ABERCROMBIE & FITCH CO /DE/ Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Fran Horowitz reported record third quarter net sales of $1.2 billion, up 14% y-o-y, with comparable sales up 16%. Operating income grew 30% to $179 million, operating margin expanded to 14.8%.
• Strong sales growth across regions, brands, and vendors driven by traffic. Gross profit rate was 65.1%, the best third quarter since 2010.
• Raised full-year sales expectations and expect operating margin at the high end of previous target.
• Scott Lipesky noted total net sales of $1.2 billion was a third-quarter record, up 14% y-o-y. Comparable sales grew 16% in both stores and digital channels. Gross profit was $787 million, up 15% y-o-y. Inventory was up 16%, with half due to mix/unit growth and half due to freight.

Segment Performance:

• Abercrombie brands: Grew net sales by 15% in the third quarter of 2024, building on 30% growth in Q3 2023, achieving a third-quarter record. Comparable sales grew 11%.
• Hollister brands: Grew 14% in Q3 2024, following 11% growth in Q3 2023. Comparable sales grew 21%.
• Regional performance: Americas net sales grew 14%, EMEA 15%, and APAC 32%. Comparable sales in Americas were 16%, EMEA 13%, and APAC 16%.

Guidance:

• Full-year net sales expected to grow in the range of 14% to 15%, up from previous 12% to 13%. Operating margin expected around 15%, high end of previous target.
• Q4 net sales expected up 5% to 7% compared to Q4 2023, adjusting for calendar shift and foreign currency, growth 11% to 13%. Operating margin expected around 16%.

Risks:

• Shipping market dynamics impacting inventory and costs.
• Foreign currency fluctuations affecting financial results.
• Potential tariff changes impacting sourcing and costs.

Question and Answer: Q: Dana Telsey asked about the Hollister business arc and incremental investments.

A: Fran Horowitz discussed Hollister's balanced growth across genders and categories, and Scott Lipesky talked about marketing investments and store-related investments.

Q: Corey Tarlowe inquired about Abercrombie growth drivers and margin sustainability.

A: Fran Horowitz highlighted product and marketing as drivers, and Scott Lipesky stated the entire P&L is sustainable.

Q: Matthew Boss asked about global brand awareness and Q4 gross margin.

A: Fran Horowitz spoke about global brand growth, and Scott Lipesky discussed Q4 gross margin expectations and inventory comfort.

Q: Paul Lejuez asked about next acts for A&F and cash repo pace.

A: Fran Horowitz talked about A&F's lifestyle brand shift, and Scott Lipesky discussed store growth and cash flexibility.

Q: Marnie Shapiro asked about store counts and Hollister's playbook.

A: Scott Lipesky provided store count details, and Fran Horowitz discussed Hollister's mix of digital and real-life events.

Q: Katie Delahunt asked about Q4 guidance changes.

A: Scott Lipesky explained strong Q4 start and growth expectations.

Q: Mauricio Serna asked about new store locations and Hollister comp sales.

A: Scott Lipesky discussed new store concentration and Fran Horowitz talked about Hollister's balanced growth.

Q: Rick Patel asked about AUR outlook and promotions.

A: Scott Lipesky discussed AURs and promotion reduction based on demand.

Q: Janet Kloppenburg asked about Hollister margins and inventory.

A: Fran Horowitz spoke about Hollister margins, and Scott Lipesky discussed inventory outlook.

Q: Dylan Carden asked about weather impact and tariff plans.

A: Scott Lipesky addressed weather neutrality and tariff implications on sourcing.