Abercrombie & Fitch Co. (NYSE:ANF) Q2 2023 Earnings Call Transcript

Matthew Boss: So, Fran, given the magnitude of the performance at Abercrombie that you continue to see. I guess, could you just speak to what you see driving the sustained momentum at this brand and help us to think about market share, new customer acquisition. And then just relative to a year ago, maybe Scott, could you speak to the supply chain broadly inventory levels into the back half and just your ability to chase trends across both concepts this year relative to the same time last year?

Fran Horowitz: Hey, thanks, Matt. So I’ll take this one off. So it is very exciting and I like your words magnitude. It’s nice to see this momentum continue, and grow for that matter. It is the 10th consecutive quarter of growth that we’ve seen. And the consumer is really responding to what we’re doing. We’re no longer a jeans and t-shirt business. We really have expanded into a lot of new categories. So this young millennial can now wear this brand from work to their weekend getaway. And that’s a great example, Matt, of where we’re seeing that extension of categories. We have in women’s, a pant franchise called Sloane. It’s all over TikTok. Women are loving that pant. We’re offering it many different fabrics and iterations.

Our dress business has become a real destination. We have a best dressed guest collection that continues to grow year-over-year. You know, she’s coming to us for those important wearing occasions now from all of her social things that she’s out and out owing to and the men’s business. You know, we got that back. So we started with women’s as a focus, and now we’ve gotten the men’s business moving again too. So our expectation, you asked the second part of your question is about Chase. This Abercrombie business is very traceable now with the supply chain where it is. We’ve got a very strong sourcing and supply team where they’re very agile. They work with the teams every week, respond to the business and can chase into what’s working.

Scott Lipesky: Yes. And on the supply chain, Matt, so happy with where we are at supply chain, kind of, start at the factories, to Fran’s point, we are able to chase. There’s capacity out there in the factories, which is nice for us to be able to run a lean inventory business. We need that capacity and be able to be a fast. Then when you think about transportation inbound, ocean sailings are better than they have been in years. Timing is better. Fulfillment rates are better. And then even when you get on the ground here in the U.S., there’s been some really good activity with a lot of the unions settling, whether it was rail, most recently with UPS, West Coast ports. So a lot of good news, but just equal stability hopefully in the supply chain. And if we have stability, that means we can chase. And that’s how we want to run the business. So very happy with where we sit today.

Matthew Boss: Congrats again. Best of luck.

Fran Horowitz: Thanks.

Operator: [Operator Instructions] The next question comes from Marni Shapiro with The Retail Tracker. Your line is open. Marni, your line is now open.

Marni Shapiro: Sorry for that. Good morning guys. Congrats on an amazing quarter. Stores look fantastic. It’s very exciting. Could you touch a little bit on the marketing side of the business? Because Fran, you touched on the Sloane pant on TikTok, you guys are everywhere these days. And it’s impressive. Could you talk a little bit about what that spend should look like for the back half of the year? And are you getting new and lap shoppers back to the brands? I’m curious of little insights there?

Fran Horowitz: Sure. Hey, good morning, Marni. Yes, so as far as marketing goes, you know, I’m really proud, I say this all the time, but we really our marketing team is really leading in their in, as you say, we are seeing us everywhere. So in Hollister, we’ve actually evolved our brand positioning very nicely and you’re seeing that in back-to-school much more focus on the product and a very genuine reflection of who he and she is today for that team consumer. And marketing for Abercrombie right now, it’s truly a machine. We’re getting a lot of, I mean, there’s a lot of customers out there that are speaking on our behalf, and that’s the best place to win today. The customer today, you know, really responds better to their friends and their other customers. And they do even to, you know, what we’re putting out there. So lots of exciting things coming up for the back half. I’ll let Scott speak to, new and lab shoppers.

Scott Lipesky: Yes. On the spend, I’ll start there, we’re thinking about the first-half, we were around flat year-over-year, that was up in Abercrombie down in Hollister. We pulled back a little bit on Hollister as we were working on the brand positioning, the brand expression, as well as the product. And then we’ll start to ramp up marketing in the back half for Hollister. We’ll continue to press on the gas there for Abercrombie. So we expect marketing in total to be up for the back half across the total company. And then the last piece, new and lap shoppers, yes, for Abercrombie, we talked a lot over the last call it year. As we’ve expanded this age group 22 to 40, let’s call it, that’s a very large addressable market. So we’re trying to reintroduce people to the brand.

They haven’t been there for a while. We’re also introducing new customers to the brand that have never shopped with us. So our teams to Fran’s point has done an amazing job finding consumers out there. TikTok has helped, obviously. And we’re going to do our share on the side by spending more here in the back half.

Marni Shapiro: Fantastic. Best of luck for the rest of the fall season, guys.

Fran Horowitz: Thanks, Marni.

Operator: [Operator Instructions] The next question comes from Mauricio Serna with UBS. Your line is open.

Mauricio Serna: Great, good morning. Thanks for taking the question and congratulations on the very strong results. Just wanted to see if you could share with us maybe, the sales growth, you know, pretty impressive this quarter. Could you maybe break it down and, you know, higher levels between AUR growth and units? And also wanted to confirm, for the store opening, I think you mentioned 35 new stores, and 30 closures. So like net, it’s just like a five increase. Could you maybe talk about, like, where, like that store opening that be more skewed towards Abercrombie or Hollister? Thank you.

Scott Lipesky: Yes, on the store side, we’ll be tilted a little bit more towards the Abercrombie side, specifically here in the U.S. We’ve been seeing great trends obviously in that brand for years now, and we’ll continue to press our bets there. On the closure side, it will be a little bit across brands, maybe a little bit tilted towards Hollister. So that’s where we said net openers again, and there’s also 20 remodels and right sizes in there. So while that’s not a new store, it’s a new expression for our consumer. So we like that also. So when you add those kind of remodels and right sizes and the openings, we’ve got about 55 new expressions coming for the consumer, and that’s awesome. On the sales growth side, we saw AUR growth and unit growth a little bit more tilted towards the AUR side in Hollister specifically, since we didn’t comp a lot of those promotions from last year.

Units were down a little bit, and that was purposeful and AUR was up. And then on Abercrombie, it’s both. It’s growing units and it’s growing AUR. So obviously really like what we’re seeing in the Abercrombie brand.

Mauricio Serna: Got it. And if I just may follow-up on the regional performance. Any commentary that you can provide on the EMEA, I mean, it’s back to growth, but still like relatively underperforming the other two regions, maybe across the market, what are you seeing? And do you expect that trend of U.S. delivering — sorry, Americas delivering the strongest results in the second half to continue?