating model, we've got amazing teams, and we've got a pretty healthy financial framework. So you know, cash productivity is strong, we'll continue to invest back into this business to strengthen for the long term. We'll talk more long term here as we get deeper into the year. But you know, we've got to do this 12.5 to 13.5% operating margin, which is a strong place to be and leaves us with potential to expand if we see that top line outperform our guide.

Speaker Change: On the on the operating margin side of the house.

Fran Horowitz: Thinking further about what we've built over the years, we also have a history of capitalizing on moments like these to further strengthen the business, and we remain focused on the long-term opportunity ahead. We strongly believe in the global power of our brands, and we are continuing to further their reach by investing in marketing, technology, new channel partnerships, and company-owned stores.

Speaker Change: No change here, our focus is squarely on driving long term sales operating profit dollars EPS growth go forward.

Speaker Change: As Fran mentioned, we've got two incredible brands, we've got a proven operating model. We've got amazing teams and we've got a pretty healthy financial framework. So cash productivity is strong we will continue to invest back into this business to strengthen for the long term, we'll talk more long term here as we get deeper into the year, but we've guided to this 12, 5% to 13 year.

Fran Horowitz: On the store side, we expect to add around 100 new physical experiences this year in total, with additional localized product and advertising to build lasting market presence and growth. The Q1 was another example of where we set a goal and delivered on that goal. As we move through the Q2, we expect to add to our track record of controlling what we can control and doing what we say we're going to do. Global growth remains our highest priority for 2025, so we look at to our Q1 progress while investing for the long term. With that, I'll hand it over to Robert to expand more on our results and key outlook drivers.

Speaker Change: 5% operating margin, which.

Speaker Change: Which is a strong place to be and leaves us with potential to expand if we see that topline outperform our guidance.

Matthew Boss: That's great color.

Matthew Boss: Best of luck. Yep.

Speaker Change: That's great color best of luck.

Fran Horowitz: As we move through the Q2, we expect to add to our track record of controlling what we can control and doing what we say we're going to do. Global growth remains our highest priority for 2025, so we look at to our Q1 progress while investing for the long term. With that, I'll hand it over to Robert to expand more on our results and key outlook drivers.

Matthew Boss: Thanks, Matt. Thank you.

Speaker Change: Yes, Thanks, Matt.

Kelly Crago: Our next question comes from Paul Lejuez with Citi. Your line is open.

Speaker Change: Thank you. Our next question comes from Paul the Juice with Citi. Your line is open.

Fran Horowitz: Hi, this is Kelly on for Paul. Thanks for taking our question. I guess, Fran, if we could just circle back on the ANAP brand in one cue, and you mentioned that it disappointed versus your expectations. So, could you just dig into where in the assortment from a category product perspective, where you saw disappointment and what you were doing to course correct that? And then just secondly, on the, the core date, I'm sorry, the 2 Q guide 3 to 5 is that sort of embedding in what you're seeing to Q coordinate. Thanks.

Kelly: Hi, This is Kelly on for Paul Thanks for taking my question I guess, Brian if we could just.

Speaker Change: Circle back on the AE brand and <unk>, you mentioned that it disappointed versus your expectations. So could you just dig into where in.

Robert Ball: Thanks, Fran. Good morning, everyone. Recapping the quarter, we delivered record Q1 net sales of $1.1 billion, up 8% to last year on a reported basis above the range we provided in early March. Comparable sales for the quarter were up 4%. We did not see meaningful impact from foreign currency. By region, net sales increased 7% in the Americas, 12% in EMEA, and 5% in APAC. On a comparable sales basis, Americas was up 4%, EMEA was up 6%, and APAC was up 2%. For EMEA and APAC, the spread between reported and comp sales was due to net store openings, third-party channels, with EMEA also benefiting from foreign currency. On the brands, Abercrombie brands net sales declined 4%, with comparable sales down 10%.

Speaker Change: In the assortment.

Speaker Change: The category five perspective.

Speaker Change: Where you saw the disappointment in what you were doing to course correct that.

Speaker Change: And then just secondly on the quarter to date I'm, sorry, the Q2 guide.

Speaker Change: Three to five is that sort of embedding in what youre seeing.

Speaker Change: <unk>. Thanks.

Fran Horowitz: Hey Kelly. So first, for Abercrombie, as I mentioned earlier today, so we broke down, you have to really break down Q1. As we had set our expectation in the last call for Abercrombie Adult, we did have this carryover that we did not anniversary from 2024. And as Robert just said, from 2023, it's basically more normalized. That put the pressure on the AUR and drove a significant part of the decline. The other piece of it was up against, honestly, a spectacular launch of the wedding shop, which we just did not comp as well. So we had dresses that were strong that sold, they did not sell to the level of actually the launch of the shop.

Robert Ball: On a comparable sales basis, Americas was up 4%, EMEA was up 6%, and APAC was up 2%. For EMEA and APAC, the spread between reported and comp sales was due to net store openings, third-party channels, with EMEA also benefiting from foreign currency. On the brands, Abercrombie brands net sales declined 4%, with comparable sales down 10%.

Speaker Change: Sure Hey, Kelly so first on for Abercrombie.

Speaker Change: As I mentioned earlier today. So we broke down you have to really breakdown Q1, as we've set our expectation in the last call for Abercrombie adult we did have this carryover that we have not we did not anniversary from 'twenty to 'twenty four and as Robert just said from 2023, it's basically more normalized that put the pressure on the AUR and drove a significant part.

Robert Ball: Consistent with our Q1 outlook, the sales decline was primarily due to lower AUR as we worked to clear seasonal carryover inventory. Hollister Brands net sales grew 22% on comparable sales of 23%, with both unit increases and AUR growth on lower promotions. Operating margin of 9.3% of sales was above the outlook range we provided in early March, delivering operating income of $102 million compared to $130 million or 12.7% of sales last year. Lower gross margin was partially offset by around 140 basis points of operating expense leverage led by general and administrative expenses on lower payroll and incentive compensation.

Speaker Change: The decline the other piece of it was up against honestly, a spectacular launch of the wedding shop, which we just did not comp as well. So we had dresses that was strong that sold but they did not sell to the level of the actually the launch of the shop. So the team as I've said is busy hard at work.

Fran Horowitz: So the team, as I've said, is busy, hard at work. They're very open in the back half chasing into product that we are seeing selling. And we're excited about seeing an inflection in the back half of the year.

Robert Ball: Operating margin of 9.3% of sales was above the outlook range we provided in early March, delivering operating income of $102 million compared to $130 million or 12.7% of sales last year. Lower gross margin was partially offset by around 140 basis points of operating expense leverage led by general and administrative expenses on lower payroll and incentive compensation.

Speaker Change: We're very open in the back half chasing into product that we are seeing selling on and we're excited about seeing an inflection in the back half of the year.

Robert Ball: Yeah, Kelly, I'll take the the Q2 guide as we think about this. So, you know, we're excited to be in a position to grow top line in Q2 off of that plus 21 Q2 that we delivered last year. May month to date trends all incorporated into that outlook of three to 5% for the quarter. But as you know, you know, volume will build from here, particularly for Hollister as we move into the back to school season here. So ultimately, you know, excited that we're, we're targeting growth on growth here. And we feel good about the balance of the year from that perspective.

Speaker Change: Yes, Kelly I will take the Q2 guide as we think about this so we're excited to be in a position to grow top line in Q2 off of that plus 21 Q2 that we delivered last year may month to date trends all incorporated into that outlook of 3% to 5% for the quarter, but as you know volume will build from here, particularly for Hollister as we move.

Robert Ball: Consistent with expectations, marketing, which as a reminder, is fully included in selling expense, was 5.3% of sales for Q1 and was the primary driver of the 110 basis points of deleverage in selling expense. We ended Q1 with inventory at cost up 21%. Within that, inventory units are up 6%. We're positioned to support future growth, along with 4 percentage points from freight and inventory actions related to tariffs, with year-over-year changes in product category mix driving the remaining cost increase. The tax rate for Q1 was in line with our outlook at 25%. Net income per diluted share was above our outlook at $1.59 compared to $2.14 last year.

Speaker Change: Into the back to school season here. So ultimately excited that we're we're targeting growth on growth here and we feel good about the balance of the year from that perspective, Yes, Hey, Kelly I just wanted to add one last thing on the on the first question. So just as far as Abercrombie goes.

Fran Horowitz: And hey, Kelly, I just wanted to add one last thing on the on the first question. So just as far as Abercrombie goes, you know, again, the traffic was positive, our customer file is growing, the brand is strong, and we're really excited about, you know, future growth, you know, one quarter, but we're excited about the inflection, the back half and the opportunity globally for the brand. Thank you.

Robert Ball: Within that, inventory units are up 6%. We're positioned to support future growth, along with 4 percentage points from freight and inventory actions related to tariffs, with year-over-year changes in product category mix driving the remaining cost increase. The tax rate for Q1 was in line with our outlook at 25%. Net income per diluted share was above our outlook at $1.59 compared to $2.14 last year.

Speaker Change: Again, the traffic was positive our customer file is growing the brand is strong and we're really excited about <unk> future growth.

Speaker Change: One quarter, but we're excited about the inflection in the back half and the opportunity globally for the brand.

Speaker Change: Thank you.

Marni Shapiro: Our next question comes from Marni Shapiro with the Retail Tracker. Your line is open. Hey guys, congrats. The stores have looked absolutely fabulous. Could you just talk a little bit, just give a quick update on a few things. What was the actual store count ending for the quarter? What was the opening and closing for the first quarter? And then could you give us a little bit of an update just on YPB, where that stands? How has it been doing? And also an update on your smaller footprint Abercrombie stores. I know you just opened this store in Williamsburg, but the smaller stores in cities and towns, if you could just talk a little bit about those.

Speaker Change: Thank you. Our next question comes from Marni Shapiro with the retail tracker. Your line is open.

Robert Ball: Moving to the balance sheet, we exited the quarter with cash and cash equivalents of $511 million and liquidity of approximately $940 million. We also ended the quarter with marketable securities of $97 million. For the quarter, we repurchased $200 million worth of shares consistent with our commentary from early March, ending the quarter with $1.1 billion remaining on our current share repurchase authorization. Shifting to the outlook, global growth remains our highest priority. On the cost side, our 2025 outlooks assumes a 10% tariff on all global imports into the US, as well as a 30% tariff on imports from China.

Marni Shapiro: Hey, guys. Congrats sources looks absolutely Fabulous could you just talk a little bit just give us a quick update on a few things what was the actual store count ending for the quarter what was the opening and closing for the first quarter and then could you just give us a little bit of an update just on wip be where that stands.

Robert Ball: For the quarter, we repurchased $200 million worth of shares consistent with our commentary from early March, ending the quarter with $1.1 billion remaining on our current share repurchase authorization. Shifting to the outlook, global growth remains our highest priority. On the cost side, our 2025 outlooks assumes a 10% tariff on all global imports into the US, as well as a 30% tariff on imports from China.

Speaker Change: How has it been doing and also an update on your smaller footprint Abercrombie stores. I know you just opened the store in Williamsburg, but the smaller stores in cities and towns. If you could just talk a little bit about those.

Robert Ball: Yeah, so on the real estate side, just real quick, Marni, we opened 17 new experiences, seven new stores in Q1, three closures, so net four, we'll see that accelerate here as we get into Q2, we're expecting about 19 new stores. And, and about five closures here for the Q2 is then that's what's embedded in our guide.

Speaker Change: Yes, so on the real estate side, just real quick.

Speaker Change: We opened 17, new experiences seven new stores in Q1, three closures. So net four we'll see that accelerate here as we get into Q2, we're expecting about 19 new stores.

Robert Ball: For China specifically, we've worked for some time now to relocate resources of supply, and this year sourcing volume from China will be in the low single digits. Globally, we remain nicely diversified across 16 countries. We've been leveraging our agile playbook to build a list of mitigation strategies with our primary focus on the combination of supply chain footprint changes, vendor negotiations, and operating expense efficiencies. For AUR specifically, we are currently assuming no AUR mitigation in our outlook as we do not anticipate broad-based ticket price increases. As always, we will pursue higher AURs through the combination of lean inventory and strong product acceptance. Net of expected mitigation efforts, the assumed tariffs carry a cost impact of around $50 million for 2025, impacting our full-year operating margin outlook by 100 basis points.

Speaker Change: And about five closures here for Q2 is then thats whats embedded in our guide.

Fran Horowitz: Yeah, I'll take the middle question. For YPB, active was actually a strong category for us for the first quarter. We're with the opportunity of YPB, and there's some exciting things coming up for fall on that, on that for that brand, that sub-brand. Thanks.

Speaker Change: Yes. Thank you for your question for why PD active was actually a strong category for us for the first quarter. We're excited about we continue to see the opportunity of IPD and there are some exciting things coming up for fall and that for that brand or sub brand.

Speaker Change: Thanks.

Fran Horowitz: Yeah, on the smaller footprints, I'll grab this one at the end. You know, we're really happy with Williamsburg. We talked about that opening. That was an exciting opening for us, one we've been waiting for for a while. There's there's more coming here in Q2. Just running these smaller stores, you know, it's been a muscle that we've had to build over the last year and a half and has been a focus for for Abercrombie, the brand. And we've learned a lot. You know, we're tweaking these stores a little bit. You know, each neighborhood has its own vibe, whether it's how we build or the product that's in there.

Speaker Change: On a smaller footprint. So I'll grab this one at the end, we're really happy with Williamsburg, we talked about that opening it was an exciting opening for us when we've been waiting for for a while there is more coming here in Q2, just running these smaller stores. It has been a muscle that we've had to build over the last year and a half and has been a focus for for Abercrombie the brand and we've.

Speaker Change: And a lot we're tweaking these stores a little bit each neighborhood has its own vibe, whether it's how we build or the product. That's in there and so we're learning a lot and remains an amazing opportunity for Abercrombie go forward.

Robert Ball: For the full year, we now expect net sales growth in the range of 3% to 6% from $4.95 billion in 2024, with full-year growth expected across regions. We increased the high end of our prior outlook by flowing through our Q1 outperformance, with the second half of the year largely unchanged on net sales. We now expect full-year operating margin in the range of 12.5% to 13.5%. The reduction from our prior outlook range is primarily due to the estimated 100 basis point impact from tariffs, net of mitigation efforts, with the remainder driven by the flow-through of the Q2 operating margin outlook. We are forecasting a tax rate around 27%.

Fran Horowitz: And so we're learning a lot and, you know, remains an amazing opportunity for Abercrombie to go forward. Thank you guys. Thank you.

Speaker Change: Thank you guys.

Alex Stratton: Our next question comes from Alex Stratton with Morgan Stanley. Your line is open. Perfect. Thanks so much.

Speaker Change: Thank you. Our next question comes from Alex Stratton with Morgan Stanley. Your line is open.

Speaker Change: Perfect. Thanks, so much maybe for Fran just on you.

Fran Horowitz: Maybe for Fran, just on A&F, you mentioned the wedding shop was weaker, but were there any bright spots within A&F that are popping above the total banner level?

Robert Ball: The reduction from our prior outlook range is primarily due to the estimated 100 basis point impact from tariffs, net of mitigation efforts, with the remainder driven by the flow-through of the Q2 operating margin outlook. We are forecasting a tax rate around 27%.

Speaker Change: You mentioned the wedding shop was weaker but were there any bright spots within an app that are pumping above the total banner level and then for Robert is the full year EPS reduction I know, it's mostly a function of tariffs on gross margin, but can you just walk us through the other dynamics in gross margin <unk>.

Robert Ball: And then for Robert, is the full year EPS reduction, I know it's mostly a function of tariffs on gross margin, but can you just walk us through the other dynamics in gross margin S&A that have perhaps changed since three months ago? Thanks a lot. Yeah, just to reiterate, Alex, on A&F, there are bright spots in A&F, that one particular category was not as strong, but we're excited about what we are seeing. We saw nice active, we saw strong bottoms. I've already mentioned swim. And again, the flexibility of our models, letting the team read the business every single week, get back into what's working, they're very open for the back half, and there's some exciting things that they're reacting to.

Robert Ball: For earnings per share, we expect diluted weighted average shares of around $49 million, which incorporates the anticipated impact of 2025 share repurchases. Combined with the tax rate, we expect net income per diluted share in the range of $9.50 to $10.50. For capital allocation, we expect capital expenditures of approximately $200 million. On stores, we expect to deliver around 100 new experiences, including 60 new stores and 40 right sizes or remodels. We also expect to be net store openers with our 60 new stores outpacing around 20 anticipated closures. At the current sales and operating margin outlook, we continue to target around $400 million in share repurchases for the year, subject to business performance, share price, and market conditions.

Speaker Change: That has perhaps changed since three months ago. Thanks, a lot.

Speaker Change: Yes.

Peter Alex: Peter Alex.

Mike Gupta: There are bright spots in a enough on that one particular category was not as strong but we're excited about what we are seeing we saw nice active we saw strong bottoms.

Mike Gupta: You mentioned swim and again the flexibility of our model is letting the team read the business every single week get back into what's working there very open for the back half and there are some exciting things that they're reacting Tim.

Robert Ball: On stores, we expect to deliver around 100 new experiences, including 60 new stores and 40 right sizes or remodels. We also expect to be net store openers with our 60 new stores outpacing around 20 anticipated closures. At the current sales and operating margin outlook, we continue to target around $400 million in share repurchases for the year, subject to business performance, share price, and market conditions.

Robert Ball: Yeah, Alex, on the EPS reduction, it's really two big pieces here. So as you think about where we were from from March to where we are today, obviously, some color around the tariffs, you know, it's about a $70 million total impact on on on 2025. We're kind of early days with our mitigation playbooks. And so we're working through some of those things, we think we can offset about 20 million of that. So that gets us to that $50 million that we've baked into, into our our guide and that 100 basis points, the balance of it really just comes from, you know, Q2, where, you know, again, we're working through some of the carryover, we'll continue to see a little bit of gross margin pressure.

Mike Gupta: Yes, Alex on the EPS reduction, it's really two big pieces here. So as you think about where we were from from March to where we are today, obviously some color around the tariffs.

Mike Gupta: It's about a $70 million total impact on on.

Mike Gupta: 2025 were kind of early days with our mitigation playbooks and so we're working through some of those things. We think we can offset about $20 million of that so that gets us to that $50 million that we've baked into.

Robert Ball: For Q2 2025, we expect net sales to be up 3% to 5% to the Q2 2024 level of $1.13 billion. We expect operating margin to be in the range of 12% to 13%. We continue to expect slightly higher costs from freight as well as around $5 million of tariff impact net of mitigation efforts. We expect no leverage or deleverage on expense at the midpoint of our outlook. We expect a Q2 tax rate around 28%. We expect net income per diluted share in the range of $2.10 to $2.30, with diluted weighted average shares expected to be around 49 million, including the anticipated impact of around $50 million in share repurchases for the quarter.

Mike Gupta: Into our guide in that 100 basis points the balance of it really just comes from Q2, where again, we're working through some of the carryover. We will continue to see a little bit of gross margin pressure. So that brought down the Q2 operating margin a bit on a year over year basis. The tax rate is also up a bit.

Robert Ball: So that brought down the Q2 operating margin a bit on a year over year basis, the tax rates also up a bit. But but the primary drivers are really tariffs and, and that Q2 operating margin guide. Thank you. Good luck. Thank you.

Mike Gupta: But the primary drivers are really tariffs and in that Q2 operating margin guide.

Robert Ball: We expect a Q2 tax rate around 28%. We expect net income per diluted share in the range of $2.10 to $2.30, with diluted weighted average shares expected to be around 49 million, including the anticipated impact of around $50 million in share repurchases for the quarter.

Speaker Change: Thank you good luck.

Mauricio Serna: Our next question comes from Mauricio Serna with UBS. Your line is open. Great, good morning and thanks for taking my questions.

Speaker Change: Thank you. Our next question comes from Mauricio Serna with UBS. Your line is open.

Mauricio Serna: Great. Good morning, Thanks for taking my questions first could you breakdown on the Q1 gross margin the puts and takes.

Robert Ball: First, could you break down on the Q1 gross margin, the put and take between the carryover and freight cost pressures? And then on inventory, how are you thinking about inventory growth, you know, as the year progresses? Thank you. Yeah, Mauricio, so no major surprises here on gross margin for Q1 based on what we shared in March. When you think about freight, it was more than half of that 440 basis point decline here in Q1. And then the balance of it was really the carryover pressure on the higher cost of the fall goods. AUR was roughly flat for the for the quarter.

Robert Ball: To close things out, our agile operating model has supported transformative growth and continues to be a catalyst for growth, for driving consistent gains across sales, earnings, and cash flow. Q1 2025, we're executing with discipline to deliver against our near-term goals while keeping our sights firmly set on the significant long-term opportunities ahead. With that operator, we are ready for questions.

Mauricio Serna: Between the carryover and freight cost pressures and then inventory how are you thinking about inventory growth.

Mauricio Serna: As the year progresses. Thank you.

Mike Gupta: Yes, Mauricio so no major surprises here on gross margin for Q1 based on what we shared in March when.

Mike Gupta: When you think about freight it was more than half of that 440 basis point decline here in Q1, and then the balance of it was really the carryover pressure on the higher cost of fall goods.

Operator: Thank you. As a reminder to ask a question, please press star one one. To remove yourself from the queue, please press star one one again. One moment for questions. Our first question comes from Dana Telsey with Telsey Advisory Group. Your line is open. Dana, if your telephone is muted, please unmute.

Mike Gupta: <unk> was roughly flat.

Robert Ball: So you know, A&F pressure with that sell through the carryover inventory offset by improving in Hollister. So you know, as we think about where that goes for the balance of the year, we'll work through the balance of freight as we've been committing to all year, that should kind of work us through Q2. carryover will be some pressure here as we as we work through the the inventory mix for the business. And you know, again, get through most of that during during Q2. But again, just a reminder that carryover, it's not really an abnormal place to be.

Mike Gupta: For the quarter or so.

Mike Gupta: <unk> pressure with that sell through of the carryover inventory offset by improvement in Hollister. So as we think about where that goes for the balance of the year, we'll work through the balance of freights as we've been committing to all year that should kind of work us through Q2 carryover will be some pressure here as we as we worked through the.

Dana Telsey: Hi, good morning, everyone. Sorry about that. Great to see the updated guidance and would love to get some more color both on Hollister, Fran, and on Abercrombie. How do you see the outlook go forward on men's and women's for Abercrombie, cycling the compares and the newness that you're looking for? Also what other initiatives do you see at Hollister that continue to drive this growth? Just on the real estate side, I noticed that the closures are being reduced this year in the guide to 20 from 40. What's changing? What's new there? On the remodels to 40 from 60. Any takeaways there and thoughts? Thank you.

Mike Gupta: Inventory mix for the business and again get through most of that during during Q2, but again just a reminder, that carryover, it's not really an abnormal place to be so it's not it's not a major issue for us from a from a Q2 standpoint.

Robert Ball: So it's not it's not a major issue for us from a from a Q2 standpoint.

Robert Ball: We generally don't guide inventory on a cost basis. You know, as we've done historically, you know, we're looking to make sure that our units are aligned with our sales growth on a go forward basis. So that's what we'll do here. You know, we ended ended the quarter with plus six units for the quarter, happy with where that sits. And we'll continue to tightly manage those units as we move through the balance of the year.

Mike Gupta: We generally don't guide inventory on a cost basis as we've done historically, we're looking to make sure that our units are aligned with our sales growth on a go forward basis. So that's what we will do here. We ended ended the quarter with plus six units.

Dana Telsey: Just on the real estate side, I noticed that the closures are being reduced this year in the guide to 20 from 40. What's changing? What's new there? On the remodels to 40 from 60. Any takeaways there and thoughts? Thank you.

Mike Gupta: For the quarter happy with where that sits and will continue to tightly manage those units as we move through the balance of the year.

Fran Horowitz: Thanks, Dana. Good morning. Super excited about the record results that we just put up, total company. Let's break down your question. We'll start with Abercrombie. Abercrombie, you know, we talked about this during the last call. We came into Q1 with a bit of carry over from last year, up against obviously a spectacular Q1 of last year, where we were essentially clean of carry over. That put the pressure on the AUR as we had expected it to do so. You know, our model gives the team an opportunity to really stay flexible and chase goods. That's what our playbook is built on. A great example of that was as we got into Q1, we had a terrific response to our swim. We had a vacation shop set for Q2.

Fran Horowitz: I'm just a quick follow up on on on inventory. Sorry, I'll just phase out for a second. I'm sorry, on Hollister, you talked about, you know, some success with a grad shop, like good customer response. I guess, like, how are you thinking about the second half growth for this brand as, you know, you're gonna face a much tougher compare. So how are you thinking about, like, initiatives to sustain that growth? Thank you.

Speaker Change: Understood and just a quick follow up on <unk>.

Speaker Change: On inventory.

Speaker Change: <unk>.

Speaker Change: Sorry.

Speaker Change: Second I am sorry on Hollister and you talked about some.

Mike Gupta: Success with our Bradshaw good customer response, I guess like how are you thinking about the second half growth for this brand.

Mike Gupta: Youre going to face much tougher comparison, how are you thinking about initiatives to sustain that growth.

Fran Horowitz: That put the pressure on the AUR as we had expected it to do so. You know, our model gives the team an opportunity to really stay flexible and chase goods. That's what our playbook is built on. A great example of that was as we got into Q1, we had a terrific response to our swim. We had a vacation shop set for Q2.

Fran Horowitz: So let's just back up. Record performance. We saw balanced growth across regions, across genders. We are gaining share, which is incredibly exciting in the teen space. I would say the team is doing a great job of really evolving from being a teen outfitter to being very culturally relevant. That was exhibited during all the work we did with Collegiate, again with the grad shop. We are there meeting this customer at their most important life moments. And so there are some exciting things. I'm not going to share the go forward, but they have got some more exciting things coming up, ready for summer to start, and lots of exciting things happening for fall.

Mike Gupta: Hey, Mark it's Fran so.

Speaker Change: <unk> record performance, we saw balanced growth across regions across genders, we are gaining share which is incredibly exciting in the teen space I would say the team is doing a great job of really evolving from being a <unk> outfitter to being very culturally relevant that was exhibited during all of the work we did with collegiate again with the <unk>.

Fran Horowitz: We were able to get back into that swim, really ramp it up, ramp up our assets and our marketing even stronger than we were planning to. We've seen a nice reaction to that. Exciting to see progress, and we do expect to see an inflection in Abercrombie in the back half. Hollister, again, what a quarter. Up 22%. Incredibly proud of that team. Lots of exciting things going on in that brand. I guess most recently to discuss would be the grad shop. Again, staying very culturally relevant to these teens, what's important to them. The grad shop just launched. We've seen nice success to that. You know, the Q1 was driven by fleece, by jeans, by skirts, lots of exciting categories. Our expectation is obviously to continue to see Hollister grow throughout the year.

Mike Gupta: We are their meeting this customer at their most important life moments and so there are some exciting things and how can you share. The go forward, but they have got some more exciting things ready for summer to start and lots of exciting things happening for fall, Yeah, and I'd just say very soon.

Scott Lipesky: Yeah, and I just say, Mauricio, our job is to grow the total, right? We have two strong, profitable brands. We've got a fleet of highly productive, profitable stores. That complements a really profitable digital business. We've got three regions that are comping positive with line of sight to more growth ahead. So we love this diversified portfolio. We love this diversified channel and regions. That helps us to deliver against that goal here in Q2. And we're excited about the balance of the year.

Speaker Change: Our job is to grow the total right. We have two strong profitable brands. We've got a fleet of highly productive profitable stores that complements a really profitable digital business. We've got three regions that are comping positive with line of sight to more growth ahead. So we love this diversified portfolio, we love this diversified channels and regions.

Fran Horowitz: Lots of exciting things going on in that brand. I guess most recently to discuss would be the grad shop. Again, staying very culturally relevant to these teens, what's important to them. The grad shop just launched. We've seen nice success to that. You know, the Q1 was driven by fleece, by jeans, by skirts, lots of exciting categories. Our expectation is obviously to continue to see Hollister grow throughout the year.

Speaker Change: That helps us to deliver against that goal here in Q2, and we're excited about the balance of the year.

Robert Ball: And if I may, just one quick follow-up. On gross margin, you know, it was down 440 basis points in Q1. Is the expectation of Q2 just, you know, down, but maybe, you know, not as much, or how should we think about the Q2 gross margin evolution, and particularly the drivers there? Thank you. Yeah, no specific guide for Q2, but you would expect sequential improvement from that down 440 in Q1 as we move into Q2. Again, freight won't be as big of a headwind for us. The carryover inventory is not going to be as big of an impact for us in Q2, and again, we're assuming flat AUR.

Speaker Change: Got it and then if I may just one quick follow up on gross margin was down 140 basis points. In Q1 is your expectation of Q2, just down but maybe not as much how should we think about the Q2 gross margin evolution, particularly would be the drivers there yes, no specific guide for Q2.

Fran Horowitz: With that, I will turn it over to Robert on your real estate questions.

Robert Ball: Yeah. Hey, Dana. I'll hit this real estate one. Again, you know, we're really thrilled here to be talking about being net store openers again here for another year. You know, adjustments here are pretty consistent. You know, excited to see 100 new store experiences, 60 new stores, 40 refreshes in model. We're always opportunistic here as we move throughout the year. From a store closure standpoint, we did close 40 stores last year, planning to close 20 stores this year. You know, the teams have been working through landlord negotiations and packages, and we just see opportunities to keep these stores rolling. Again, excited to be out there for the consumer and build this fleet, which, you know, as we talked about last year is or last quarter, is nicely contributory.

Mauricio Serna: But you would expect sequential improvement from that down $4 40 in Q1, as we move into Q2 again freight wont be as big of a headwind for us to carryover inventory is not that not going to be as big of an impact for us in Q2, and again works, we're assuming flat AUR. So.

Robert Ball: From a store closure standpoint, we did close 40 stores last year, planning to close 20 stores this year. You know, the teams have been working through landlord negotiations and packages, and we just see opportunities to keep these stores rolling. Again, excited to be out there for the consumer and build this fleet, which, you know, as we talked about last year is or last quarter, is nicely contributory.

Mauricio Serna: So sequential improvement is the way that we're thinking about it, and it's all baked into that operating margin guide. Thank you so much and congratulations. Thanks Mauricio. Thank you.

Mauricio Serna: Sequential improvements the way that we're thinking about it it's all baked into that operating margin guidance.

Mauricio Serna: Thank you so much and congratulations thanks.

Lisa: Thanks Lisa.

Unknown Executive: As a reminder, to ask a question, please press star 1-1.

Mauricio Serna: Thank you as a reminder to ask a question. Please press star one one.

Robert Ball: As long as we continue to see these productivities up on these stores, we're gonna keep these things rolling.

Rick Patel: Our next question comes from Rick Patel with Raymond James. Your line is open. Thanks. Good morning.

Speaker Change: Our next question comes from Rick Patel with Raymond James Your line is open.

Dana Telsey: Thank you.

Rick Patel: I wanted to double click on your expectations for promotions going forward. So it sounds like you have some work to do for a carryover for the Abercrombie brand in the near term, but that the back half should be cleaner. Does that back half improvement reflect fewer units that you have planned? Or does it reflect just more confidence in the assortment? And then as a follow up, what are your assumptions for promotions for Hollister going forward? Given the strong momentum there, do you see opportunity to pull back? Yeah, so when you think about promotions on the A&F side of the house, you know, we'll see some AUR pressure here as we work through the carryover inventory.

Rick Patel: Thanks, Good morning, I wanted to double click on your expectations for promotions going forward. So it sounds like you have some work to do for carryover for the Abercrombie brand in the near term, but that the back half should be cleaner does that back half improvement reflect fewer units that you have planned or does it reflect.

Operator: Thank you. Our next question comes from Corey Tarlowe with Jefferies. Your line is open.

Corey Tarlowe: Great. Thanks for taking my question. I guess, Robert and Scott, on the outlook for the full year, you obviously took down profit mainly as a result of tariffs. On the sales outlook, the high end of the guide was actually revised up. I'm just curious how you think about that, and what's your confidence in sort of that the higher end of that range as we look to the remainder of the year, and what informs that?

Mauricio Serna: Just more confidence in the assortment and then as a follow up what are your assumptions for promotions for Hollister going forward given the strong momentum there do you see opportunity to pull back.

Mauricio Serna: Yes, so when you think about.

Mauricio Serna: Promotions on the SNF side of the house.

Mauricio Serna: We'll see some AUR pressure here as we work through the carryover inventory again, not as big of an issue in Q2 as it is in Q as it was in Q1, so we should see sequential improvement there.

Robert Ball: Again, not as big of an issue in Q2 as it was in Q1. So we should see sequential improvement there. You know, we're always going to align our promotions with our inventory levels and customer demand. So, you know, we'll see how that goes. We're going to come in every day. And this goes for the Hollister, your Hollister question as well. You know, we'll come in every day, we'll work to make sure that that we're pulling back on a day here or from our discount depth there. You know, all of those things, given this financial model are really beneficial for us.

Robert Ball: I'll take this one, Corey. For the full year, you know, we are expecting growth across the regions in that 3% to 6% top line guide. We're rolling through that Q1 beat on the top end of our guide, and we're holding the bottom, which again, you know, when we think about the environment that we're working in here, we feel is reasonable and appropriate with just one quarter in the books for the year. On the margin front, you're exactly right. We're rolling through that $50 million of tariff impact net of the mitigation efforts to date, and that expected margin pressure from Q2 to walk us from that $14 to 15 from March to that twelve and a half to thirteen and a half guide today.

Mauricio Serna: Always going to align our promotions with our inventory levels and customer demand. So.

Mauricio Serna: We'll see how that goes we're going to come in every day and this goes for the Hollister Youre Hollister question as well.

Mauricio Serna: We will come in every day, we will work to make sure that that we're pulling back on a day here or a discount depth. There all of those things given this financial model are really beneficial for us and that's our job, but sitting here today, we're going to assume that we hold the gains again multiyear double digit positive AUR is across the brands, we like where.

Robert Ball: On the margin front, you're exactly right. We're rolling through that $50 million of tariff impact net of the mitigation efforts to date, and that expected margin pressure from Q2 to walk us from that $14 to 15 from March to that twelve and a half to thirteen and a half guide today.

Robert Ball: And that's our job. But, you know, sitting here today, you know, we're going to assume that we hold the gains again, multi year, double digit positive AURs across the brands, we like where we are, we like the value proposition that we provide to that consumer. But again, we're going to come in every day and try to try to improve on that.

Mauricio Serna: We are we like the value proposition that we provide to that consumer.

Scott Lipesky: Just to add on there at the end, Corey, I guess the confidence, you know, comes from being on offense. You know, we have a strong balance sheet. Robert just mentioned 100 new experiences this year. Let's add in marketing. Let's add in digital and technology investments. That's what gives us the confidence. Fran mentioned, you know, the brands are open, the brands are chasing. We have the inventory, we have the investments, and that's what gives us the confidence.

Mauricio Serna: But again, we're going to come in every day and try to try to improve on that.

Fran Horowitz: Can you also double click on your expectations for growth in Europe and Asia for the rest of the year, you know, some nice results in Q1 and you touched on positive global growth for the year. So just some additional color there would be great. Yeah, no change to our thinking here. You know, it was great to see all three regions post growth and positive comps. In the first quarter, we're expecting this full year for these for these regions to all deliver growth, which is, you know, something that we commit to every year. And we still see that growth opportunity across the Americas, EMEA and APEC.

Speaker Change: Can also double click on your expectations for growth in Europe, and Asia for the rest of the year. Some nice results in Q1, and you touched on positive global growth for the year. So just some additional color there would be great.

Speaker Change: Yes, no change to our thinking here it was great to see all three regions posted growth and positive comps.

Corey Tarlowe: That's great. Just on Abercrombie, is the expectation that we return to growth later in the year, that's presumably both sales and comp, is there any expectation as to when or what the drivers might be for that as well, as we think about the really strong compares that we're gonna be cycling?

Rick Patel: In the first quarter, we're expecting this full year for these for these regions to all deliver growth, which is something that we commit to every year and we still see that growth opportunity across the Americas, EMEA and APAC. So nice balanced healthy growth here that we're seeing in a lot of opportunity ahead for US yeah, Rick just to add on there for the international piece, we've been very.

Fran Horowitz: So, you know, nice, balanced, healthy growth here that we're seeing and a lot of opportunity ahead for us. Yeah, Rick, just to add on there for the international piece, you know, we've been very focused on the UK market and more recently, moved into Germany, you know, with our team has, you know, gotten their feet under them there in Europe, our team in London, they've done an amazing job. So it was kind of the same story here in the quarter saw strong growth in the UK, see Germany growing. And those are our biggest two countries in Europe.

Speaker Change: Focused on the UK market and more recently moved into Germany with our team has gotten their feet under them there in Europe, our team in London.

Fran Horowitz: Yeah, I think Scott just said it. The team is hard at work, Corey. You know, that's what our model lets them do, which is really drive that open-to-buy and stay flexible and agile with their receipts going forward, reacting to the things that are happening in the business. You know, we do expect to see an inflection in the back half. We're not gonna give an exact date and time, but we do expect to see it in the back half. The drivers are the categories that we're starting to see some nice reaction to that the team's getting back into.

Speaker Change: There are an amazing job. So it was kind of the same story here in the quarter saw strong growth in the U K C, Germany growing and those are our biggest two countries in Europe, so great to see growth out of the two of them.

Rick Patel: So great to see growth out of the two of them. Thanks very much.

Speaker Change: Thanks very much.

Unknown Executive: Thank you.

Janet Kloppenburg: Our next question comes from Janet Kloppenburg with JJK Research Associates, Inc. Your line is open. Hi, everybody. Great job on the quarter. I had a couple of questions. When you talk about the improvement for Abercrombie for the second half, does that reflect some buoys that maybe you had in the spring or last year in the second half? And I just wondered about your confidence level there. And then I wondered about the carryover product. My thoughts are that Well, it's really true. My question really is, could this just be markdown levels normalizing after you guys, you know, had four years of double digit growth there, and sort of no markdowns to really speak of?

Speaker Change: Thank you. Our next question comes from Janet Kloppenburg with J J K Research Associates, Inc. Your line is open.

Corey Tarlowe: Great. Thank you very much, and best of luck.

Fran Horowitz: Thanks.

Janet Kloppenburg: Hi, everybody.

Operator: Thank you. Our next question comes from Matthew Boss with JPMorgan. Your line is open.

Speaker Change: Great job on the quarter.

Speaker Change: Hi.

Speaker Change: I had a couple of questions.

Operator: Great. Thanks. Fran, could you speak to the progression of traffic during Q1 and into May at Abercrombie relative to Hollister? Just where Abercrombie stands also with end of season carryover inventory today?

Matthew Boss: Great. Thanks. Fran, could you speak to the progression of traffic during Q1 and into May at Abercrombie relative to Hollister? Just where Abercrombie stands also with end of season carryover inventory today?

Speaker Change: When you talk about the improvement or Abercrombie in the second half.

Speaker Change: Does that reflect some voids that maybe you had in the spring or last year in the second half.

Speaker Change: And I'm, just wondering about your confidence level there.

Fran Horowitz: We saw nice traffic actually throughout the, throughout the quarter for Abercrombie. That's why I had discussed a little while ago, Matt, that, you know, the opportunity was really in this, in the carryover and the, and the compression of the AUR based on that product, which our expectation is that we are, we are selling through that and seeing ourselves in a better position on all of that. Traffic was strong as well for Hollister on both digital as well as stores.

Speaker Change: Then I wanted to ask about the carryover product.

Speaker Change: My thoughts that.

Speaker Change: Well really true my question really is.

Speaker Change: Could this just the markdown levels normalizing. After you guys had four years of double digit growth, there and sort of no markdowns to really speak up so just would love to hear more on that thank you.

Robert Ball: So just would love to hear more on that. Thank you.

Robert Ball: Yeah, Matt, I'll just add 1 thing on the, on the ANF inventory side of the house. We did work through a ton of that carryover inventory in Q1. We've still got some sitting on the books here, you know, we're not concerned with where those levels are. If you remember last year, we had, you know, low levels of carryover inventory throughout the spring season, we're just up against that year-over-year. Just for some perspective, we are below our carryover levels from this time in 2023, it really is just more of a normalized level of carryover, we're up against the low levels from 2024.

Fran Horowitz: Yeah, I'll, Janet, let me jump in on that second one first. So on the carryover product, you're absolutely right. I mean, you think about, you know, what we were up against from 2024s Q1, you know, we delivered 6% gross margins, and we had basically zero carryover all the way through the spring season. So that's, so we're just lapping that today. And again, that's why we don't expect the carryover impact on margins on a go forward basis to be as as meaningful. As we move into the back half. Thank you. Sure. Hey, Jen, on the first question, I guess what I would say is that there were some products perhaps that we just didn't see the same rate of sale as we saw last year against what was an incredible launch, right, of a shop.

Speaker Change: Yes, Jonathan let me jump in on that second one first so on the carrier product Youre, absolutely right I mean, you think about.

Speaker Change: What we were up against from 2020 fours Q1.

Speaker Change: 566% gross margins and we had basically zero carryover all the way through the spring season. So we're just lapping that today and again, that's why we don't expect.

Speaker Change: The carryover impact on margins on a go forward basis to be as meaningful.

Speaker Change: As we move into the back half.

Operator: Then maybe Robert, just as a, as a follow-up. Is there a way to break apart Q2 gross margin? We're thinking about promotions relative to tariffs and freight. How best to think about gross margin progression in the back half of the year? Maybe just higher level, as we're thinking about operating margins multi-year, is there any give back in the model or how best to think about operating margins on a multi-year basis?

Matthew Boss: Then maybe Robert, just as a, as a follow-up. Is there a way to break apart Q2 gross margin? We're thinking about promotions relative to tariffs and freight. How best to think about gross margin progression in the back half of the year? Maybe just higher level, as we're thinking about operating margins multi-year, is there any give back in the model or how best to think about operating margins on a multi-year basis?

Jonathan: Thank you, Sir Hey, Jonathan on the first question.

Speaker Change: I guess I would say is that there was some products perhaps.

Speaker Change: We just didn't see the same rate of sale as we saw last year against what was an incredible launch.

Fran Horowitz: I would say that there weren't voids. I think that there's new trends that are emerging that the team is very excited about, and that's what our model allows us to do. I mean, a great example of that would be, you know, what's happening now in Boho and Western. I mean, those are things that the customer is starting to respond to. Our model allows us to get back into that pretty aggressively. There's some leg shapes that are changing on the bottom that we're excited about for the second quarter, actually for the second half, excuse me. So there's things that the customer is starting to tell us that we're responding to.

Speaker Change: Have a shop.

Speaker Change: I would say that there werent voice I think that Theres new trends that are emerging that the team is very excited about and that's what our model allows us to do I mean, a great example of that would be what's happening now in both <unk> and western I mean, those are things that the customers starting to respond to our model allows us to get back into that pretty aggressively there is some leg shapes that are <unk>.

Robert Ball: Yeah. On the gross margin guide, in terms of what's baked into our Q2, you know, we talked about in March working through a lot of the freight and the carryover pressures. Again, that was what drove the gross margin declines in Q1. We got through a ton of that. We'll still see some pressure here in Q2 as we work through the balance of that freight. We've got about $10 million of excess freight sitting on the balance sheet that we'll work through here in Q2 before that normalizes for the back half. That's been consistent with what we expected coming into the year.

Speaker Change: <unk> on the bottom that we're excited about for the second quarter actually for the second half excuse me. So there's things that the customer is starting to tell us that we're responding to.

Fran Horowitz: And you have time to get that done, Fran, with the lead times and everything? Yeah, with our model, I mean, that's, that is what we do. I mean, the flexibility and agility, right, that we've built in, there's absolutely, I mean, we're very open for the back half.

Speaker Change: And you have time to get that done plan with the lead times and everything.

Speaker Change: Our model I mean, that's that.

Robert Ball: The carryover inventory, you know, we'll still see some AUR pressure here on the ANF side as we work through the balance of that carryover and right-size the inventory, and that's a bit of a factor for Q2 as well. AUR, you know, AUR was flat in Q1. Obviously had some pressure on the ANF side that was offset by a nice gains on the Hollister side. The way that we're thinking about this year is the balances of this year, Q2 and beyond. You know, we're gonna come in with flat AURs, and we're gonna work through and expect sequential improvement here as we move through the Q2 and moving forward.

Speaker Change: I mean the flexibility.

Speaker Change: Right that we've built in there is absolutely I mean, we're very open for the back half.

Fran Horowitz: And are you feeling any competitive heat from some of the other brands out there? You know, that often happens after a brand having this many years of outperformance is, you know, this pressure, as people, you know, sort of admire what you've done, and trying to get a piece of it. It's certainly exciting that we have an incredibly successful playbook that we're going to continue to stay focused on, lining up that product voice and experience is what, you know, what this team does best and staying close to that customer. It's a huge compliment, of course, that people are watching what we're doing, but it's our job, you know, to stay ahead of them and to stay faster, and I believe that the team has got some exciting things that they're working on to do just that.

Speaker Change: And are you feeling any competitive heat from some of the other brands out there that often happens after a brand having.

Speaker Change: Many years of outperformance is this pressure as people.

Speaker Change: Sort of admire.

Speaker Change: Admire what you've done and trying to get a piece of it.

Speaker Change: Hey, listen its certainly exciting that we have is incredibly successful playbook that we're going to continue to stay focused on lining up that product voice and experience is like.

Robert Ball: On the operating margin side of the house, you know, no change here. Our focus is squarely on driving long-term sales, operating profit dollars, EPS growth go forward. You know, as Fran mentioned, we've got two incredible brands. We've got a proven operating model. We've got amazing teams. We've got a pretty healthy financial framework. You know, cash productivity is strong. We'll continue to invest back into this business to strengthen for the long term. We'll talk more long term here as we get deeper into the year. You know, we've guided to this 12.5% to 13.5% operating margin, which is a strong place to be and leaves us with potential to expand if we see that top line outperform our guide.

Speaker Change: What this team does best and staying close to that customer. It's a huge compliment of course that people are watching what we're doing.

Speaker Change: Our job to stay ahead of them and to stay faster and I believe that the team has got some exciting things that they're working on to do just that.

Janet Kloppenburg: OK, congratulations and good luck. Thank you.

Robert Ball: You know, cash productivity is strong. We'll continue to invest back into this business to strengthen for the long term. We'll talk more long term here as we get deeper into the year. You know, we've guided to this 12.5% to 13.5% operating margin, which is a strong place to be and leaves us with potential to expand if we see that top line outperform our guide.

Speaker Change: Okay, Congratulations and good luck.

Janet Kloppenburg: Janet Thanks Shannon.

Unknown Executive: I'm not showing any further questions at this time.

Speaker Change: Thank you I'm not showing any further questions at this time I would like to turn the call back over to Fran for closing remarks.

Fran Horowitz: I'd like to turn the call back over to Fran for closing remarks. Thanks everyone, and we just look forward to updating you after the second quarter.

Speaker Change: Thanks, everyone and we look forward to updating you after the second quarter.

Unknown Executive: Thank you for your participation.

Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

Unknown Executive: This does conclude the program. You may now disconnect. Everyone have a great day.

Operator: It's great color. Best of luck.

Matthew Boss: It's great color. Best of luck.

Robert Ball: Yep. Thanks, Matt.

Operator: Thank you. Our next question comes from Paul Lejuez with Citi. Your line is open.

Speaker Change: Okay.

Corey Tarlowe: Hi, this is Kelly on for Paul. Thanks for taking our question. I guess, Fran, if we could just, you know, circle back on the ANF brand in Q1. You mentioned that it disappointed versus your expectations. Could you just dig into where in the assortment from a category product perspective?

Kelly McPhilliamy: Hi, this is Kelly on for Paul. Thanks for taking our question. I guess, Fran, if we could just, you know, circle back on the ANF brand in Q1. You mentioned that it disappointed versus your expectations. Could you just dig into where in the assortment from a category product perspective?

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Alex Straton: Where you saw disappointment and what you were doing to course correct that. Just secondly, on the quarter date, or I'm sorry, the Q2 guide, 3% to 5%. Is that sort of embedding in what you're seeing, Q2 quarter date? Thanks.

Kelly McPhilliamy: Where you saw disappointment and what you were doing to course correct that. Just secondly, on the quarter date, or I'm sorry, the Q2 guide, 3% to 5%. Is that sort of embedding in what you're seeing, Q2 quarter date? Thanks.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: [music].

Fran Horowitz: Sure. Hey, Kelly. First, for Abercrombie. You know, as I mentioned earlier today, we broke down. You have to really break down Q1. As we had set our expectation in the last call for Abercrombie Adult, we did have this carryover that we have not, you know, we did not anniversary from 2024. As Robert just said, from 2023, it's basically more normalized. That put the pressure on the AUR, drove a significant part of the decline. The other piece of it was up against, honestly, a spectacular launch of the wedding shop, which we just did not comp as well. We had dresses that were strong, that sold, but they did not sell to the level of actually the launch of the shop. The team, as I've said, is busy, hard at work.

Fran Horowitz: That put the pressure on the AUR, drove a significant part of the decline. The other piece of it was up against, honestly, a spectacular launch of the wedding shop, which we just did not comp as well. We had dresses that were strong, that sold, but they did not sell to the level of actually the launch of the shop. The team, as I've said, is busy, hard at work.

Fran Horowitz: They're very open in the back half, chasing into product, that we are seeing selling, and we're excited about seeing an inflection in the back half of the year.

Robert Ball: Yeah, Kelly, I'll take the Q2 guide as we think about this. You know, we're excited to be in a position to grow top line in Q2 off of that plus 21 Q2 that we delivered last year. May month to date trends all incorporated into that outlook of 3% to 5% for the quarter. As you know, you know, volume will build from here, particularly for Hollister, as we move into the back to school season here. Ultimately, you know, excited that we're targeting growth on growth here, and we feel good about the balance of the year, from that perspective.

Fran Horowitz: Yeah. Hey, Kelly, I just wanted to add one last thing on the first question. Just as far as Abercrombie goes, you know, again, the traffic was positive, our customer file is growing, the brand is strong, and we're really excited about, you know, future growth, you know, Q1. We're excited about the inflection in the back half and the opportunity globally for the brand.

Alex Straton: Thank you.

Kelly McPhilliamy: Thank you.

Operator: Thank you. Our next question comes from Marni Shapiro with The Retail Tracker. Your line is open.

Marni Shapiro: Hey, guys. Congrats. Stores have looked absolutely fabulous. Could you just talk a little bit, just give us a quick update on a few things. What was the actual store count ending for the quarter? What was the opening and closing for Q1? Then could you give us a little bit of an update just on YPB, where that stands, how has it been doing? Also an update on your smaller footprint Abercrombie stores. I know you just opened the store in Williamsburg, but the smaller stores in cities and towns, if you could just talk a little bit about those.

Marni Shapiro: Then could you give us a little bit of an update just on YPB, where that stands, how has it been doing? Also an update on your smaller footprint Abercrombie stores. I know you just opened the store in Williamsburg, but the smaller stores in cities and towns, if you could just talk a little bit about those.

Robert Ball: Yeah. On the real estate side, just real quick, Marni, we opened 17 new experiences, 7 new stores in Q1, 3 closures, so net 4. We'll see that accelerate here as we get into Q2. We're expecting about 19 new stores, and about 5 closures here for the Q2 is. That's what's embedded in our guide.

Marni Shapiro: Thank you.

Fran Horowitz: I'll take the real question. For YPB, active was actually a strong category for us for Q1. We're excited about what we continue to see with the opportunity of YPB. There's some exciting things coming up for fall on that for that brand, that sub-brand.

Marni Shapiro: Thanks.

Robert Ball: Yeah, on the smaller footprints, I'll grab this one at the end. You know, we're really happy with Williamsburg. We talked about that opening. That was an exciting opening for us, one we've been waiting for for a while. There's more coming here in Q2. Just running these smaller stores, you know, it's been a muscle that we've had to build over the last year and a half, and has been a focus for Abercrombie, the brand. We've learned a lot. You know, we're tweaking these stores a little bit. You know, each neighborhood has its own vibe, whether it's how we build or the product that's in there. We're learning a lot and, you know, remains an amazing opportunity for Abercrombie going forward.

Robert Ball: here's more coming here in Q2. Just running these smaller stores, you know, it's been a muscle that we've had to build over the last year and a half, and has been a focus for Abercrombie, the brand. We've learned a lot. You know, we're tweaking these stores a little bit.

Robert Ball: You know, each neighborhood has its own vibe, whether it's how we build or the product that's in there. We're learning a lot and, you know, remains an amazing opportunity for Abercrombie going forward.

Marni Shapiro: Awesome. Thank you, guys.

Operator: Thank you. Our next question comes from Alex Straton with Morgan Stanley. Your line is open.

Alex Straton: Perfect. Thanks so much. Maybe for Fran, just on ANF, you mentioned the wedding shop was weaker, but were there any bright spots within ANF that are comping above the total banner level? Then for Robert, is the full year EPS reduction, I know it's mostly a function of tariffs on gross margin, but can you just walk us through the other dynamics in gross margin net CNA that have perhaps changed since 3 months ago? Thanks a lot.

Fran Horowitz: Yeah. Just to reiterate, Alex, ANF, there are bright spots in ANF. That one particular category was not as strong, but we're excited about what we are seeing. We saw nice active, we saw strong bottoms. I've already mentioned swim. Again, the flexibility of our models, letting the team read the business every single week, get back into what's working. They're very open for the back half, and there's some exciting things that they're reacting to.

Robert Ball: Yeah. Alex, on the EPS reduction, it's really two big pieces here. As you think about where we were from March to where we are today, obviously some color around the tariffs. You know, it's about a $70 million total impact on 2025. We're kind of early days with our mitigation playbooks, we're working through some of those things. We think we can offset about $20 million of that, so that gets us to that $50 million that we've baked into our guide and that 100 basis points. The balance of it really just comes from, you know, Q2, where, you know, again, we're working through some of the carryover. We'll continue to see a little bit of gross margin pressure.

Robert Ball: We think we can offset about $20 million of that, so that gets us to that $50 million that we've baked into our guide and that 100 basis points. The balance of it really just comes from, you know, Q2, where, you know, again, we're working through some of the carryover. We'll continue to see a little bit of gross margin pressure.

Robert Ball: That brought down the Q2 operating margin a bit on a year-over-year basis. The tax rate's also up a bit. The primary drivers are really tariffs and that Q2 operating margin guide.

Alex Straton: Thank you. Good luck.

Operator: Thank you. Our next question comes from Mauricio Serna with UBS. Your line is open.

Mauricio Serna: Great. Good morning, and thanks for taking my questions. First, could you break down on the Q1 gross margin, the puts and takes, you know, between the carryover and freight cost pressures? Then on inventory, how are you thinking about inventory growth, you know, as the year progresses? Thank you.

Robert Ball: Yeah, Mauricio, no major surprises here on gross margin for Q1 based on what we shared in March. When you think about freight, it was more than half of that 440 basis point decline here in Q1, the balance of it was really the carryover pressure on the higher cost of the fall goods. AUR was roughly flat for the quarter. You know, ANF pressure with that sell-through of the carryover inventory offset by improvement in Hollister. You know, as we think about where that goes for the balance of the year, we'll work through the balance of freight, as we've been committing to all year. That should kind of work us through Q2.

Robert Ball: AUR was roughly flat for the quarter. You know, ANF pressure with that sell-through of the carryover inventory offset by improvement in Hollister. You know, as we think about where that goes for the balance of the year, we'll work through the balance of freight, as we've been committing to all year. That should kind of work us through Q2.

Robert Ball: Carryover will be some pressure here as we work through the inventory mix for the business and, you know, again, get through the most of that during Q2. Again, just a reminder, that carryover, it's not really an abnormal place to be, so it's not a major issue for us from a Q2 standpoint. We generally don't guide inventory on a cost basis, you know. As we've done historically, you know, we're looking to make sure that our units are aligned with our sales growth on a go-forward basis. That's what we'll do here. You know, we ended the quarter with +6 units for the quarter. Happy with where that sits, and we'll continue to tightly manage those units as we move through the balance of the year.

Robert Ball: As we've done historically, you know, we're looking to make sure that our units are aligned with our sales growth on a go-forward basis. That's what we'll do here. You know, we ended the quarter with +6 units for the quarter. Happy with where that sits, and we'll continue to tightly manage those units as we move through the balance of the year.

Mauricio Serna: Understood. Just a quick follow-up on inventory. Sorry, I just spaced out for a second. I meant, sorry, on Hollister. You talked about, you know, some success with the grad shop, like good customer response. I guess, like, how are you thinking about the second half growth for this brand as, you know, you're gonna face a much tougher compare? How are you thinking about, like, initiatives to sustain that growth? Thank you.

Fran Horowitz: Yeah, Mauricio Serna, it's Fran Horowitz. Let's just back up. Record performance, we saw balanced growth across regions, across genders. We are gaining share, which is incredibly exciting in the teen space. I would say the team is doing a great job of really evolving from being a teen outfitter to being very culturally relevant. That was exhibited during all the work we did with collegiate, again, with the grad shop. We are there meeting this customer at their most important life moments. There are some exciting things I'm not gonna share the go forward, but they have got some more exciting things coming up, ready for summer to start, and lots of exciting things happening for fall.

Fran Horowitz: That was exhibited during all the work we did with collegiate, again, with the grad shop. We are there meeting this customer at their most important life moments. There are some exciting things I'm not gonna share the go forward, but they have got some more exciting things coming up, ready for summer to start, and lots of exciting things happening for fall.

Robert Ball: Yeah. I'd just say, Mauricio, you know, our job, you know, is to grow the total, right? We have two strong profitable brands. We've got a fleet of highly productive profitable stores that complements a really profitable digital business. We've got three regions that are comping positive with line of sight to more growth ahead. You know, we love this diversified portfolio. We love this diversified channel and regions. That helps us to de-deliver against that goal here in Q2, and, you know, we're excited about the balance of the year.

Mauricio Serna: If, if I may just one quick follow-up on gross margin, you know, was down 440 basis points in Q1. Is the expectation of Q2 just, you know, down but maybe, you know, not as much? Or how should we think about the Q2 gross margin evolution?

Robert Ball: Yeah.

Mauricio Serna: Particularly the drivers there? Thank you.

Robert Ball: Yeah. No, no specific guide for Q2. You would expect sequential improvement from that down 440 in Q1 as we move into Q2. Again, freight won't be as big of a headwind for us. The carryover inventory is not going to be as big of an impact for us in Q2. Again, we're assuming flat AUR. Sequential improvements, the way that we're thinking about it's all baked into that operating margin guide.

Mauricio Serna: Got it. Thank you so much, and congratulations.

Robert Ball: Thanks, Mauricio.

Operator: Thank you. As a reminder, to ask a question, please press star one one. Our next question comes from Rick Patel with Raymond James. Your line is open.

Rick Patel: Thanks. Good morning. I wanted to double-click on your expectations for promotions going forward. It sounds like you have some work to do for carryover for the Abercrombie brand in the near term, but that the back half should be cleaner. Does that back half improvement reflect fewer units that you have planned, or does it reflect just more confidence in the assortment? As a follow-up, what are your assumptions for promotions for Hollister going forward? Given the strong momentum there, do you see opportunity to pull back?

Rick Patel: Does that back half improvement reflect fewer units that you have planned, or does it reflect just more confidence in the assortment? As a follow-up, what are your assumptions for promotions for Hollister going forward? Given the strong momentum there, do you see opportunity to pull back?

Robert Ball: Yeah. When you think about promotions on the ANF side of the house, you know, we'll see some AUR pressure here as we work through the carryover inventory. Again, not as big of an issue in Q2 as it was in Q1, so we should see sequential improvement there. You know, we're always gonna align our promotions with our inventory levels and customer demand. You know, we'll see how that goes. We're gonna come in every day, and this goes for the Hollister, your Hollister question as well. You know, we'll come in every day. We'll work to make sure that we're pulling back on a day here or a discount depth there.

Robert Ball: You know, we'll see how that goes. We're gonna come in every day, and this goes for the Hollister, your Hollister question as well. You know, we'll come in every day. We'll work to make sure that we're pulling back on a day here or a discount depth there.

Robert Ball: You know, all of those things, given this financial model, are really beneficial for us, and that's our job. You know, sitting here today, you know, we're gonna assume that we hold the gains. Again, multi-year, double-digit positive AURs across the brands. We like where we are. We like the value proposition that we provide to that consumer. Again, we're gonna come in every day and try to improve on that.

Rick Patel: Can you also double-click on your expectations for growth in Europe and Asia for the rest of the year? You know, some nice results in Q1, and you touched on positive global growth for the year. Just some additional color there would be great.

Fran Horowitz: Yeah, no change to our thinking here. You know, it was great to see all three regions post growth and positive comps in Q1. We're expecting this full year for these regions to all deliver growth, which is, you know, something that we commit to every year. We still see that growth opportunity across Americas, EMEA, and APAC. You know, nice balanced, healthy growth here that we're seeing and a lot of opportunity ahead for us.

Robert Ball: Yeah, no change to our thinking here. You know, it was great to see all three regions post growth and positive comps in Q1. We're expecting this full year for these regions to all deliver growth, which is, you know, something that we commit to every year. We still see that growth opportunity across Americas, EMEA, and APAC. You know, nice balanced, healthy growth here that we're seeing and a lot of opportunity ahead for us.

Robert Ball: Yeah, Rick, just to add on there for the international piece. You know, we've been very focused on the UK market and more recently, moved into Germany. You know, with our team has, you know, gotten their feet under them there in Europe. Our team in London, they've done an amazing job. It was kinda the same story here in the quarter. Saw strong growth in the UK, see Germany growing, and those are our biggest two countries in Europe. Great to see growth out of the two of them.

Scott Lipesky: Yeah, Rick, just to add on there for the international piece. You know, we've been very focused on the UK market and more recently, moved into Germany. You know, with our team has, you know, gotten their feet under them there in Europe. Our team in London, they've done an amazing job. It was kinda the same story here in the quarter. Saw strong growth in the UK, see Germany growing, and those are our biggest two countries in Europe. Great to see growth out of the two of them.

Operator: Thanks very much. Thank you. Our next question comes from Janet Kloppenburg with JJK Research Associates Inc. Your line is open.

Janet Kloppenburg: Hi, everybody. Great job on the quarter. I had a couple of questions. When you talk about the improvement for Abercrombie for the second half, does that reflect some voids that maybe you had in the spring or last year in the second half? I just wondered about your confidence level there. I wondered about the carryover product. Well, this isn't really true. My question really is, could this just be markdown levels normalizing after you guys, you know, had 4 years of double-digit growth there and sort of no markdowns to really speak of? Just would love to hear more on that. Thank you.

Janet Kloppenburg: I just wondered about your confidence level there. I wondered about the carryover product. Well, this isn't really true. My question really is, could this just be markdown levels normalizing after you guys, you know, had 4 years of double-digit growth there and sort of no markdowns to really speak of? Just would love to hear more on that. Thank you.

Robert Ball: Yeah. Janet, let me jump in on that second one first. On the carryover product.

Janet Kloppenburg: Okay.

Robert Ball: You're absolutely right. I mean, you think about, you know, what we were up against from 2024's Q1. You know, we delivered 6 percent gross margins, and we had basically zero carryover all the way through the spring season. So we're just lapping that today. Again, that's why we don't expect the carryover impact on margins on a go-forward basis to be as meaningful as we move into the back half.

Janet Kloppenburg: Thank you.

Fran Horowitz: Sure. Hey, Janet. On the first question, I guess what I would say is that there were some products, perhaps, that we just didn't see the same rate of sale as we saw last year against what was an incredible launch, right, of a shop. I would say that there weren't voids. I think that there's new trends that are emerging that the team is very excited about, that's what our model allows us to do. I mean, a great example of that would be, you know, what's happening now in boho and western. I mean, those are things that the customer is starting to respond to. Our model allows us to get back into that pretty aggressively. There's some leg shapes that are changing on the bottoms-

Fran Horowitz: I would say that there weren't voids. I think that there's new trends that are emerging that the team is very excited about, that's what our model allows us to do. I mean, a great example of that would be, you know, what's happening now in boho and western. I mean, those are things that the customer is starting to respond to. Our model allows us to get back into that pretty aggressively. There's some leg shapes that are changing on the bottoms-

Janet Kloppenburg: Mm-hmm.

Fran Horowitz: that we're excited about for Q2, or actually for the second half, excuse me. There's things that the customer is starting to tell us that we're responding to.

Janet Kloppenburg: You have time to get that done, Fran, with the lead times and everything?

Fran Horowitz: Yeah. With our model, I mean, that's, that is what we do.

Janet Kloppenburg: Yeah.

Fran Horowitz: I mean, the flexibility-

Janet Kloppenburg: Okay.

Fran Horowitz: Agility, right, that we've built in, there's absolutely. I mean, we're very open for the back half.

Janet Kloppenburg: Are you feeling any competitive heat from some of the other brands out there? You know, that often happens after a brand having this many years of outperformance is, you know, this pressure as people, you know, sort of, admire what you've done and trying to get a piece of it.

Fran Horowitz: Hey, listen, it's certainly exciting that we have an incredibly successful playbook that we're gonna continue to stay focused on. Lining up that product voice and experience is what, you know, what this team does best and staying close to that customer.

Janet Kloppenburg: Mm-hmm. Mm-hmm.

Fran Horowitz: It's a huge compliment, of course, that people are watching what we're doing. but it's our job.

Janet Kloppenburg: Yeah.

Fran Horowitz: you know, to stay ahead of them and to stay faster. I believe that the team has got some exciting things that they're working on to do just that.

Janet Kloppenburg: Okay. Congratulations and good luck.

Fran Horowitz: Thanks, Janet.

Robert Ball: Thanks, Janet.

Operator: Thank you. I'm not showing any further questions at this time. I'd like to turn the call back over to Fran for closing remarks.

Fran Horowitz: Thanks, everyone. We just look forward to updating you after Q2.

Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.

Q1 2025 Abercrombie & Fitch Co Earnings Call

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